The General Value Shifting regime (GVSR) comes into force on 1 July 2002.

Most value shifts happen when dealing or transaction between two parties are not at market value and result in the value of one asset decreasing and at the same time value another asset is increasing.

Value shifting distorts the relationship between an assets market value and tax value. This can create false or misleading losses and deferred gains.

Some areas where GVSR does not apply to:

• Small value shifts.
• Normal commercial dealing conducted at market value and
• Dealing s with consolidated groups.

Where the GVSR followed, taxpayers must adjust the tax values of interest affected by value shift, or adjust a realized loss or gain. In some cases there may be an immediate capital gain.

The current value shifting provisions are dealing in Divisions 723, 725, &727 of the Income Tax Assessment Act 1997 and whichare wider than previous rules. They apply to:

• Shares or other interests in companies.
• Units or other interests in trusts.
• Loan interests in companies and trusts , and
• Interests held as trading stock and on a revenue account

The GVSR applies to those value shifts that happens from 1 July 2002. In some cases, the GVSR may apply for those transaction or arrangements consequence in a value shift which was entered into from 27 June 2002.

There are three scenarios are targeted under the GVSR. Executions apply to small values in each of scenarios, as follows:

• Indirect value shifting :exclusion applies if total shifts under a scheme are less than $15000.
• Direct value shifting on interests: exclusion applies if total value shifted is equal to or less than $50000.
• Direct value shifts by creating rights: exclusion applies if the market value of the right granted exceeds the process for the grant by $50000.

Scenario 1

Do taxpayers have interest in an organisation whose dealing (such providing loan or other services, or transferring assets) with another organisation are neither at market value nor arm’s length? And
Is the difference in value of what is provided and received more than $50000?
If taxpayers answered yes to both question the rules for indirect value shifting may affect them.

Scenario 2

Do taxpayers have interest in a company or trust in which equity or loan interest have been issued or bought back at other market value, or varied such that value of some interest have increased while others have decreased? And
Did the interest that decreased in value do so by a total of at least $150000?
If taxpayers answered yes to above questions the rules for direct value shifts may affect them.

Scenario 3

Have taxpayers had made loss on:

• A non-depreciable assets over which a right ( such as lease) was granted to an associate of yours for less than market value ,or
• An asset (including a share or trust interest) that was acquired under a CGT rollover as a replacement for such an asset? And
  Did the right decrease the value of the asset by more than $50000?
  If taxpayers answered yes to above question the rules for direct value shifts by creating rights may affect them.

For more information on General Value Shifting from ATO Website by clicking here.