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  • Transferring property to family or friends

    Check if you need to use the market value of your property when working out your CGT.

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    When to use market value

    If you sell, transfer or gift property to family or friends for less than it is worth, your capital gains tax (CGT) is based on the market value of the property.

    You use the market value of a property to calculate your CGT if both of the following are true:

    • what you received was more or less than the market value of the property
    • you and the new owner were not dealing with each other at arm's length.

    This is called the 'market value substitution' rule.

    You are dealing at 'arm’s length' with someone if each party acts independently.

    • Neither party exercises influence or control over the other in connection with the transaction.
    • We look at the relationship between the parties and the quality of the bargaining between them.

    If the property was your main residence, you can claim the main residence exemption from CGT.


    There are 2 exceptions to the market value substitution rule. If you transfer property to:

    Valuing your property

    You need to know the market value of the property at the time you disposed of it.

    Example: selling property for less than market value

    Antoine owned a rental property. The lease on the property was about to end.

    Antoine owed $120,000 on the mortgage. He offered to sell the property to his son for the balance owing on the mortgage. His son accepted the offer and purchased the property for $120,000.

    Antoine obtained a market valuation from a professional valuer. The market valuation showed the value of the property at the time of transfer was $450,000.

    When Antoine calculates his capital gain or loss, the $450,000 market value is his capital proceeds.

    End of example
    Last modified: 01 Jul 2022QC 66041