Source: The Tax Specialist Journal Article
Published Date: 1 Apr 2016
At the centre of many tax controversies are valuation issues. These cases typically involve either new valuation issues or require a re evaluation of conventional, but not necessarily correct, approaches to existing valuation issues. In assessing the market value of the total assets of a small company using the discounted cash flow (DCF) valuation method, many practitioners routinely add a small company risk premium to the cost of equity derived using the capital asset pricing model to arrive at the discount rate adopted under the DCF valuation method.
This article examines the potential pitfalls of this practice: failure to recognise the true subject of valuation, incorrect triangulation of empirical evidence from the US markets to the Australian market, and double-counting for risk. The article also explains why this common practice is problematic and why the recognition and avoidance of this unsound practice is important in achieving a credible valuation outcome for tax and duty purposes.
Assessing market value ratios for roll-over relief provision - Journal 01 Nov 2019
The Placer case (2018) from a valuation perspective - Journal 01 Jul 2019
Valuation of contract intangibles for tax and duty purposes - Journal 01 Oct 2016
Value allocation: Upstream and downstream segments - Journal 01 Aug 2016
Why the restoration method is flawed - Journal 01 Feb 2016
Common errors in applying the market value concept - Journal 01 Jul 2015
Pitfalls in the valuation of specialised in situ fixed assets for tax and duty purposes - Journal 01 Jun 2015
A re-evaluation of the marriage value concept and its tax implications - Journal 01 Apr 2014
Traps in valuations for tax purposes - Journal 01 Oct 2013
Sorry, this is subscriber only content.
To gain access to this material and much more - Subscribe Now.
(Note: Members can access Taxation in Australia journal articles without a Tax Knowledge Exchange subscription - please log in to access).
Already a Subscriber? Login now
The material is copyright. Apart any fair dealing for the purpose of private study, research criticism or review, as permitted under the copyright Act, no part may be reproduced by any process without written permission from The Tax Institute.
Unless expressly stated, opinions are not that of The Tax Institute, which accepts no responsibility for the accuracy of any of the information contained within it.
The Tax Institute
(ABN 45 008 392 372 (PRV14016))
The Tax Institute is a Recognised Tax Agent Association (RTAA) under the Tax Agent Services Regulations 2009.
All materials provided on this site are protected by copyright and are owned by or licensed to TTI.
Except as expressly permitted by TTI or the copyright owner, any person or company who uses this site must not use, reproduce, redistribute, retransmit, publish or otherwise transfer, or commercially exploit, the materials or any information, software or other content, in whole or in part, which is available through this site.