Tuesday, March 2, 2021

Exactly what** does the market value substitution rule say

Following last week’s post feedback has been received about what exactly the market value substitution rule (MVSR) provides for capital gains tax purposes (CGT).

Interestingly, the MVSR section in the Tax Act (namely section 116-30) is one of the, arguably few, provisions where the legislation is relatively clear. This means that, generally, there is not the need to rely on Court decisions to understand how the rules work.

The exact wording of the relevant parts of section 116-30(2) is as follows:

‘The capital proceeds from a CGT event are replaced with the market value of the CGT asset that is the subject of the event if...those capital proceeds are more or less than the market value of the asset...and...you and the entity that acquired the asset from you did not deal with each other at arm’s length in connection with the event.’

** for the trainspotters, ‘Exactly what’ is riffed from the Oasis song ‘Girl in the dirty shirt’. Listen hear (sic):