CGT changes: why your business value at June 2027 matters

A business owner selling in 2032 may need to substantiate what their business was worth in June 2027. By then, the accounts may still exist, but the contracts, forecasts and commercial context explaining that value could be much harder to reconstruct.

Not every owner needs a valuation. The first step is to work out whether the changes affect you, and what evidence to keep.

What is changing

According to the ATO, the first stage of the reform is now law. From 1 July 2027, it will:

• replace the 50% CGT discount for resident individuals, trusts and partnerships with cost base indexation on gains that accrue on or after 1 July 2027
• introduce a minimum 30% tax for individuals on certain net capital gains that accrue on or after that date.

For assets held before 1 July 2027 and sold later, the law applies as if you disposed of the asset immediately before 1 July 2027 and reacquired it on that date. The gain up to that point keeps the current treatment, and the gain afterwards falls under the new rules. That’s why the market value immediately before 1 July 2027 may matter.

Treasury’s small business explainer notes that the four small business CGT concessions remain, and that the turnover threshold for the 50% active asset reduction rises from $2 million to $10 million from 1 July 2027. So don’t assume the changes automatically mean a higher tax bill. Your circumstances, ownership structure and available concessions matter.

For a private business, there’s no published share price. Its value depends on earnings, customers, contracts, management, assets and risks, all of which change over time. The practical question is how to establish what it was worth at the transition date.

Start with the asset you actually own

Before thinking about valuation methods, work out what needs to be valued. It might be shares in a private company, a partnership interest, units in a trust, goodwill, or another business asset.

A company and its shareholders are separate taxpayers, and they’re treated differently under the CGT rules. The value of the operating business isn’t automatically the value of the shares: debt, surplus cash, other assets and the rights attached to a shareholding all affect the answer, and a minority shareholding may need a different analysis from the whole company. Your tax adviser should identify the relevant taxpayer and asset before anyone is asked to value it. See Sole trader, partnership, company or trust?.

Why a formula may tell a different story

The ATO says taxpayers may be able to choose an alternative apportionment method, which the government is still developing. Treasury’s exposure draft proposed a method based on compound growth between the original cost and the eventual sale price. Check the final rules with your adviser rather than treating draft details as settled.

A formula like that serves a different purpose from a business valuation. It allocates growth evenly over time using set inputs. It doesn’t look at when a business won its major contracts, built its systems, developed intellectual property or became less dependent on its founder.

Businesses rarely grow smoothly. One might build most of its value early and then plateau; another might trade modestly for years and then expand quickly. Two businesses bought for similar prices and later sold for similar amounts could have very different values at June 2027, and an even-growth formula would treat them the same.

That doesn’t mean a valuation will save tax. An independent valuation could produce a lower value at the transition date than the formula. Its purpose is to establish a supportable market value, not a preferred outcome.

The records survive; the explanation disappears

Financial statements are essential, but they don’t capture everything a buyer would weigh up. Two businesses with similar profits can be worth different amounts because one has recurring revenue, experienced managers and a spread of customers, while the other depends on a single customer and the owner’s personal relationships.

Years later, the accounts may still be there while the supporting detail has gone: staff leave, contracts are replaced and forecasts are overwritten. A valuation done later must assess the business as it was at the date, without using hindsight. Keeping dated records now makes that much more reliable.

What to start keeping

Financial records

• Financial statements, tax returns, management accounts and supporting ledgers
• Details of owner pay, related-party transactions and unusual expenses
• Budgets and forecasts in their original, dated versions, with the assumptions behind them

Commercial records

• Major customer and supplier contracts, leases, licences and intellectual property records
• Recurring revenue, customer concentration and renewal patterns
• Key staff responsibilities, and what still depends on the owner

Balance sheet and ownership

• Debt schedules, working capital, contingent liabilities, and surplus or non-operating assets
• Shareholder agreements and relevant trust documents

Events

• Dated notes of significant offers, setbacks, regulatory issues and other events that changed expectations

The aim is a clear record of the business as it stood at the relevant date. A folder of final accounts alone may leave important questions unanswered. See Bookkeeping basics for record-keeping habits.

What makes a valuation useful

The ATO’s guidance on market valuation says valuations must be objective and supportable. A useful valuation report:

• explains what was valued, for whom, as at what date and for what purpose
• links its conclusion to financial information, commercial evidence and appropriate methods
• explains adjustments to earnings, the treatment of owner pay, and how risks affected the value
• explains why any comparable transactions or market evidence are relevant
• sets out assumptions, limitations and sensitivities, and considers unfavourable evidence as carefully as favourable evidence.

A valuation doesn’t guarantee the ATO will accept it. The taxpayer remains responsible for substantiating the position taken.

A practical timetable

1. Now: talk to your accountant or tax adviser. Ask whether the changes affect your assets, whether the concessions make the transition value material, and whether market value evidence is worth pursuing.
2. Now to June 2027: preserve evidence. Use the checklist above, identify gaps and fix what you can. Preparation may also show ways to strengthen the business, such as reducing customer concentration or documenting how things are done. But a valuation reflects the business as it actually is: an unsigned contract isn’t revenue, and a planned appointment doesn’t reduce owner dependence until it happens.
3. Don’t get the valuation too early. The ATO says taxpayers shouldn’t obtain a valuation before 1 July 2027, because a valuation can’t be forward-looking. Agree the asset, purpose and date with your adviser and valuer, and capture information as close to 30 June 2027 as you can.
4. After 1 July 2027: a valuation of the market value immediately before that date can be prepared using the evidence you kept, reconciled with final results for the period.

Tax advice and valuation are different jobs. Your adviser works out the tax treatment and liability; the valuer establishes market value within an agreed scope. Getting them talking to each other helps make sure the report answers the right question.

The bottom line: you don’t need to predict your eventual sale price today. Work out with your adviser whether the transition matters for you, and preserve the evidence of what your business looked like when the rules changed.

IBV has a free CGT business valuation guide and checklist that owners can use to organise information before talking to their accountant and valuer.

About the author

Dr Patrick Hillenbrand is a Certified Business Valuer and founder of Independent Business Valuations (IBV). He has more than 25 years’ experience founding, buying, building and selling businesses, and a doctorate in corporate entrepreneurship.