Valuation Of Estates’ Shares Argued

Press, Volume CI, Issue 29872, 12 July 1962, Page 13

Valuation Of Estates’ Shares Argued

(N-Z. Press Association)

WELLINGTON, July 11. The Supreme Court, by way of a case stated, was today asked to determine whether the Commissioner of Inland Revenue had adopted a correct method of assessing share values in relation to death and stamp duties.

Trie appellants were the t Public Trustee aa executor of the wil lot Samuel Joel Hade, kale of Rotorua, and Grace Alethta Ngawai Hedrick. married, of Wanganui. Sir Wilfrid Sim, Q.C., w.h him Mr J. B. Stevenson, appeared for flhe appellant*, and the Solicitor-General (Mr H R. C Wild) with him Mr E. C. R. Winkel. appeared for tie Commissioner of Inland Revenue. The Chief Justice, Sir Hvrold Barrowckugh, presided. In hs submissions Sir W;l--fr,i Sim said the appeals wtre in the nature of a teat cese and had excited cons derable interest in profes- - mol circles in New ZeeLnd and Australia. The appeal in respect of Hale related to death duties, rnd that at Hatrick to stamp duties. The cases were together before the Court because they involved almost the same question in regard to the valuation of shares.

I A salient fact was that the companies in the case stated were private companies. What wag of importance was tile weight to be given to bajOßtkxi liability falling upon the assets oi the companies comprising undistributed income. The commissioner's valuation bed been based on a notional liquidation of the companies. The comm isstoner. in assessing the vrzue of the shares for estate duty, took into consideration liquidation expenses and company taxes, but had allowed nothing in respect of the dividend tax falling upon the shareholder in respect of undistributed pre fits. Dividend Tax The appellant in the case of Hale had objected to the assessment on the grounds that the Commissioner, in valuing the shares, had taken no account of the provisions of the Land and Income Tax Act whereby dividends were deemed to be included in the assessable income of any person for the purpose of the act unless such dividends were exempted by a section of the act. An accountancy witness in a written stotement would give the basis of the taxation calculation which the appellant submitted should be taken into account. The Commissioner had adopted an assets valuation simpliciter unqualified in any way and had excluded the element of potential tax liability in his calculations. It was submitted the Commissioner had no prima facie rule in his favour which laid any presumption that his valuation was correct. The appellant would contend that, in valuing his shares, the proper method of inquiry would relate to the figures which would be arrived at in negotiations between a willing but not anxious seller and a willing but not eager purchaser. "The search is for the willing purchaser-selling vendor figure, and the whole object of the inquiry into a fair valuation,” said Sir Wilfrid Sim. "The Commissioner in the present case, in our view, disregarded it completely.” It was submitted that every fact or circumstance which would influence the mind of a vendor or purchaser of shares should be taken into account in assessing the value of the shares. One factor was the existence of actual or potential tax liability in connexion with undistributed profits of the company. It was contended the Commissioner was in error in taking the assets realisation basis alone as the basis of valuation. Assuming such basis taken alone was correct in the circumstances, the commissioner had not applied it correctly in that he had disregarded dividend tax which would fall on shareholders on any divi-

dend from accumulated profits of the company. Submitting that the Commissioner placed reliance on what might be called an academic valuation of assets value. Sir Wilfrid Sim said one of the purposes of the case was to bring the Commissioner “a little more into the market place.” The average investor in shares was alert to taxation issues.

The evidence would include expressions of opinion by leading accountants in Australia and others supporting the view which the appellant put before the Court that tax liability should be taken into account. Tax liability suspended over income was a common conception in everyday business in calculating the value of an asset.

"We are saying potential tax liability if circumstances arose where there is no liquidation is also to be taken into account in this case because the notional purchaser (of shares) would have a good look at it before he decided to purchase. "Share-broking evidence will say that a sharebroker feels it his duty to advise a vendor, and the vendor would take it into account that he had got this liability and could not ask more than so and so (for the Shares) and it would be a factor in his calculations, too.”

The hearing will continue tomorrow.