Market valuation for tax purposes

Valuation of securities

What is a security?

The term 'security' is defined in a range of legislative and industry applications. For the purpose of this guide, we discuss a number of securities (but not all) that fall within the definition of 'security' in subsection 159GP(1) of the ITAA 1936, namely:

• stocks, bonds, debentures, certificates of entitlement, bills of exchange promissory notes or other securities
• deposits with banks or other financial institutions
• secured or unsecured loans, and
• any other contracts, whether or not in writing, under which a person is liable to pay an amount or amounts, whether or not the liability is secured.

The Financial Services Reform Act 2001 (FSR Act) defines the term 'security' (section 761A and Part 7.11) to mean:

• a share
• a debenture
• a legal or equitable right or interest in a share or debenture
• an option to acquire, by way of issue, any of the above securities, or
• a managed investment product.

Securities may be listed or unlisted and may be categorised generally into three types:

• equity
• debt, or
• hybrids.

Examples of equity securities include:

• ordinary shares, or
• preference shares (depending on structure).

Examples of hybrid securities include:

• some preference shares (depending on structure), or
• convertible notes (not covered in this guide).

Examples of debt securities include:

• discount securities
• bonds, or
• floating rate notes.

For the purpose of this section, we refer to ordinary shares, preference shares, floating rate notes and bonds in accordance with commonly accepted industry understanding, but applied within the context of Australian federal tax law.

Sections within Valuation of securities

• Valuation approaches
• Equity securities - ordinary shares
• Hybrid securities - preference shares
• Debt securities