What is “market value” for the purpose of the MNAV test

In Commissioner of Taxation v Miley, the Federal Court overturned a decision of the Administrative Appeals Tribunal (AAT) concerning the method for valuing shares in applying the maximum net asset value (MNAV) test in s 152-15 of the Income Tax Assessment Act 1997.

The AAT held that the consideration paid by the purchaser for all the shares in the relevant company was more than what a hypothetical “willing but not anxious purchaser” would have paid if it had purchased the taxpayer’s 1/3rd shareholding alone. The AAT found there was a “special circumstance”, as referred to by the High Court in Pioneer Concrete, and therefore, a discount to the value of the taxpayer’s 1/3rd shares should apply, resulting in the taxpayer’s net assets not the exceeding $6 million MNAV threshold.

A previous article on the AAT decision is found here.

The Federal Court held that the AAT erred in considering that the market value of the taxpayer’s shares was not the sales proceeds received for them ($5.9 million), but the consideration received discounted for “lack of control” that a purchaser of the taxpayer’s shares in isolation would attain. According to the Federal Court, the fact that there was a ready and willing purchaser for all the shares in the relevant company was not a “special circumstance”, but a reality of the market.

We will report in greater detail on the implications of the Federal Court decision in a future article.

For further information or advice, please contact:

Rod Payne
Principal
T: 03 5226 8541
E: rpayne@ha.legal

Dianne Sisak Penjalov
Senior Associate
T: 03 5226 8582
E: diannes@ha.legal