General value shifting regime – who it affects
Most value shifts happen when dealings or transactions between two parties are not at market value and result in the value of one asset decreasing and (usually) another asset increasing.
Value shifts distort the relationship between an asset's market value and tax value. This can create artificial losses and deferred gains.
There are exclusions to minimise the impact on small business.
Generally, the GVSR does not apply to:
- small value shifts
- normal commercial dealings conducted at market value
- dealings within consolidated groups.
Where the GVSR applies, you may need to adjust the tax values of interests affected by the value shift, or adjust a realised loss or gain. In some cases there may be an immediate capital gain.
Adjustments are made for revenue assets and trading stock, and for assets held on capital account.
The current value shifting provisions in Divisions 723, 725 and 727 of the Income Tax Assessment Act 1997 are more extensive than the previous rules. They apply to:
- shares or other interests in companies
- units or other interests in trusts
- loan interests in companies and trusts
- interests held as trading stock and on revenue account.
However, the GVSR has a range of exclusions and safe harbours to ensure it applies only to significant value shifts.
Changes to value shifting provisions
Value shifting rules have been included in tax law since the mid-1990s – most recently in Divisions 138, 139 and 140 of the Income Tax Assessment Act 1997. These divisions ceased on 1 July 2002 (but continue to apply to arrangements operating prior to 1 July 2002).
Application and avoidance
There is no need for a finding of a tax avoidance motive for the GVSR provisions to apply. In addition, the 'de minimis' exclusions (such as the minimum value shift amounts required to trigger the provisions) may not apply where it is reasonable to conclude that value shifts happen under more than one scheme for the purpose of accessing those exclusions.
It is also possible for anti-avoidance provisions (such as Part IVA of the Income Tax Assessment Act 1936) to apply to a value shift where the GVSR is not applicable.