Does market value substitution apply to your transaction?
Section 116-30 of the ITAA 1997 substitutes market value for the actual consideration in certain CGT events: most commonly where parties are related, consideration is below market, or no commercial consideration is changing hands. Three questions, indicative diagnosis.
Important: This tool is educational. It does not constitute tax or legal advice. The application of s116-30 (and equivalent provisions for specific CGT events) depends on facts and law your tax adviser confirms. Agency Valuations is not a registered tax agent.
What is the relationship between the parties to the transaction?
Related-party and non-arm's-length transactions are the most common trigger for market value substitution under s116-30 ITAA 1997.
Why market value substitution exists.
Australian CGT law generally treats the consideration parties actually agree as the “capital proceeds” for the CGT event. Where that consideration is artificially low: because the parties are related, because there is no genuine consideration, or because the consideration is in a form that cannot reasonably be valued, the law substitutes the market value of the asset for the actual consideration.
This substitution is what s116-30 ITAA 1997 (modified by specific CGT event provisions) does. Its purpose is to prevent the avoidance of CGT through artificially structured transactions, but it equally protects taxpayers in legitimate restructures by establishing a clear evidentiary baseline.
Where market value substitution applies, the question becomes: what is the market value of the asset? That is a valuation question. An independent market valuation provides the substantiated evidence, the taxpayer’s estimate, the accountant’s view, or a back-of-the-envelope number typically does not meet the standard.
Get the valuation evidence the ATO expects.
Where s116-30 applies, the capital proceeds for CGT are the market value, and that needs substantiated evidence.
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