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Edited version of your private ruling
Authorisation Number: 1012051206125
This edited version of your ruling will be published in the public register of private binding rulings after 28 days from the issue date of the ruling. The attached private rulings fact sheet has more information.
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Ruling
Subject: Valuation - taxable Australian real property
Question 1
Is the value of $x in Valuation Report A accepted as 'the sum of the market values of the test entity's assets that were taxable Australian real property (TARP)' for the purposes of subsection 855-30(2) of the Income Tax Assessment Act 1997 (ITAA 1997)?
Answer
No
Question 2
Is the value of $y in Valuation Report B accepted as 'the sum of the market values of the test entity's assets that were TARP' for the purposes of subsection 855-30(2) of the ITAA 1997?
Answer
No
Question 3
Is the value of $z in Valuation Report C accepted as 'the sum of the market values of the test entity's assets that were TARP' for the purposes of subsection 855-30(2) of the ITAA 1997?
Answer
No
This ruling applies for the following periods:
Year ended 30 June 2011
The scheme commences on:
1 July 2010
Relevant facts and circumstances
The taxpayer is a non-resident of Australia for income tax purposes.
The taxpayer is a shareholder of an Australian company. The taxpayer had a membership interest in the Australian company which exceeded 10% at the relevant date.
On the relevant date, the taxpayer disposed of shares in the Australian company.
The applicant provided three valuation reports which attributed value to assets of the Australian company.
Relevant legislative provisions
Income Tax Assessment Act 1997 - section 855-30
Income Tax Assessment Act 1997 - subsection 855-30(2)
Income Tax Assessment Act 1997 - section 855-20
Reasons for decision
Summary
Your ruling application contained Valuation Reports A, B & C and asked us to confirm them. We engaged a professional valuer to undertake a review of the valuations. Following this review, we have decided that for the purposes of the principal asset test in section 855-30, the values are not accepted as 'the sum of the market values of the test entity's assets that were TARP on the relevant date.
Detailed reasoning
Question 1
A foreign resident can disregard a capital gain or capital loss made from a CGT event that happens in relation to a CGT asset that is not 'taxable Australian property' (section 855-10). The term 'taxable Australian property' is defined in the table in section 855-15 of the ITAA 1997 and covers five categories of assets, including indirect Australian real property interests.
Subsection 855-25(1) provides that a membership interest held by an entity (the holding entity) in another entity (the test entity) at a time is an indirect Australian real property interest at that time if the interest passes:
· the 'non-portfolio interest test' in section 960-195:
· at that time, or
· throughout a 12 month period that began no earlier than 24 months before that time and ended no later than that time; and
· the 'principal asset test' in section 855-30 at that time.
Regarding the principal asset test, subsection 855-30(2) states:
A membership interest held by an entity (the holding entity) in another entity (the test entity) passes the principal asset test if the sum of the *market values of the test entity's assets that are *taxable Australian real property exceeds the sum of the *market values of its assets that are not taxable Australian real property.
Section 855-20 states that a CGT asset is taxable Australian real property (TARP) if it is:
· real property situated in Australia (including a lease of land, if the land is situated in Australia); or
· a *mining, quarrying or prospecting right (to the extent that the right is not real property), if the minerals, *petroleum or quarry materials are situated in Australia.
For the purposes of determining whether the taxpayer's (the holding entity) interest in the Australian company (the test entity) passed the principal asset test as at the relevant date, the taxpayer has obtained valuations of various assets of the Australian company.
We engaged a professional valuer to undertake a review of Valuation Report A. Following this review, we have decided that for the purposes of the principal asset test in section 855-30, the value of $x is not accepted as 'the sum of the market values of the Australian company's assets that were TARP on the relevant date.
If you decide that you want a private ruling on an acceptable valuation, you will need to:
· submit a new valuation for review, or
· ask us to provide you with a valuation.
These options are outlined in our Fact sheet titled Private rulings and valuations (NAT 71796-09.2008).
Question 2
For the purposes of determining whether the taxpayer's (the holding entity) interest in the Australian company (the test entity) passed the principal asset test as at the relevant date, the taxpayer has also obtained Valuation Report B.
We engaged a professional valuer to undertake a review of Valuation Report B. Following this review, we have decided that for the purposes of the principal asset test in section 855-30, the value of $y is not accepted as 'the sum of the market values of the Australian company's assets that were TARP on the relevant date.
If you decide that you want a private ruling on an acceptable valuation, you will need to:
· submit a new valuation for review, or
· ask us to provide you with a valuation.
These options are outlined in our Fact sheet titled Private rulings and valuations (NAT 71796-09.2008).
Question 3
For the purposes of determining whether the taxpayer's (the holding entity) interest in the Australian company (the test entity) passed the principal asset test as at the relevant date, the taxpayer has also obtained Valuation Report C.
We engaged a professional valuer to undertake a review of Valuation Report C. Following this review, we have decided that for the purposes of the principal asset test in section 855-30, the value of $z is not accepted as 'the sum of the market values of the Australian company's assets that were TARP on the relevant date.
If you decide that you want a private ruling on an acceptable valuation, you will need to:
· submit a new valuation for review, or
· ask us to provide you with a valuation.
These options are outlined in our Fact sheet titled Private rulings and valuations (NAT 71796-09.2008).