The Value Your Business Has Built Before 1 July 2027 Needs Evidence

Australia’s capital gains tax settings change from 1 July 2027. For privately owned businesses, the practical issue is not only whether a valuation may be required, but whether the evidence needed to support value at 30 June 2027 will still exist when the asset is eventually sold.

Business value does not accumulate in a smooth, predictable line. It may change when a major customer contract is secured, recurring revenue is introduced, intellectual property is commercialised, a capable management team is established or the business becomes less dependent on its owner.

The right response is not to chase the highest possible number. It is to build a credible, contemporaneous evidence file from which an independent and supportable valuation can later be prepared.

1. The transition date matters. Under the new framework, gains accruing before and from 1 July 2027 may be treated differently.
2. The core framework is law, but the prescribed alternative apportioning method is not yet final. Treasury released its draft instrument on 3 August 2026, with consultation scheduled to close on 21 August 2026.
3. A market valuation and a time-based formula answer different questions. One examines the asset and contemporaneous business evidence; the other estimates a transition amount by applying a constant compounded growth rate.
4. A professional valuation is not an advocacy exercise. A supportable valuation may be higher or lower than a formula-derived amount. The conclusion must follow the evidence.
5. The four small-business CGT concessions remain, subject to eligibility. The turnover threshold for the 50 per cent active-asset reduction increases from $2 million to $10 million from 1 July 2027.
6. Preparation should begin before the transition date. The final valuation can be completed once reliable year-end information is available, but the underlying commercial evidence should be identified and preserved now.

The core CGT reforms have passed Parliament. Broadly, the new arrangements apply to relevant gains accruing from 1 July 2027 and introduce cost-base indexation together with a 30 per cent minimum tax on real capital gains for affected taxpayers.

The legislation uses a deemed sale and reacquisition mechanism at the end of 30 June 2027 to separate the pre-transition and post-transition periods. For relevant assets, the transition amount is generally based on market value immediately before 1 July 2027 unless the taxpayer chooses an apportioning method determined by the Minister.

Treasury released the proposed apportioning method as an exposure draft on 3 August 2026. At the source-check date for this article, it was not final. The draft applies a constant daily compounding rate across the ownership period to estimate the asset’s value at 30 June 2027.

Consider a specialist industrial maintenance business. Its value may increase sharply after it secures national service agreements, converts project work into recurring maintenance revenue and appoints an experienced operations team that can run the business without the founder.

Those events may occur within a relatively short period even if the business has been owned for many years. Conversely, value may fall quickly if a major customer leaves, margins deteriorate, a licence is lost or key intellectual property becomes obsolete.

A constant-growth formula cannot test those commercial facts. It sees acquisition cost, sale proceeds and elapsed time. A market valuation considers the evidence that hypothetical willing and informed market participants would have considered at the valuation date.

• historical and maintainable earnings;
• budgets and forecasts available at the date;
• customer and supplier concentration;
• contract terms, renewal history and recurring revenue;
• management depth and owner dependence;
• systems, processes and workforce capability;
• intellectual property, brand and market position;
• working-capital requirements, capital expenditure and debt;
• industry conditions and comparable market evidence; and
• risks known or reasonably foreseeable at 30 June 2027.

Assume an interest in a privately owned specialist industrial maintenance business was acquired on 1 July 2020 for $850,000 and sold on 30 June 2035 for $7.40 million.

By 30 June 2027, the business had secured national service agreements, increased recurring maintenance revenue and installed an experienced management team. After considering the financial and commercial evidence, an independent valuation supports a market value of $3.55 million at 30 June 2027.

Figure 1. Illustrative comparison of an evidence-supported business value path and a constant-growth formula approaching 30 June 2027.

• Supportable value at 30 June 2027: $3.55 million
• Illustrative pre-transition nominal gain: $2.70 million
• Illustrative growth after the transition date: $3.85 million

Using the acquisition cost, sale proceeds and elapsed ownership periods in the draft constant-compounding method produces an estimated transition amount of approximately $2.33 million.

