Market Value Definition for Tax Purposes

The Guide notes that the definition of “market value” in the income tax legislation does not provide a meaning to be applied in all contexts. Unless market value is specially defined or qualified in a particular provision, it has its ordinary meaning – the principles in case law and the International Valuation Standards Council (IVSC) are “principally relevant”.

If taxpayers want advice tailored to a particular set of facts to provide more certainty, they can apply for a private ruling on an asset’s market value providing it is relevant to a question about the tax law. However, the ATO cannot provide a private ruling to determine or confirm the appropriateness of a valuation methodology or the market value applicable for a future event. Determining market value can be a complex area. Our business accountants in Melbourne have provided the following information to help you become better informed.

Who Can Determine Market Value?

For tax purposes, the acceptability of a valuation usually depends on the valuation process undertaken rather than who conducted it. However, there are some exceptions. For example, only a professional valuer may undertake a market valuation for GST margin scheme purposes, and only an “approved valuer” may undertake a market valuation for the Cultural Gifts Program.

Valuation Fundamentals

The Guide states that a valuation should be specific to the tax and superannuation provision that it is being applied to and consider any requirements of the relevant provisions, having considered case law and relevant ATO guidance. The Guide sets out in some detail the information that the ATO expects to be in a report for tax purposes.

The process of valuation requires the valuer to make impartial judgments as to the reliability of inputs and assumptions. For a valuation to be credible, it is important that those judgments are made in a way that promote transparency (e.g. stating the inputs and any assumptions made) and minimise the influence of any subjective factors on the process.

The valuer should adopt the most relevant and appropriate valuation methodology based on industry standards and practice. The ATO recommends that (where possible) a secondary or cross-check methodology should be applied to provide additional support for an estimated value from the primary methodology.

The valuer should assemble and record evidence by means such as inspection (as required), enquiry, computation and analysis to ensure that the valuation is properly supported.

Want to Find Out More?

Talk to our accountants in Melbourne today if you need assistance in understanding the ATO’s general expectations on market valuation for tax purposes. We can also assist you with a range of other services, including CFO services and bookkeeping services in Melbourne.