Goodwill and Taxing Scotch Mist

Goodwill is often the most valuable asset in small business, it is specifically included by s 108-5 of the ITAA 97 in the property subject to CGT, and state governments have long recognised it as part of the (stamp) duty tax base.

Michael Walpole, CTA

Whereas the Costello era tax reform took much income tax heat out of dealing with goodwill by extending the CGT discount to all small business assets, and the High Court’s 1998 Murray decision gave more clarity at an income tax level, goodwill remains critically important in the tax bases of the Commonwealth and of the states, and many problems of interpretation and application remain.

At the 51st Western Australia State Convention in August, Prof. Michael Walpole, CTA, (University of NSW) looks at the issues in his session ‘Goodwill and Taxing Scotch Mist’.

We spoke to Michael about what to expect from his session.

Michael said “I’m planning on providing a practical commentary on the relationship between goodwill and the business, and reviewing the question of what goodwill in a business actually is - is there a difference between law and tax on the meaning of goodwill – which one prevails? Where does goodwill end and the sources of goodwill start? What are the implications of this for valuation and how does goodwill valuation interface with the (stamp) duty rules?”

Michael’s session will review, from a practical standpoint, the current state of play in terms of the relationship between goodwill and the business.

He will address a number of critical questions, including what is goodwill for tax law purposes? Does this differ from/overlap with the accounting concept? Where does the goodwill end and its sources begin for the purposes of valuation? What happens to the value of goodwill at the interface with the duty rules applicable to dealings involving “land rich” entities? What does the decision in Placer Dome Inc v CSR (WA) mean when it comes to sales of shares in designated landholders?
“Ultimately, I hope delegates leave with an understanding of what is goodwill for tax especially in state taxation and ideas for allocation of value, and an awareness of some of the blind spots, including the allocation of value between goodwill and other assets” he said.

Prof. Michael Walpole CTA, PhD, is Head of the School of Taxation and Business Law (including Atax) at UNSW Business School. Prior to academic life, Michael was variously a Tax Consultant with Ernst & Young, and was in private practice as a legal practitioner. He has authored and co-authored several books, including Proposals for the Reform of the Taxation of Goodwill, Understanding Taxation Law, and Compliance Cost Control. He is the editor of the Australian Tax Forum and is an International Research Fellow at the Oxford University Centre for Business Tax in the Said Business School, University of Oxford. He has been a visiting Professor at the OECD’s Centre for Tax Policy and Administration and remains involved in its work on GST/VAT.

The paper Michael presented is now available for purchase on our website.


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