A practical guide for Australian business owners and their advisers
For many Australian business owners, 1 July 2027 will create a dividing line in the capital gains tax treatment of value built before and after that date.
If an eligible business interest is owned before 1 July 2027 and sold later, the value at that date may be used to separate the gain accumulated under the existing rules from the gain arising under the new rules.
That makes the 1 July 2027 value potentially important—even if a sale is years away.
| THE CENTRAL POINT The tax may be calculated when the business is eventually sold, but the evidence needed to establish its value may be strongest around 1 July 2027. |
What is changing from 1 July 2027?
For eligible CGT assets held by individuals, partnerships and trusts for at least 12 months, the existing 50% CGT discount is being replaced for gains accruing from 1 July 2027 by cost-base indexation and a 30% minimum tax rate on real capital gains.
For an eligible asset owned before 1 July 2027 and sold after that date, the gain will effectively be divided into two periods:
- Value created up to 1 July 2027 remains subject to the existing arrangements.
- Value created after 1 July 2027 is calculated under the new indexation and minimum-tax arrangements.
No tax becomes payable merely because the date arrives. The CGT event generally occurs when the asset is later sold or otherwise disposed of.
Does every business owner need a valuation on 1 July 2027?
No. It would be inaccurate to say that every business owner is legally required to commission a valuation by that date.
Government guidance provides two ways to determine the asset’s value at 1 July 2027 when the asset is eventually realised:
- Use a valuation of the asset as at 1 July 2027.
- Use a specified apportionment formula that estimates the value at that date from the asset’s growth over its holding period.
The ATO is expected to provide tools supporting the formula. The better option will depend on the asset, ownership structure, available evidence and expected tax consequences.
| IMPORTANT DISTINCTION A 1 July 2027 valuation is an available evidentiary choice—not a universal mandatory filing requirement. |
Why might a business owner choose a valuation?
A formula may be convenient, but a privately owned business rarely grows in a straight line. Its value can be affected by acquisitions, new contracts, lost customers, owner dependence, market disruption, investment in systems, changes in margins and many other events.
A properly prepared valuation can reflect the actual business and the conditions that existed at the valuation date. That may be particularly important where:
- The business experienced unusually strong or weak trading around 1 July 2027.
- Growth occurred unevenly over the ownership period.
- The business has significant goodwill or other intangible value.
- A major customer, contract, licence or key employee materially affected value.
- The business underwent restructuring, acquisition or rapid expansion.
- The statutory formula produces an outcome that does not reflect the commercial evidence.
The decision should be made with your tax adviser. A valuation determines value; it does not determine eligibility for concessions or calculate the final tax liability.
Why waiting until the business is sold can be difficult
Government guidance allows the 1 July 2027 value to be determined in the tax return for the year in which the asset is realised. That could be many years later.
A historical valuation is possible, but the evidence may become harder to recover. Management accounts may be overwritten. Forecasts, customer records and contemporaneous industry information may be lost. Staff and advisers may no longer remember why an unusual result occurred.
The valuation date does not move simply because the work is performed later. A valuation completed in 2032 may still need to reconstruct what a knowledgeable market participant could reasonably have concluded at 1 July 2027—without using hindsight.
| PRACTICAL ADVANTAGE Preserving evidence now can make a future valuation more reliable, less costly and easier to defend. |
What exactly may need to be valued?
The relevant CGT asset depends on how the business is owned and what is later sold. It may be:
- Shares in a private company.
- Units or an interest in a trust or partnership.
- A business or collection of business assets.
- Goodwill or another identifiable CGT asset.
The business’s operating structure and the taxpayer’s legal ownership are not always the same. Before commissioning a valuation, the accountant or tax adviser should identify the relevant taxpayer, asset, ownership interest and intended tax treatment.
A simple example
Assume an individual acquired shares in a private company before 1 July 2027 and sells them several years later.
