A sale price is a fact: what one buyer agreed to pay one seller, on that contract’s terms, on that day. Market value is an opinion: the price the property would most probably have sold for on a given date between a willing, informed buyer and seller, dealing at arm’s length after proper marketing. For most sales the two are close.
For capital gains tax, most gains are worked out from what you paid and what you sold for, with no valuation involved. Market value usually comes in only where the law replaces a price, or where there was no price at all.
What does market value mean for tax?
The ATO describes market value as the estimated monetary worth of an asset on the open market at a particular time, based on its most valuable use and the amount a willing buyer and seller would agree in an arm’s length transaction. The classic Australian statement comes from the High Court’s 1907 decision in Spencer v Commonwealth: the price a willing but not anxious buyer would pay a willing but not anxious seller, both fully informed about the property.
In plain English, market value assumes:
- A specific date. Markets move, so a value is only right for the date it is given.
- A hypothetical buyer and seller. Not your buyer, and not you. Your own circumstances, such as needing cash quickly, are set aside.
- Arm’s length. No family, business or other relationship that could push the price up or down.
- Proper marketing. The property has been offered in the usual way, for long enough to reach the likely buyers.
- Highest and best use. The value reflects the most valuable use that is physically possible, legally permitted and financially feasible.
Market value also leaves out value that only one particular buyer would pay, such as a neighbour wanting a bigger block, and prices pushed up or down by unusual terms such as special finance or a sale and leaseback. The ATO’s guide lists these exclusions.
When does capital gains tax use market value instead of the price?
| Situation | What the tax law generally uses | Valuation date |
|---|---|---|
| An ordinary sale at arm’s length | The actual price | None: no valuation is involved |
| A gift, or property given away with nothing received for it | Market value (section 116-30) | The date of the gift |
| A sale to someone you are not dealing with at arm’s length (often a family member) for more or less than market value | Market value instead of the price (section 116-30), subject to exceptions | The date of the transfer |
| A home first rented out after 20 August 1996, where a later sale would only be partly exempt | Market value, as if you bought it then (section 118-192) | The day it was first used to produce income |
| Inherited property, in some cases | Market value, for the beneficiary’s cost base (section 128-15) | The date of death |
| Property held across 30 June 2027 by an Australian resident individual or trust | Generally market value. The law also allows for a government-set apportioning method, which has not been finalised yet | Just before 1 July 2027 |
Section numbers refer to the Income Tax Assessment Act 1997. Conditions and exceptions apply to each case, and your accountant decides which rule applies to you. See home becomes a rental, inherited property and 30 June 2027 for those cases.
What is the market value substitution rule?
It is the rule in section 116-30 of the Income Tax Assessment Act 1997. Where you receive nothing for a property, or you and the other party are not dealing at arm’s length and the price is more or less than market value, the seller is generally treated as having received market value instead of the price in the contract. Exceptions apply, so your accountant confirms whether it applies to you.
For a gift, market value at the date of the gift is generally also the new owner’s cost base. So one value at one date can matter to both sides of a transfer.
What if I sold to family below market value?
The price in the contract does not stop the tax law looking at market value. If you did not deal at arm’s length and the price was below market value, the seller is generally treated as having received market value at the date of the transfer. The same applies if the price was above market value.
Stamp duty on these transfers is assessed separately by each state or territory revenue office.
An independent valuation at the date of the transfer is the clearest evidence of what market value was, and it can be prepared after the event as a retrospective valuation. Family transfers are quoted before anything is booked: see family transfers.
Why can a sale price differ from market value?
Each part of the definition is an assumption that a real sale can break:
| What happened | Effect on the price |
|---|---|
| A special purchaser, such as a neighbour extending their block | Above market value |
| A sale within a family or between related entities | Above or below |
| A rushed or forced sale | Below |
| Little or no marketing, such as an off-market sale to the first buyer an agent calls | Usually below |
| Unusual terms, such as vendor finance or the seller renting the property back | Above or below |
| Furniture and extras included in the price | Above |
| Two determined bidders at auction | Can be above |
When a valuer uses a sale as evidence, they look for exactly these things, and either adjust for them or set the sale aside.
Is the price I paid the market value?
Often it is the best single piece of evidence of it. A recent sale of the same property, at arm’s length, after proper marketing and on normal terms, is hard to argue with. The older the sale, the less it tells you, because the market moves and the property changes. A price paid ten years ago says little about market value today.
For CGT the question is usually market value at a specific date, such as the date of a transfer or the day a home was first rented out. How property is valued for CGT explains how a valuer works it out, what a valuer looks at covers the evidence, and appraisal or valuation explains why an agent’s estimate is not the same thing.
How do you get a market value for CGT?
Request a valuation with the address, the date your accountant gives you and the reason. A Desktop CGT Valuation is $149 incl. GST and an Inspected CGT Valuation is $495. Family transfers, and anything likely to be worth more than $3 million, are quoted. We confirm the valuer, fee and timing in writing, and nothing is booked or charged until you accept.
See pricing for the fees, our questions page for short answers, and the glossary for terms such as arm’s length and capital proceeds.
We value property. We do not give tax advice. Your accountant decides whether market value replaces the price in your case, and at which date.