Date posted: 11/09/2019 2 min read

Changes in tax law – does fair value still matter?

The Federal government is requiring entities to align the value of their assets for thin capitalisation purposes with financial statement value.

In brief

  • Asset valuation for thin capitalisation are changing
  • Fair value will now have to be used
  • This change presents a number of practical challenges

A key measure of the 2018-19 Federal Budget was tightening Australia’s thin capitalisation regime by requiring entities to align the value of their assets for thin capitalisation purposes with the value included in their financial statements. This had never been previously required. After much ado, lapsed Parliamentary changes and a shock election result, the proposed changes are still expected to come into effect for income tax years commencing on or after 1 June 2019.

The changes matter because they overturn a long-standing legislative concession that enables entities to use a different valuation methodology for their assets for thin capitalisation purposes to the value reflected in their financial statements.

In this article, John Ratna, CA, Partner, PwC, Jayde Thompson, Partner, PwC, Jonathan Fraser, Director, PwC, Cyra Sharma, CA, Manager, PwC discuss the practical challenges of this change.

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