Market value at 30 June 2027: what a CGT valuation must show

Why market value matters at 30 June 2027

The 1 July 2027 CGT changes put a price on a date. For Australian resident individuals and trusts with at least one eligible beneficiary, the transitional rule generally treats relevant CGT assets as sold just before 1 July 2027 at market value, and that figure splits a later gain between the old and new rules. Market value also matters for related party transfers and the small business CGT concessions, yet the tax Act gives the term no single meaning for every situation.

Unless a provision defines it, the ATO's market valuation guidance says market value takes its ordinary meaning from case law, starting with the High Court's 1907 decision in Spencer v Commonwealth, and from the International Valuation Standards definition.

Put simply, market value is a price. Not what you paid or spent building the business, and not what one particular buyer might pay, but the price the market would most probably settle on at a stated date. Because some rules set their own definition, a good report names the tax provision it was prepared for.

The hypothetical buyer and seller

Market value is worked out in an imagined sale between a buyer and a seller who are:

• willing but not anxious: nobody is forced to deal
• reasonably informed about the business and the market at the valuation date
• prudent, each seeking the most favourable price they can reasonably get
• dealing after the business has been properly marketed

Two consequences surprise owners. The seller is hypothetical, so your ill health or wish to retire next month does not pull the value down. And the buyer is any willing buyer, not a particular one, so value that only one particular buyer could realise is generally left out. The figure also generally excludes transaction costs such as broker commission and stamp duty.

Arm's length: when the agreed price is not the answer

An arm's length deal is one between parties with no relationship that could push the price away from market. Family members, related companies, or a trust and its beneficiaries can agree prices that suit them but are not market prices.

Tax law generally looks through those prices. The ATO lists related party transfers of shares or property as a situation where a market valuation may be needed, and in some cases the law substitutes market value for the price paid. Your tax adviser decides how that applies to you.

Highest and best use

Market value assumes the highest and best use: the use that is possible, legally permissible and financially feasible, and that a market participant would have in mind when bidding. It may be the current use or an alternative.

For most trading businesses, that means continuing to trade, and value comes from sustainable profit. But if a business earns little compared with what its equipment, stock and receivables would fetch in an orderly sale, a buyer would weigh that, and the value may sit closer to net assets.

Land and buildings owned by the business are generally valued by a qualified real property valuer, and the business valuation works with that figure.

One date, and no hindsight

Market value is tied to one date and judged on the market at that date, without hindsight. A forecast of value at a later date does not replace a valuation at the date the law sets.

That is central to the CGT changes. For individuals and trusts, the transitional rule generally treats relevant CGT assets as sold and reacquired at market value just before 1 July 2027, so the valuation date is 30 June 2027. A company's own post-CGT assets are outside that rule (pre-CGT assets acquired before 20 September 1985 have their own reset). The Government has also released a draft apportioning method that, once finalised, may be chosen instead of a market value for some assets. Our article on valuation or apportionment compares the two.

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. Events after the date are generally ignored unless they were known or reasonably foreseeable at 30 June 2027.

Why the ATO may review a valuation

The ATO may review a market value used in your tax affairs. Its guidance says a review is more likely where the value is high or the method is contentious. It also weighs how much tax turns on the figure, the complexity and the type of asset, with intangibles such as goodwill treated as higher risk.

The ATO generally asks for the valuation report and the instructions given to the valuer, then uses a valuer to test the process, method and assumptions. It tells you the outcome in writing, and objection rights apply.

What reviewers commonly find

In a business valuation, the problems the ATO lists tend to look like this:

• a method that does not suit the business or the information available
• earnings taken straight from the accounts, with no adjustment for owner wages or one-off items
• multiples or discount rates with no support for the risk adjustments
• information from after the valuation date relied on
• assumptions used but never written down

What makes a valuation well supported

The ATO is clear that the onus for a replicable and defensible valuation stays with the taxpayer, even when a professional prepares it. A well supported business valuation covers:

Instructions matter too. The ATO looks for a valuer who was independent, had access to the records, could decline to report without the information needed, and was paid a fee that did not depend on the outcome.

Your side is accurate information. Before our final report, the client signs a representation letter confirming the information supplied. The ATO notes penalties can apply where a taxpayer gave a valuer incorrect information.

Why no valuation can promise ATO acceptance

No valuation, from anyone, comes with ATO approval. The ATO says acceptability usually depends on the process followed, not who conducted it, and a careful report can still be reviewed.

A private ruling on an asset's market value is possible where it relates to a question about the tax law, but the ATO will not rule on a methodology or on market value for a future event, so a 30 June 2027 value cannot be confirmed in advance.

A well supported report still puts you in a strong position. The ATO indicates that if you engage and properly instruct a professional valuer, you generally will not be liable for penalties if the valuation proves deficient, though interest may still apply. It warns that valuing the business yourself risks interest and penalties.

Where we fit

Independent Business Valuation values businesses and ownership interests, including private company shares, trust units and partnership interests, at the date and for the purpose you agree. Each report is prepared by a suitably qualified business valuer at Valuation Group and sets out its method, assumptions and evidence. Guided by APES 225 Valuation Services.

We do not give tax advice: whether you need a valuation, or could use the apportioning method once it is finalised, is for your tax adviser. Our fixed fee is $999 + GST for one business or interest, whether annual turnover is under $2 million or $2 million to $10 million. 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.