The numerous references to market value (e.g. capital gains tax (CGT), trading stock) ensure that the value at which a transaction should have occurred is taken to be the value at which it did occur. Deeming also helps taxpayers. For example, Division 166 enables public companies to more easily comply with the loss testing rules, and the holding rules ensure depreciation is claimed by the right taxpayer.
So, what should we do to ensure the right approach is applied?
Unless a transaction or return is completely straightforward, it is useful to consider how it might otherwise be treated, especially if the transaction is one you haven’t done before. While many of the examples above are very well-known, it is sensible to consider how a transaction could otherwise be treated (on the basis of what is really happening economically) and not just its legal form.
The converse is generally less common. The recent spate of employee option disputes shows that what may have been intended economically and commercially is not what happened for tax. Despite this it is best to generally avoid assumptions that tax will follow the legal form of your transaction.