Clients may face challenges with a decline in the thin cap threshold from 75 percent to 60 percent of adjusted Australian assets (from 3:1 to 1.5:1 debt to equity) but we may be able to assist in partially offsetting the negative impact by reassessing and revaluing their tangible assets.
The potential for an uplift from a revaluation is likely to be higher if the business:
- conducts capital intensive activity
- is an established business
The revaluation opportunity exists due to:
- the Australian Taxation Office (ATO) lives suggested in the taxation ruling for 'Income tax: effective life of depreciating assets' not appropriately reflecting the technical/economic lives of the assets
- regular maintenance and upgrades extending the life of the asset beyond its expected life when first installed
There are different factors influencing an asset’s life, with its ultimate length dependant on:
- mechanical efficiency
- technological potential
- commercial adequacy of the product
Weighting these factors will result in a more realistic and reliable representation of the assets’ lives than the typical tax classes applying adequate technical/economic lives may create 'value' for your business clients.
For more information please speak to a Tangible Asset valuer within KPMG’s valuations team.