Safe harbours could provide a fairer valuations system than current legislation, while achieving the intended outcomes, the Inspector-General of Taxation (IGT) believes.
The IGT backed the introduction of safe harbours, which are used as substitutes for calculation of market-base values, to minimise costs for both the taxpayer and the Australian Taxation Office (ATO).
The development of safe harbours was one of nine recommendations made to the ATO in the IGT's report on the ATO's administration of valuation matters, released yesterday.
"The IGT has made certain recommendations for the Government's consideration," the report said.
"These recommendations include requiring valuations only where it has the ‘highest net benefit', providing shortcuts or safe harbours as an alternative to conducting fresh and full valuations and tapering the eligibility criteria for tax concessions.
"The above are bolstered by further recommendations to the ATO to develop administrative safe harbours as well as providing additional tools to assist small businesses determine their eligibility for CGT concessions through the maximum net asset value test.
"The ATO's processes for identifying valuation risks and engaging valuation expertise was also identified as an area requiring improvement, particularly given the Australian Valuation Office's closure. As a result, the IGT has made several recommendations aimed at promoting a more transparent and proportionate approach to testing and challenging taxpayer valuations. Specifically, the IGT has recommended that the ATO:
- risk assess taxpayers' instructions to valuers during pre-lodgement processes;
- develop a preliminary risk assessment process as a less costly and less formal alternative to a valuation critique;
- use legal and valuation expertise to assist in issue identification, information gathering and instructing valuers as well as staff training;
- revise its standard template for instructing valuers;
- allow taxpayers to access the ATO's instructions to its valuers; and
- only use publically available information or information that can be disclosed to the taxpayer in arriving at its market valuations.
"The IGT has also recommended that the ATO improve and promote the Market Valuation Private Ruling system, which can offer taxpayers with greater certainty, as well as provide more detailed guidance on the application of valuation related penalties."