The AAT has ruled that, for the purposes of working out whether a taxpayer satisfied the $6m maximum net asset value (MNAV) test, the “market value” of shares that he sold was not the actual selling price of the shares, even though the shares were sold in an arm’s length dealing.

Instead, the AAT accepted the taxpayer’s argument that because his shareholding only represented 1/3rd of all the shareholding in the company that was sold (together with the other 2 shareholders’ 1/3rd holdings), then the market value of his shares was their selling price discounted by some 16% to reflect the fact that he was a minority, non-controlling shareholder. In doing so, the AAT agreed with the valuer used by the taxpayer that the “average price per share of a controlling shareholding will be higher than the average price per share of a non-controlling shareholding because of the value of control”.

In short, the AAT found that the market value of the shares was to be determined by the established test of  “what willing but not anxious parties” would be prepared to buy and sell the shares for and that, in these circumstances, this was an amount less than the amount they were actually sold for. Accordingly, the AAT found that the taxpayer satisfied the MNAV test and could access the CGT small business concessions on the basis of the taxpayer’s valuation of the shares – whereas if the actual selling price was used he would not have passed the test.

(Re Miley and FCT; Devi and FCT [2016] AATA 73, AAT, File No 2013/6008, 2013/6009, Frost DP, 15 February 2016.)