Business restructuring valuation

Why value matters when you are selling to yourself

In an ordinary sale, strangers negotiate the price. In a restructure, the same family usually sits on both sides: a sole trader sells to their own company, or a family trust passes the business to a new company. Nobody is bargaining, so the recorded price is often whatever the paperwork needed.

That is why the tax law may set it aside. Where the parties are not dealing at arm's length and the price differs from market value, the seller may be treated as receiving market value, and the buyer's cost base can also be set at market value. Rules such as Division 7A for private companies can also turn on whether a price matched market value.

For a private business there is no screen price. Someone has to work it out from the earnings, assets, risks and market evidence, and write the reasoning down. That is the job of Independent Business Valuation. Your tax adviser decides how the value is used.

Common restructures and where value comes in

Handing a business to the next generation is covered on our business succession valuation page, and shareholder buy-ins and exits on our private company share valuation page.

Sole trader or partnership into a company

Moving business assets into a new company is generally a CGT event, and goodwill is often the largest asset that moves. A rollover may defer the gain. One rollover, for moving assets into a company you wholly own, requires the shares you receive to have substantially the same market value as the net assets transferred. That condition is itself a valuation question.

Trust into a company

A business run through a family trust may move into a company as it grows. The assets change hands between related entities, so the price needs support. The small business restructure rollover, below, is often where the tax analysis starts. Other rollovers cover some moves from partnerships and certain trusts.

Demergers and separating businesses

In a formal demerger, the cost base of the original interests is generally spread across the old and new interests by reference to their market values just after the demerger. In an informal separation, where each owner takes one business, values decide whether the split is even.

Bringing in investors

The price per share decides how much of the company a new investor gets. Issue shares too cheaply and value moves from the existing owners to the newcomer. Where the investor is a family member, employee or associate, that can raise value shifting questions for tax. If an earlier restructure used a rollover, ask your adviser whether a new owner affects it.

The small business restructure rollover

The small business restructure rollover sits in Subdivision 328-G of the Income Tax Assessment Act 1997. In broad terms, it may let an eligible small business move active assets, such as goodwill, trading stock and plant, to another entity without an immediate income tax result. The ATO's small business restructure roll-over page has the detail. The main conditions:

• Each party is generally a small business entity, with aggregated turnover under ten million dollars, or is closely connected to one
• The transfer is part of a genuine restructure of an ongoing business, not a step towards a sale
• The transfer does not materially change who ultimately owns the assets, or each individual's share of them. Special rules apply to some family trusts
• The assets are active assets, and residency rules are met
• A safe harbour looks at the three years after the transfer

Where it applies, the transfer is generally treated as happening at the assets' tax cost, so no gain or loss arises then. It is a choice, not an automatic result.

Values can still matter: to show each owner's share has not materially changed, to set the shares or units issued, for state duty, and for anything the rollover does not cover. Without a rollover, market value may set the gain and the new entity's cost base.

Be precise about what is moving

A restructure moves particular assets, liabilities, shares or units, not "the business" in one piece. We first confirm with you and your adviser exactly what moves, from whom, to whom and on what date.

• Goodwill: often the largest item and the hardest to support
• Plant, equipment, stock and work in progress, valued on a going concern basis
• Liabilities the new entity takes on, which reduce the net value moving across
• Shares or units: the business value adjusted for debt, surplus cash, loans and the rights attached

When a sole trader incorporates, one judgement needs care: how much goodwill belongs to the business and how much rests on the owner personally. A practice built on one person's relationships may carry less transferable goodwill than its profit suggests. The report explains that judgement.

Dates, sequencing and 30 June 2027

The valuation date is normally the date each transfer takes effect. Ideally the value is settled before the documents are signed, so the price, the shares issued and any loan accounts line up.

Restructures around 30 June 2027 need extra thought. Australian resident individuals, and trusts with at least one eligible beneficiary, are treated as if they sold relevant CGT assets just before 1 July 2027 and bought them back, by default at market value (a draft apportioning method, not yet final, may in future be an alternative). The rule does not apply to a company's own post-1985 assets, but a company's pre-CGT assets are separately reset at 1 July 2027. So the order of events may change which assets the rules touch. Your tax adviser decides the sequencing.

Where both dates matter, we can value both in one engagement. A valuation as at 30 June 2027 is prepared after that date, once your records to 30 June 2027 are available. You can book your place now.

How we work with your accountant and lawyer

Your tax adviser decides the tax treatment. Your lawyer prepares the documents. We provide the independent value they rely on. Keeping those roles apart protects you: a value chosen to fit a tax outcome is the kind most likely to be questioned.

The report is prepared and signed by a suitably qualified business valuer at Valuation Group, and sets out what was valued, the date, the method, the evidence and the key assumptions. Guided by APES 225 Valuation Services. Before the final report, you sign a representation letter confirming the information supplied.

Documents come only through the secure upload link on your matter, never by email. Your accountant sees the matter only with your written consent. A calculation engagement can suit early planning, but it is not a full valuation report. We say which one you are getting before you engage us.

Fees for restructuring valuations

Fixed fee, confirmed in writing before we start. No hourly billing and no surprises.

Restructures often involve more than one entity or interest. The additional entity fee covers that, and larger groups are quoted in writing. The fixed fee applies once we confirm the interest, purpose, structure and records fit the fixed-fee scope. Anything outside it is quoted in writing before we start. Delivery time starts once payment and all required information have been received, and pauses while we wait for answers to our questions or your signed representation letter.