- Original cost base: $400,000
- Market value at 1 July 2027: $1,200,000
- Later sale proceeds: $1,700,000
In simplified terms, the $800,000 increase to 1 July 2027 would be considered under the existing arrangements, while the subsequent $500,000 increase would fall under the new arrangements, including indexation.
This illustration ignores transaction costs, eligibility requirements, small-business concessions and other adjustments. Its purpose is simply to show why the value at the dividing date matters.
What makes a CGT business valuation defensible?
For tax purposes, a conclusion should be supported by evidence and capable of explanation. A report should ordinarily address:
- The valuation purpose, date and relevant ownership interest.
- The basis of value and material assumptions.
- Historical and current financial performance.
- Normalisation of earnings and non-recurring items.
- Industry, market and economic conditions at 1 July 2027.
- Business-specific risks and value drivers.
- The valuation approaches and methods considered.
- The source and relevance of any market multiples or comparable transactions.
- The reasoning connecting the evidence to the final conclusion.
- Material limitations, sensitivities and uncertainty.
An unsupported rule of thumb, broker estimate or generic industry multiple may not adequately establish market value for a consequential tax position.
What records should owners preserve?
Whether a valuation is commissioned immediately or later, owners should create a disciplined 1 July 2027 evidence file.
- Final financial statements for the years surrounding the valuation date.
- Management accounts as close as practicable to 1 July 2027.
- Budgets and forecasts that genuinely existed at the date.
- Customer concentration and recurring-revenue information.
- Major contracts, leases, licences and supplier arrangements.
- Details of owners, management and key-person dependencies.
- Capital expenditure and working-capital requirements.
- Documents relating to acquisitions, restructures or major one-off events.
- Board papers or strategy documents evidencing expectations at the date.
- Contemporaneous industry and market information.
Do not recreate forecasts after the event and present them as contemporaneous. A defensible valuation distinguishes what was known or reasonably knowable at the date from what became apparent later.
What happens to the small-business CGT concessions?
The four existing small-business CGT concessions remain available where their eligibility conditions are satisfied. From 1 July 2027, the turnover threshold for the 50% active-asset reduction increases from $2 million to $10 million.
That does not mean every owner automatically qualifies or that a valuation becomes unnecessary. Eligibility depends on the applicable provisions and the taxpayer’s circumstances. Your accountant or tax adviser should assess the concessions separately from the valuation.
What should business owners do now?
- Ask your accountant or tax adviser whether the reforms may apply to your ownership structure and relevant CGT assets.
- Identify the asset or interest that would be sold or transferred.
- Preserve reliable financial and commercial evidence around 1 July 2027.
- Compare the likely suitability of a market valuation with the statutory apportionment method.
- If a valuation is appropriate, agree its purpose and scope before the evidence becomes historical.
The objective is not to create unnecessary work. It is to avoid discovering years later that a critical valuation date passed without preserving the evidence needed to support the value.
A valuation today can protect a position tomorrow
Business owners do not need to sell on 1 July 2027, and not every owner must obtain a valuation on that date.
But for an owner who may eventually rely on the business’s 1 July 2027 value, the date deserves deliberate attention. A contemporaneous, evidence-based valuation can provide a clearer dividing point between the two CGT periods and reduce the uncertainty of reconstructing value long after the event.
The first step is not automatically ordering a valuation. It is speaking with your accountant or tax adviser, confirming whether the rules are relevant and deciding whether a valuation is the most appropriate evidentiary option.
Speak with Independent Business Valuations
IBV prepares independent, evidence-based business valuations for owners, accountants and advisers across Australia.
If a 1 July 2027 valuation may be relevant, we can work with you and your adviser to define the correct asset, purpose, valuation date and report scope.
| START WITH CLARITY Discuss your CGT business valuation requirements with IBV. |
Disclaimer: This article provides general information only. It is not tax, legal or financial advice and does not determine whether any taxpayer qualifies for a CGT concession. Obtain advice about your circumstances before acting.
