Market value is the estimated monetary worth of an asset on the open market at a particular time. It is based on:
- the most valuable use of the asset (which may be different to how it is currently used)
- the amount that a willing buyer and seller would agree to in an arm's length transaction.
The market value definition for tax purposes may vary for particular provisions of tax law and types of asset.
Taxpayers may need a market valuation for many purposes, including:
- individual taxpayers transferring property or shares between related parties, such as family members
- employees receiving shares or options under an employee share scheme
- small businesses meeting the asset threshold tests for capital gains tax concessions
- property developers applying the GST margin scheme
- businesses that consolidate for income tax purposes.
A valuation must be objective and supported with appropriate evidence.
Valuations undertaken by professional valuers are more credible than those provided by someone who is not a professional valuer.
When you engage a valuer, you must provide them with clear instructions and accurate information.
You should be able to demonstrate that you have:
- set out the scope and purpose of the valuation
- acknowledged the valuer's independence to draw conclusions and write their report
- recognised that the valuer can refuse to provide an opinion or report if you do not provide the information and explanations they need
- granted the necessary access to your premises and records
- provided all necessary help to complete the report
- stated that any fee is not dependent on the report's outcome.
Instructions to valuers are usually documented in a written request or letter of engagement.
Generally, if you engage and properly instruct a professional valuer, you will not be liable for penalties if we find that professional valuation is deficient.
You need to keep a market valuation report or other records that:
- show the valuation is objective, accurate and supported by evidence
- include all the required information we expect a valuation report to cover.
If we later review your tax affairs, you will need these records to support the valuation.
The Market valuation for tax purposes guide is available on our legal database for taxpayers and their advisers (including valuers) who need to value an asset for tax purposes. It explains:
- the principles and processes for establishing a market value for tax purposes
- our expectations
- the most common valuations for tax purposes.