Business Valuations for CGT

When does market value matter for capital gains tax?

Capital gains tax starts from what a person received for an asset and what it cost them. In some situations the tax rules can replace the amount actually paid with the asset’s market value, and a valuation is then the evidence for that figure.

The phrase “arm’s length” is shorthand for parties dealing independently, each looking after their own interests. Where a price was set between family members or related entities for reasons other than commerce, the tax rules can treat the transaction as if it had been made at market value. For a business, these are the situations that most often raise the question.

• A sale or transfer of the business, or of shares in it, to a family member or a related company or trust.
• A transfer for no payment or for less than market value, including a gift.
• A restructure, such as moving the business from individuals or a partnership into a company or trust.
• A partner or shareholder leaving at a negotiated price, particularly where the parties are related or are not dealing at arm’s length.
• A change of ownership following death or relationship breakdown, where market values may be needed.

Which of these actually triggers a market value rule, and whether relief such as a roll-over applies, depends on the facts and the legislation. That is for your tax adviser. In each case the valuation answers one question: what would an independent buyer and seller have agreed for this business at this date?

What does the ATO expect of a valuation used for tax purposes?

The ATO publishes guidance on market valuations for tax purposes. In general terms, it expects a valuation used for tax purposes to be supportable: prepared by a suitably qualified valuer, for the right asset and date, with the reasoning documented.

In practice that means a report that sets out the following.

• Who the valuer is, and whether they are independent of the parties.
• The asset or interest being valued, and the valuation date.
• The basis of value used, and why.
• The information relied on and the assumptions made.
• The method, and the reasoning that leads from the information to the figure.

A figure from a rule of thumb, an informal opinion or an agent’s quick estimate is thin support if the ATO asks how a value was reached. The ATO decides how it treats any particular figure, and nothing in this guide suggests the ATO has endorsed Green Standard or any report we prepare.

How do market values enter the small business CGT concessions?

The small business CGT concessions in Division 152 of the Income Tax Assessment Act 1997 can reduce or remove a capital gain on active business assets when conditions are met. One of the conditions can be the maximum net asset value test.

That test adds up the market values of the relevant assets, less certain liabilities, and compares the total with a threshold set in the legislation. The assets counted can include those of connected entities and affiliates, and some assets are excluded, so the calculation is a job for the tax adviser. A business valuation supplies the market value of the business, including its goodwill, and of the assets inside it.

A business may qualify through a different test, such as one based on turnover, so whether the net asset value test matters to you is also a question for your tax adviser. The 2027 changes described below do not remove the Division 152 concessions, which continue.

What are the 2027 changes, and when might a 30 June 2027 value matter?

Legislation passed in 2026 replaces the 50% CGT discount for individuals, trusts and partnerships with cost base indexation and a minimum tax rate on capital gains. The new rules apply from 1 July 2027.

Only gains that accrue after that date are affected. For assets already held at 30 June 2027, the rules allow a choice between using the market value at that date and using an apportioning method. Which choice suits an asset, and what is needed to make it, are for your tax adviser.

That is where a market value at 30 June 2027 may come into the picture. For some owners it will be useful and for others it will not be needed at all. It depends on the assets, the structure that holds them and the method chosen. The change as described applies to individuals, trusts and partnerships, so how it affects a business held through a company is also a question for your tax adviser.

• A valuation prepared now is a valuation as at the date it is prepared for. It is not a 30 June 2027 valuation.
• An earlier valuation may still be useful for other purposes, such as a sale or a shareholder transfer, but it does not replace one at the date a tax rule points to.
• The timing and form requirements for any market value choice sit in the legislation and ATO guidance, and your tax adviser will tell you what applies.

What should a valuation prepared for CGT purposes cover?

A tax adviser will usually settle five points before a valuation is commissioned, and the valuer needs the same five.

1. The asset or interest: the whole business, shares in a company, units in a trust, a partnership interest, or particular assets such as goodwill.
2. The valuation date: the date the tax rule points to, which may be in the past.
3. The basis of value: market value is generally understood as the price a willing but not anxious buyer and seller would agree, each dealing independently.
4. Control and size: whether the interest is a controlling or a minority one, and how that is reflected.
5. Purpose and reliance: who will rely on the report, and for what.

Where one price covers several assets, a valuer can supply evidence of their values. How the price is allocated for tax is a matter for the tax adviser.

Records matter too. Acquisition dates, cost base records, earlier valuations and restructure documents sit with the owner and the adviser, while the valuer needs the financial and operational information listed in our guide on documents needed for a business valuation.

What does a market value substitution look like?

The example below is deliberately simple. All figures are illustrative, no tax rate is applied, and whether substitution applies to a real transaction is a question for the tax adviser.

The closer a valuation is prepared to the transaction, the easier it is to show how the figure was reached. A value can be reconstructed for an earlier date, but the records are usually thinner and the reasoning harder to evidence.

How do a tax adviser and a valuer work together?

The division of roles is straightforward. Your tax adviser decides whether a valuation is needed, at which date, for which assets and how it will be used. The valuer prepares independent evidence of value to that brief and does not advise on the tax result.

Before you commission one, ask your adviser four things: which assets or interests, which date, which basis of value, and whether anyone other than you will rely on the report. With those answers, intake at our start page is quick, documents go through the secure client portal, and we provide a draft before the report is finalised. Turnaround is typically 3 to 7 business days from the point we hold all the required information, and complex matters can take longer.

The CGT valuations page describes how the engagement runs, and accountants who refer clients can see how we work on the accountants page. Our guide on valuing a business before selling it covers related ground for owners planning a sale.