A superannuation lawyer has suggested practitioners may be able to draw upon decisions handed down in previous legal actions in order to lower the potential Division 296 tax liability their clients may be facing.
Specifically, DBA Lawyers special counsel Bryce Figot noted advisers and accountants could potentially achieve a better outcome on the valuation of assets that will determine the degree of a tax liability under the proposed measure.
Figot cited the events involved in the case of Syttadel and FCT [2011] AATA 589 as an example of what practitioners could consider doing when faced with a large Division 296 tax expense.
In this case, an asset valuation based on the item’s sale value was successfully challenged. The situation involved the sale of a marina acquired in 1996 for $1.6 million and sold in 2006 for $8.9 million.
The taxpayer wanted to access the capital gains tax small business concession and for that reason requested an ATO private ruling on the market value of the asset with the aim of having the marina assigned a value between $4 million and $4.5 million. However, the ATO determined the sale price of $8.9 million was the correct commercial value of the asset.
Syttadel then took his case to the Administrative Appeals Tribunal (AAT) and that body, using the decision from Spencer v The Commonwealth [1907] HCA 82, handed down a more favourable outcome.
“[The AAT determined] just because you had sold [the marina], even to an arm’s-length party, does not necessarily mean [the selling price] is the market value. They can be different,” Figot told delegates at the SMSF Association Technical Summit 2025 held in Sydney recently.
“[For example], I can imagine an arm’s-length party who pays over the odds [for an asset].”
Further, the taxpayer obtained a separate valuation from a professional service provider that determined the market value of the marina was $3.875 million, but the AAT did not accept this outcome.
However, after this appeal process had concluded, the ATO changed its mind about the valuation based on the consideration generated upon the sale of the marina and conceded the asset was actually worth $5.3 million.
“That’s very different to when [the taxpayer] asked for a private [binding] ruling and the ATO said [the asset was worth] $8.9 million,” Figot pointed out.
Applying the scenario to a Division 296 situation, he noted a difference in valuing an asset at $5.3 million instead of $8.9 million could result in a superannuant facing a tax liability of around $150,000 rather than one of approximately $587,000.
As such, he felt the Syttadel case makes challenging the valuation of an asset a serious consideration if a super fund member perceives the original amount is not a true and accurate representation of the item in question because it is too high.
“Obviously this is not going to be applicable to everyone. In fact, it might only be applicable for one client in your client base, but what an interesting matter to run with,” he said.
“Now, is it worthwhile taking [such] a matter to the ART (Administrative Review Tribunal) [like that]? Maybe if [$437,000] of tax turns upon it.”
