Registered valuation or capital value?

Question from Schalk updated on 10th December 2010:

We stayed in a house for 2.5 years and then decided to rent it. We bought another house and sold the first house to our LAQC. The value was market related $467,000. An accountant mentioned to me that it would be best for my tax claim to be based on the council valuation of $440,000 instead of the true sales price because he feels that we are claiming too much interest due to our sale price. I feel that is unfair as my sales price was realistic. I would appreciate your opinion on this.

Our expert Mark Withers responded:

That does sound like an unusual position for your accountant to have taken. The act requires transactions between related parties to be undertaken at market value. The best measure of this is a registered valuation done by a registered valuer. The tax administration act actually places restrictions on the IRD's ability to challenge a tax position if it has been taken on the basis of a registered valuers report.

You say that the value was market related but you don't actually say whether you determined it with a registered valuation report? I guess that if you don't actually have proof of the market value the accountant may be simply taking a conservative approach to the extent your interest costs are deductible. If you do have a registered valuation to prove the transfer price I'd insist the accountant uses it.

Mark Withers and his team at Withers Tsang & Co specialise in advising on property related transactions, valuation and restructure services and tax planning.


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