Preparing your business for valuation ahead of the 2027 CGT changes

The Federal Government's changes to Australia's capital gains tax (CGT) regime have now been legislated and will apply from 1 July 2027.  

In broad terms, the changes replace the 50% CGT discount for individuals, trusts and partnerships with cost base indexation and a 30% minimum tax rate*1, while ending the pre-CGT exemption for assets acquired before 20 September 1985. The reforms apply to all gains accrued after 1 July 2027, subject to limited exceptions. As a result, business owners and investors may need to consider how the market value of relevant assets, including business interests, will be supported at that date.

These changes mean many taxpayers will need to establish the market value of certain assets, including business interests, as at 1 July 2027. Whilst 1 July 2027 seems a while away, our advice is that business owners should begin preparing now. Consider what records and information you may need to support future tax positions.  

*The 30% minimum tax rate will apply to indexed capital gains derived by resident individuals only.

Why a valuation offers greater certainty and flexibility

Under the new CGT rules, taxpayers will need to establish the market value of assets held at 1 July 2027. For individuals and trusts, gains accruing before that date may continue to benefit from the 50% CGT discount, while gains accruing after that date will be subject to the new indexation regime. For business interests, taxpayers may either obtain a valuation as at 1 July 2027 or rely on a prescribed formula.  

However, the proposed formula is not a simple time-based apportionment of the gain; it applies a more complex daily compounding growth rate, which may result in a greater proportion of the gain falling outside the 50% discount unless the asset grows significantly faster after 1 July 2027.

For this reason, obtaining a valuation is likely to provide greater flexibility and certainty. If the formula ultimately produces a better outcome, it may still be available; however, without a valuation, taxpayers may have no alternative basis to support value at 1 July 2027.

Who needs a formal valuation prior to 30 June 2027?

For many business owners, obtaining a formal valuation prior to or immediately after 30 June 2027 may not be necessary. A retrospective valuation can often be prepared after July 2027, provided sufficient information is retained to allow the valuation to be reconstructed and supported using information available as at 1 July 2027.  

However, in the following circumstances business owners should consider undertaking the valuation earlier:

• A business sale or succession event is anticipated in the near future.
• Significant transactions or ownership restructures are expected.
• The business has complex valuation considerations.
• The size, value or industry profile of the business may increase the likelihood of ATO review.
• Shareholders want greater certainty regarding future tax outcomes. 

What does the ATO expect from a market valuation?

The Australian Tax Office (ATO) published Market Valuation Guidelines2 focus on more than simply arriving at a value. The valuation must be:

• objective and independent
• based on recognised valuation methodologies
• supported by credible evidence  
• prepared in accordance with International Valuation Standards and APES 225 (if prepared by an accountant)
• capable of being reviewed, replicated and defended
• prepared using information known (or reasonably foreseeable) at the valuation date.  

The ATO also expects valuation reports to clearly document the purpose of the valuation, scope of work, valuation date, methodology, supporting evidence and valuation conclusion.  

Information businesses should consider retaining ahead of a valuation

To facilitate a valuation, businesses should collate the following information:

Financial statements and management accounts for at least three years to 30 June 2027 (FY25, FY26 and FY27).

• Backup of bookkeeping file for at least three years to 30 June 2027 (FY25, FY26 and FY27).
• Budgets, forecasts, business plans and project pipelines in existence as at 1 July 2027, including any supporting assumptions or working papers prepared at the time. Should you require support, RSM has a dedicated team to provide budget and forecast assistance.  
• Fixed asset register as at 30 June 2027.
• Detailed breakdown of employee entitlements as at 30 June 2027 on a per employee basis.
• Breakdown of sales by client and by type for the prior three financial years.  
• Details of any one-off, private or abnormal income and expense items in the last three financial years.  
• Details of the roles performed by associates and their replacement commercial remuneration.
• Key customer, supplier and lease agreements.
• If the business premises are leased from a related party, an assessment as to the applicable commercial rent.  
• Shareholder and ownership records.
• Shareholder agreements, trust deed, constitution and acquisition documents.
• Board papers and strategic planning documents.

Retaining this information now may significantly reduce the cost, complexity and risk of preparing a valuation in the future.

Choosing the right valuer is critical

The ATO places considerable emphasis on valuations being appropriately supported and undertaken by suitably experienced professionals. A valuation should not simply provide a number; it should clearly explain how that conclusion was reached and provide sufficient evidence to support it.  

RSM's national Corporate Finance team specialises in business valuations for tax, transaction, dispute and succession planning purposes. Our valuations are prepared using recognised valuation methodologies and are designed to align with the ATO's expectations regarding documentation, support and defensibility.  

Engage early to understand and support value

The period to 30 June 2027 presents an important window for business owners to understand the factors that influence value and to ensure those factors are appropriately documented and supported. Engaging now with valuation, tax and business advisers may assist owners to identify, evidence and, where commercially appropriate, strengthen key value drivers before the relevant valuation date.

The focus should be on taking practical, commercially sound steps to ensure the business is well prepared, its financial performance and future prospects are clearly articulated, and any factors that support value are considered in advance. This may include reviewing budgets and forecasts, addressing normalisation adjustments, documenting growth opportunities, resolving risks or uncertainties, and ensuring appropriate records are retained to support the position adopted as at 1 July 2027.