While the new rules for trusts and companies have largely replaced methods of valuing shares, an acceptable method is still required where:
A share in a private company or unlisted public company [2] is an assessable asset and needs to be valued for assets test purposes. The assets owned by the company, however, are not the property of the shareholder and therefore are not assessed as an asset of the person.
More ? [3]
There are three accepted methods of valuing shares in private companies or unlisted public companies:
A market exists where there is:
Generally, it will be rare for an effective market to exist for private companies or large unlisted public companies. However, such markets have operated:
The person should provide the necessary evidence that a market exists for a particular company's shares.
Where no market exists private company and unlisted public company shares are valued by calculating the 'net asset backing' per share if they carry rights to participation in capital distributions, as shown in the company's Articles of Association or Company Constitution. The net asset backing method [2] of valuation of shares in a private company is used because it provides a consistent basis for assessment of the value of all private companies. It is also less complex than other methods to administer. The company's Articles of Association outline the special rights or restrictions attached to a particular class of shares issued by the company.
Exception: If the shares do not carry rights to participate in capital distribution, or in certain other cases, other methods of valuing the shares are used (see additional instructions below).
The net asset backing method of valuation of shares in private companies and unlisted public companies calculates the:
This calculation is based on information contained in the company balance sheet and depreciation schedule. Because the balance sheet of a company records the value of fixed assets at their historical cost, adjustments may be needed to reflect the current market value of these assets.
When the adjusted net asset position of a company has been determined:
This calculation is based on information contained in the company balance sheet and depreciation schedule.
Alternative methods include (but are not limited to):
The method should be based on the circumstances of each case.
Deprivation provisions apply if the person influenced a private company's action to:
A person's influence should be assumed as a matter of course if the person, and/or their partner:
If a company is in receivership, the assessable asset value of the shares owned, or loans owed, should continue to be assessed as though the company were still managed by the directors.
If a company is in liquidation, assets to be maintained should be assessed on the basis of the projected payout to be provided by the liquidator. If a person advises that they have forgone repayment of a loan, or voluntarily agreed to receive a repayment of a lesser proportion of their loan than other unsecured creditors, deprivation provisions may apply. However, consideration should also be given to the circumstances in which a loan no longer exists for income support purposes.
Company has the same meaning as in the Income Tax Assessment Act 1997.
The net asset backing method provides the least complex and consistent basis for assessing the value of private companies. The method values the shares in a private company by calculating the:
The calculation is based upon information in the company balance sheet and depreciation schedule taking into consideration the current market value rather than the historical value as may appear in the balance sheet.
The market value of an asset [2] is the point at which a willing purchaser and a willing, but not anxious vendor, would reach agreement.
The market value of an asset is only decreased by the value of an encumbrance secured against it. The market value of an asset is not reduced by any costs which may be incurred if the asset was to be sold.
Company has the same meaning as in the Income Tax Assessment Act 1997.
Control includes control as a result of, or by means of, trusts, agreements, arrangements, understandings and practices, whether or not having legal or equitable force and whether or not based on legal or equitable rights.
Links
[1] https://clik.dva.gov.au/user/login?destination=node/16391%23comment-form
[2] https://clik.dva.gov.au/%23
[3] https://clik.dva.gov.au/book/export/html/16391#tgt-cspol_part10_ftn387
[4] https://clik.dva.gov.au/compensation-and-support-policy-library/part-9-principles-determining-pension-rate/91-income-and-assets-test-principles/913-income-and-assets-tests
[5] https://clik.dva.gov.au/book/export/html/16391#ref-cspol_part10_ftn387