What is market value for CGT purposes?

What market value means for CGT

Tax law uses the term market value in many places but gives it no single fixed meaning. The ATO's guidance points mainly to case law, starting with the High Court's 1907 decision in Spencer v Commonwealth, and to international valuation standards.

The idea is a hypothetical sale. Picture a seller who is willing but not anxious to sell, and a buyer who is willing but not anxious to buy. Both know the relevant facts about the asset, neither is forced to deal, and they agree a price at a set date. That price is the market value.

No real buyer needs to exist. The test looks at the asset as it actually stood at the date: its earnings, its contracts, its risks and the state of its records.

Figures that are not market value on their own

Most owners already have a number in mind. Many can be useful evidence, but none is market value by itself.

Which asset, at which date

Market value attaches to the CGT asset you actually own. If you hold shares in a company, the asset is your shares, not the business the company runs. Units in a unit trust are valued as units. A partner holds an interest in each partnership asset. A part holding is not always worth a simple fraction of the whole business, because its value depends on the rights it carries.

The date matters just as much. Under the 2027 changes, Australian resident individuals and trusts with at least one eligible beneficiary are treated as selling and buying back the CGT assets they hold through 30 June 2027 at their market value just before 1 July 2027, unless they choose an apportioning method, once one is made. In practice that means a valuation as at 30 June 2027. Companies are not covered by that rule, although a separate rule for assets acquired before 20 September 1985 can apply to any owner.

Other CGT rules use market value too, for example when an asset is given away or changes hands other than at arm's length, and in the maximum net asset value test for the small business CGT concessions. Your tax adviser decides which rules apply to you.

How a valuer arrives at the figure

The ATO's guidance looks for a valuer with suitable knowledge and experience who stays objective, a recognised valuation method, and credible evidence that another valuer could follow and test. The ATO may review a valuation, and the taxpayer remains responsible for the figure used.

• Financial statements and tax returns up to the valuation date
• Adjustments for one-off or non-commercial items, so earnings reflect what a buyer would expect
• The risks a buyer would weigh, such as reliance on the owner or on a few customers
• A method suited to the business, checked against another approach where the evidence allows

At Independent Business Valuation, a suitably qualified business valuer at Valuo reaches one reasoned figure as at the agreed date and explains how. Independent Business Valuation values businesses and business interests and does not give tax advice: whether you need a valuation, or may use an apportioning method once one is made, is for your tax adviser.