Business valuation for CGT and the small business concessions
The ATO accepts a valuation that states its standard of value, valuation date, methodology, assumptions and evidence, and carries a signed declaration from a qualified valuer. For the small business CGT concessions, the market value of assets is what the $6 million net asset value test turns on.
Market value substantiation is a documentation exercise as much as a valuation one. A number without a documented basis is an estimate, and an estimate is what gets adjusted on review — often years later, with interest and penalties attached.
The brief
Who reads it, and what it has to satisfy
The purpose sets the standard of value, the level of documentation and the person the report has to convince. Getting that wrong is the most common reason a valuation is rejected.
Your accountant or tax adviser first, then the ATO if the position is ever reviewed or audited.
Market value as the ATO applies it — the price agreed between a knowledgeable, willing but not anxious buyer and seller dealing at arm’s length.
The date of the CGT event, which is frequently not a financial year end and cannot be back-solved from convenience.
What the report must contain for this purpose
- The standard of value stated explicitly, with the definition applied
- The valuation date, and why the information used is relevant at that date
- The methodology chosen, and why it suits this business
- Every assumption and limitation disclosed
- The evidence relied on, identified and dated
- A signed declaration from a qualified valuer, with their credentials stated
Sequence
How a market value substantiation engagement runs
The sequence is driven by the tax event, not by the calendar. Tell us the date and the test that applies.
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01
Identify the event and the test
A disposal, a restructure, a rollover, an entitlement to a concession. Which test applies determines what must be valued and at what date.
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02
Scope the assets
The business, related entities, real property, plant and equipment, and any connected or affiliated entities caught by the relevant threshold test.
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03
Value at the event date
Applying information available at that date, with any subsequent knowledge explicitly excluded from the reasoning.
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04
Document to review standard
A report your accountant can lodge behind and rely on if the position is examined years later, when memories are no help.
Where it goes wrong
Why market values get rejected
Almost never because the number was outlandish. Almost always because the basis was not documented.
What a rejected valuation costs
Losing access to a small business CGT concession is rarely a small adjustment. Where the concession would have reduced or eliminated a capital gain, the exposure is the tax on that gain plus the general interest charge from the original due date, and potentially penalties. The valuation is the cheapest part of the position.
- A number with no methodology A figure in an email or a spreadsheet is not a valuation. Without a stated method, evidence and declaration, there is nothing for a reviewer to accept.
- The wrong valuation date Valuing at year end when the CGT event happened in March produces the wrong number and is difficult to defend once identified.
- Book values used as market values The net asset value test looks to market values. Plant carried at written-down cost and property at historical cost will both be wrong, sometimes decisively.
- Connected entities left out The threshold tests capture connected entities and affiliates. Valuing only the trading company can produce a pass on paper that fails on review.
- Hindsight in the reasoning Using information that emerged after the valuation date — a later sale, a subsequent contract — undermines the whole report, however favourable it looks.
What we need
Documents for this engagement
Everything a standard engagement needs, plus whatever establishes the position of connected and affiliated entities at the event date.
Open the standard checklist →- Financial statements — three years For the trading entity and every connected entity
- The transaction or event detail What happened, on what date, and under what documents
- Group structure Companies, trusts, partnerships and the relationships between them
- Property and asset details Titles, leases, asset registers and finance agreements
- Shareholder or trust documents Constitutions, deeds and any agreements affecting value
- Prior valuations or transactions Any earlier assessment of the same assets, disclosed
The ATO requires that a market value used in a tax position can be substantiated. In practice, for anything material, that means a valuation by a qualified valuer setting out the standard of value, date, method, assumptions, evidence and a signed declaration. Self-assessed values are permitted in principle but carry the risk of adjustment, interest and penalties if they cannot be supported.
An accountant can prepare a valuation, and many do competently. The question is whether the resulting document has the independence and the credentials behind it to withstand review — and whether your accountant wants to be both the adviser on the position and the valuer supporting it. Where the amount is material, an independent Certified Practising Valuer is the safer position for both of you.
The date of the CGT event, or the date the relevant test is applied. It is frequently not 30 June. Valuing at a convenient date rather than the correct one is one of the most common defects we see in substantiation documents.
Yes, in-house. Asset Valuations Group holds Certified Practising Valuer and Certified Asset Valuer accreditations, so the business, the real property and the plant and equipment can all be valued within one engagement and one consistent set of assumptions.
For the full period the ATO can amend the assessment, and longer where the asset continues to be held. A valuation supporting a cost base may be needed many years after it was prepared, which is precisely why the report has to stand alone without the valuer explaining it.
Reviewed by a Certified Practising Valuer
Reviewed by Jarrad Khoury, Director and Head of Valuations — Registered Valuer (QLD, Not Limited), Licensed Valuer (WA, Not Limited), CPV and CBV. Published by Business Valuations Brisbane, the business valuation division of Asset Valuations Group.
Last reviewed
Substantiate the number before the ATO asks.
A free 15-minute scoping call, then a fixed fee in writing. No obligation, and nothing you send leaves our office.
1300 778 033