Evidence of value for related party transaction (for OSR and ATO)

[brendio]

Following on from previous discussions in my development thread and my thread about the trade off between stamp duty and CGT/income tax, we are selling our property to a related party trust that will subdivide the land.

I just posted in my development thread:

The valuation came in a little lower than we were hoping. He worked backwards from the gross realisation of the subdivided lots and worked from my feasibility numbers to come up with an as-is valuation. In his working, he subtracted around $50k for holding costs on the purchase price. However, the terms of our contract with our trust do not require payment until two years after settlement. I will check with my brother and with our solicitor whether they think we can add this amount on to the purchase price for the trust, since it will not be an expense for them. As you will recall, a higher price for the purchase of the land by the trust means more stamp duty but less income tax for us, so is preferable, but we need to be able to justify the price as being commercially reasonable.

To recap, we obtained a valuation to support the price that we will sell the property to our trust, in case of any inquiries from the ATO or the OSR. The valuation used a feasibility analysis methodology, which took into account holding costs on the land to the developer of around $50k.

My question is, if we use a value $50k higher than that of the valuation for the purchase by the trust on terms that do not require payment of the settlement sum until 2 years after settlement, would this pass mustard with the ATO and the OSR? The ATO could try to argue that we are inflating the price to avoid tax, but contract prices are determined by the terms of the contract. Thoughts?

 

[marg4000]

Best place to check would be the ATO and the OSR to ensure you comply with their requirements. They may require an independent valuer.
Marg