• Draft formula transition amount: approximately $2.33 million
• Illustrative pre-transition nominal gain: approximately $1.48 million
• Illustrative growth after the transition date: approximately $5.07 million

The point is narrower and more important: the two approaches measure different things. The draft formula assumes a growth path. A valuation investigates the business and the evidence available at the valuation date.

A supportable valuation is not simply a number selected for tax purposes. It should be capable of being explained by the financial position, commercial circumstances and market evidence that existed at the valuation date.

For a privately owned business, that may require consideration of earnings and cash flow, customer and supplier concentration, recurring or contracted revenue, intellectual property, management capability, owner dependence, growth expectations and the risks a market participant would have recognised at the time.

The valuer’s role is different from the taxpayer’s or adviser’s role: to provide an independent opinion of value based on the evidence available and an appropriate valuation methodology.

A valuation completed several years after 30 June 2027 may still be possible. However, it must be based on information known or reasonably foreseeable at the valuation date rather than on hindsight.

Over time, important evidence can become difficult to locate or interpret:

• signed contracts are superseded or stored in old systems;
• customer and revenue-concentration reports are overwritten;
• pipeline reports and forecasts lose their original assumptions;
• staff changes make it harder to evidence management capability;
• unusual revenue or expenses are no longer easy to explain;
• board papers, strategic plans and IP-development records become fragmented; and
• the commercial context surrounding a major event is forgotten.

This is why waiting until a future sale can create unnecessary evidentiary risk. The business may still have financial statements, but the records explaining why earnings were sustainable, transferable or risky may no longer be available.

1. Scope the issue now

Ask a registered tax adviser to identify the relevant taxpayer, CGT asset, ownership history and potential concessions. This determines whether a transition-date valuation may be relevant and what must actually be valued.

2. Build the evidence baseline before 30 June 2027

Create a dated file covering financial performance, normalisation items, contracts, customers, recurring revenue, management, systems, intellectual property, working capital, forecasts and known risks. Record the source and date of each item.

3. Refresh the position at the transition date

Close to 30 June 2027, update the file for material changes. Document contract wins or losses, customer movements, management changes, new information affecting forecasts and events influencing risk or maintainable earnings.

4. Complete the valuation using reliable year-end information

Once final accounts and supporting schedules are available, reconcile them to the contemporaneous evidence and complete the independent valuation as at 30 June 2027. Retain the report, instructions, source documents and calculation files with the tax records.

• Speak with a registered tax adviser about whether the reforms may affect the business interest or other relevant CGT assets.
• Confirm the entity, asset and valuation date that would be relevant.
• Preserve both financial records and commercial evidence—not merely annual accounts.
• Identify gaps, inconsistencies and one-off items while the people who understand them are still available.
• Decide when to undertake a preliminary evidence review and when the formal valuation should be completed.
• Avoid relying on a broker appraisal, generic multiple or automated estimate where a formal, supportable tax valuation is required.

Expert Business Valuations works alongside business owners, accountants, lawyers and registered tax advisers to provide independent valuation analysis and reporting for clearly defined assets, purposes and valuation dates.

Contact: valuations@expertbusiness.com.au

| 1300 143 533 | expertbusinessvaluations.com.au

General information only. This article does not constitute taxation, legal or financial advice. The legislation and draft materials are complex and may change. Obtain advice from an appropriately qualified registered tax adviser and, where relevant, a legal adviser before acting. Information and sources checked 14 August 2026.

Daniel Callegari

Principal Valuer and Managing Director of Expert Business Valuations. Daniel holds a Master of Applied Finance and Bachelor of Business and has more than 10 years’ experience across business valuation, transaction advisory, mergers and acquisitions, due diligence and business ownership.

• Treasury — Budget 2026–27 tax system changes
• Treasury consultation — Capital Gains Tax and Negative Gearing, Tranche 2
• Treasury — Capital Gains Tax and Discretionary Trusts Reform: Small business explainer
• Federal Register of Legislation — Treasury Laws Amendment (Tax Reform No. 1) Act 2026
• ATO — Market valuation of assets

Publication control: obtain registered tax-agent or legal review immediately before publication if the exposure draft, commencement arrangements or explanatory materials are amended after 14 August 2026.