Market Valuation of Assets

Source: ATO

The ATO has recently updated its advice regarding when, by tax law, you must obtain a valuation of an asset. 

Most likely as a response to the Budget, there have been several subtle but important changes. Now that the previously announced Budget updates have been legislated, I presume there will be even further changes. In the meantime, let’s have a look at this in more detail.

You must obtain market valuation of an asset when required by tax law. The valuation must be objective and supportable.

About Market Value

Market value is the estimated monetary worth of an asset on the open market at a particular point in time. It’s based on:

• the most valuable use of the asset (which may be different to how it is currently used), and
• the amount that a willing buyer and seller would agree to in an arm’s length transaction.

The market value definition for tax purposes may vary for particular provisions of tax law and the types of asset.

When You Need a Market Valuation

Taxpayers may need a market valuation for many purposes, including:

• individual taxpayers:
• non-arm’s length transactions, including transferring property or shares between related parties, for example family members, or
• when you start to use your main residence (your home) for rental or business purposes.
• employees receiving shares or options under an employee share scheme,
• small businesses meeting the asset threshold tests for capital gains tax concessions,
• property developers applying the GST margin scheme, or
• businesses that consolidate for income tax purposes.

What a Market Valuation Report Should Include

At a minimum, valuation reports should contain the following:

• the purpose of the valuation,
• the scope of the valuation,
• details of the asset being valued,
• the date it was conducted,
• if it is a retrospective valuation assessment,
• the date of inspection (if applicable),
• records to explain the basis of the market value, and
• the value.

Depending on what is being valued and when, you may need additional information in your report.

Getting a Market Valuation

A valuation must be objective and supported with appropriate evidence.

Valuations undertaken by professional valuers are more credible than those provided by someone who isn’t a professional valuer.

When you engage a valuer, you must provide them with clear instructions and accurate information. You need to demonstrate that you have:

• set out the scope and purpose of the valuation,
• acknowledged the valuer’s independence to draw conclusions and write their report,
• recognised that the valuer can refuse to provide an opinion or report if you don’t provide the information and explanations they need,
• granted the necessary access to your premises and records,
• provided all necessary help to complete the report, and
• stated that any fee isn’t dependent on the report’s outcome.

Instructions to valuers are usually documented in a written request or letter of engagement.

Generally, if you engage and properly instruct a professional valuer, you won’t be liable for penalties if it’s found that the professional valuation is deficient.

Keep Your Market Valuation Report

You need to keep a market valuation report or other records that:

• show the valuation is objective, accurate and supported by evidence, and
• include all required information we expect a valuation report to cover.

If the ATO later reviews your taxation affairs, you will need these records to support the valuation.