What a market valuation is
A market valuation puts an estimated monetary worth on an asset at a particular moment. The Australian Taxation Office, which publishes guidance on the subject for tax purposes, describes a valuation as something that must be objective and supportable.
Two ideas shape the figure. One is the asset's most valuable use, which may differ from the use it is put to now. The other is the amount a willing buyer and a willing seller would agree on in an arm's length transaction. The definition of market value for tax purposes can also vary between provisions of tax law and between types of asset.
When a market valuation is needed
The office says taxpayers may need a market valuation in a range of situations. One is a transaction between related parties that is not at arm's length, such as transferring property or shares between family members. Another is when a home that has been a main residence starts to be used for rental or for business.
Further cases the office gives include employees who are given shares or options through an employee share scheme, small businesses that meet threshold tests on assets for capital gains tax concessions, property developers who use the GST margin scheme, and businesses that consolidate for income tax.
Working with a valuer
The office says a valuation is required to be objective and backed by suitable evidence. The office says a valuation from a professional valuer is more credible than one from a person who is not a professional valuer.
Instructions to a valuer are usually documented in a written request or a letter of engagement, and the office lists what someone engaging a valuer is expected to show: that the scope and purpose have been set out, that the valuer's independence to reach conclusions and write the report is recognised, that a valuer may refuse an opinion if the information and explanations needed are not supplied, that access to premises and records is granted, that all necessary help is given to complete the report, and that the fee does not depend on the report's outcome.
What a report contains and the records to keep
At a minimum, the office expects a valuation report to cover the purpose and scope of the valuation, details of the asset that was valued, the date of the valuation, whether it is a retrospective assessment, the date of inspection if there was one, records setting out how the market value was arrived at, and the value itself. Depending on the asset and the timing, more information may be needed.
The office says records kept for a valuation are expected to show that the valuation is objective and accurate and that it is supported by evidence, and to cover the information a report is expected to include. The office says those records will be needed if tax affairs are reviewed later.
The office also publishes a guide on its legal database, Market valuation for tax purposes, for taxpayers, their advisers and valuers. It sets out how a market value for tax purposes is established, what the office expects, and the valuations that arise most often in that setting.