(1) The
"unencumbered value" of property is the value of the property determined
without regard to—
(a) any encumbrance to which the property is subject,
whether contingently or otherwise; or
(b) any arrangement—
(i) the parties
to which are not dealing with each other at arm’s length; and
(ii) that
results in the reduction of the value of the property; or
(c) any arrangement
for which a significant purpose of any party to the arrangement was, in the
commissioner’s opinion, the reduction of the value of the property.
Example
for paragraph (c)—
A owns land that B wishes to purchase. The land is
valued at $1m. Before the purchase, A grants B a 50 year lease of the land. B
is not required to pay any rent under the lease. A and B then enter into an
agreement to transfer the land for $50,000, being the value of A’s interest
in the land taking into account that it is subject to the lease to B.
The unencumbered value of the land is determined without regard to the grant
of the lease if the commissioner is of the opinion there is an arrangement
under which A or B’s significant purpose in entering into it was to reduce
the value of the land.
(2) Also, the
"unencumbered value" of property held on trust or by a partnership must be
determined without regard to the liabilities of the trust or partnership,
including for a trust, the liability to indemnify the trustee.
(3) The
"unencumbered value" of property that is the goodwill of a business includes
the value of any restraint of trade arrangement entered into by the transferor
or a related person of the transferor to protect the value of the goodwill
acquired by the transferee.
(4) If, before a dutiable transaction mentioned
in section 9(1) (a) , (b) or (d) for which the dutiable property is land,
improvements are made to the land at the transferee’s expense, the
unencumbered value of the land must be determined as if the improvements had
not been made.
Note—
For provisions about the aggregate minimum value of
the shares comprising all of the issued capital of a corporation or society
and the unencumbered value of each of the shares, see section 504.
