When CGT calls for a market value of your agency, rent roll or book, use one that can be tested.

A CGT valuation gives the market value of an agency, rent roll, client book or shares in an agency at the date of a CGT event, where tax law replaces the actual price with market value or a test depends on it. Common triggers are transfers to family or related entities, gifts, and the small business CGT concessions, whose net asset value test has a $6 million limit. What you pay follows the revenue of what is valued: under $2 million the fee is $1,495 + GST and the report arrives in 2 business days. Delivery time starts once payment and all required information have been received.

When does CGT call for a market value?

An agency owner is usually asked for a market value for one of two reasons: the market value substitution rule in section 116-30 of the Income Tax Assessment Act 1997, or the tests for the small business concessions.

• ·No capital proceeds: give away an agency, a rent roll or shares and the law treats you as having received their market value at the time of the event.
• ·Not at arm's length: where you and the other party did not deal at arm's length and the price was above or below market value, the price is replaced by market value.
• ·Proceeds that cannot be valued: where part or all of the proceeds cannot be valued, market value takes their place.
• ·Cancellations and similar endings (CGT event C2): if shares are cancelled for more or less than market value, market value can replace the proceeds whether or not the parties dealt at arm's length, with exceptions for companies with at least 300 members and unit trusts with at least 300 unit holders.
• ·The maximum net asset value test: the $6 million test for the small business CGT concessions adds up the market values of CGT assets.
• ·The 30 June 2027 transition, where a market value may be useful: see 30 June 2027 market valuations for agency owners.

What does market value mean for tax?

Unless a provision defines it specially, market value has its ordinary meaning. The ATO points to the High Court's decision in Spencer: the price that a buyer and a seller who are both willing, but not anxious, and both fully informed would agree on, as opposed to a forced sale. Market value does not include advantages available to one specific owner or purchaser, and the ATO says fair value for financial reporting is not always the same concept.

For an agency, that means valuing the recurring income a typical buyer would pay for, after allowing for the clients likely to leave, the cost of servicing them and any dependence on the owner, rather than what one well-placed buyer might pay.

Which agency transactions usually raise the question?

Agency owners meet the market value rule in related-party transfers: a principal selling the rent roll to a new company they control, a broker moving an insurance book into a family trust, a partner leaving and selling to the remaining partners, or a parent passing the agency to a child for less than it is worth.

The ATO says that you keep the onus of having a valuation that is replicable and defensible, even when a professional valuer is engaged. It also says that whether a valuation is acceptable usually depends on the process used, not on who carried it out. That is why the report shows its evidence, its assumptions and its reasoning, and not just a figure.

How do the small business CGT concessions use market value?

There are four small business CGT concessions: a 15-year exemption, a 50% active asset reduction, a retirement exemption and a roll-over. Each has basic conditions to meet first, and one of those can be the maximum net asset value test. Under it, the net value of the CGT assets that you, your connected entities and your affiliates own, worked out from market values, cannot be more than $6 million just before the CGT event. For an agency owner close to that line, the market value of the agency or the shares can decide the question.

Rent rolls raise a particular point. The ATO's goodwill ruling, TR 1999/16, says it does not consider specific goodwill issues in particular industries, giving rent rolls and property management rights as examples. How a rent roll is treated is for your tax adviser; we value it on the basis they settle.

Can the valuation date be in the past?

Yes. A CGT valuation can be prepared after the event, at the date of the transfer. A retrospective valuation is based on what was known, or could reasonably have been foreseen, at that date: the ATO lists reliance on later information among the common issues it sees. For a rent roll, that means the managements and fees on the books at the date; for an insurance or trail book, the policies and loans in force at that date. Each past valuation date adds $495.

The ATO also notes that the market value of an asset can be the subject of a private ruling. The ATO will not give one to confirm a valuation methodology, or to confirm the market value for a future event.

What does a CGT valuation cost?

We fix the fee in writing before any work starts. Where the CGT event covers two or more entities, for example a company and the family trust that holds its shares, each additional entity in scope adds $795.

The band is set by the annual revenue, excluding GST, of what is being valued: a rent roll's annual management income when the rent roll is valued on its own, an insurance or mortgage book's annual recurring income when the book is valued on its own, or the agency's total annual turnover when the whole agency, or shares or units in it, are valued. A business on exactly $3 million is Medium, and one on exactly $10 million is Large. Add-ons: +$495 per retrospective (past) valuation date, and +$795 per additional entity. Delivery time starts once payment and all required information have been received.

• ·Income Tax Assessment Act 1997, section 116-30: market value substitution rule, Australian Taxation Office (legal database)
• ·Market valuation for tax purposes (guide), Australian Taxation Office
• ·CGT concessions eligibility overview, Australian Taxation Office
• ·Maximum net asset value test, Australian Taxation Office
• ·TR 1999/16 Income tax: capital gains: goodwill of a business (paragraph 5), Australian Taxation Office