The $6 Million Maximum Net Asset Value Test in Australia

Under the Australian Taxation Office’s guidance, the test is applied just before the CGT event that gives rise to the capital gain. The total net value of relevant CGT assets must not exceed $6 million.

The calculation is based on market value, not book value. It can include assets of the taxpayer, connected entities and, subject to specific rules, affiliates and entities connected with affiliates. The grouping rules and exclusions are fact-sensitive, so the entity perimeter should be confirmed by the client’s tax adviser before the valuation work is finalised.

1. Identify the CGT event and fix the valuation time

Start with the proposed transaction or restructure and identify the event that requires the test. The valuation brief should record the precise valuation date and make clear that the relevant snapshot is “just before” the CGT event – not the most recent financial year-end and not the date the report is prepared.

2. Map the entity perimeter with the tax adviser

Prepare a structure chart showing companies, trusts, partnerships, individuals, ownership percentages, control relationships and potential affiliates. The tax adviser should document why each entity is included or excluded. This step reduces double counting and prevents a material asset being discovered after the valuation is complete.

3. Build a complete asset register

List the relevant CGT assets for each included entity and identify the evidence available for each item. The register should not be limited to assets described as “business assets” in the accounts. It may need to consider goodwill, private company interests, investment assets, real property, loans, cash, intellectual property and off-balance-sheet rights, subject to the statutory rules and exclusions.

Interests in connected entities may require special treatment to avoid double counting the underlying assets. Personal-use, main-residence and superannuation exclusions also require careful tax analysis. The valuer should not assume that the accounting balance sheet defines the statutory perimeter.

4. Prioritise the assets with genuine valuation uncertainty

Some assets have strong third-party evidence, such as listed securities or recent arm’s-length property appraisals. Others require professional judgement. A trading business may contain material goodwill even if the balance sheet records little or none.

For a private operating business, the valuation may involve normalising historical earnings, assessing owner dependency and customer concentration, selecting an income or market approach, and cross-checking the result against available market evidence. The methodology should match the asset, the purpose and the information available.

5. Confirm deductible liabilities and exclusions

Liabilities are not deducted simply because they appear in the accounts. The tax adviser should confirm which existing liabilities may be deducted under the statutory test and whether they relate to the relevant CGT assets.

Contingent liabilities and general provisions may not qualify. The same analysis should identify excluded assets and double-counting adjustments, including interests in connected entities where the underlying assets are already included.

6. Run a near-threshold sensitivity analysis

A single point estimate can conceal the real file risk. If the preliminary group total is close to $6 million, test how changes in goodwill, property value, minority interests or related-party balances affect the result.

The example is illustrative only. Its purpose is to show why the valuation range, liability analysis and entity perimeter should be considered together before the transaction is implemented.

7. Assemble a defensibility pack

A well-documented file should allow another professional to follow the reasoning from the CGT event to the final calculation. At a minimum, retain the structure chart, inclusion analysis, asset register, valuation reports, liability schedule, assumptions, source records and sensitivity analysis.

• The preliminary result is close to the $6 million threshold.
• The group holds a private business, goodwill, intellectual property or unlisted equity interests.
• The transaction is between related parties or uses a market value substitution rule.
• A retrospective valuation date is required and contemporaneous evidence is limited.
• The client expects ATO review, audit scrutiny or a contested tax position.
• Book values are being used as a proxy for market value without supporting analysis.

• The asset or interest to be valued and its legal owner.
• The exact valuation date and the proposed CGT event.
• The valuation purpose and the tax adviser’s confirmed entity perimeter.
• Historical financial statements, tax returns, current management accounts and forecasts.
• Group structure, related-party arrangements and prior transactions involving the asset.
• Known limitations, disputed facts and any required sensitivity analysis.

• Using book value where the legislation requires market value.
• Valuing the business at the report date rather than just before the CGT event.
• Double counting both an interest in a connected entity and its underlying assets.
• Selecting an unsupported low value because the result is tax-favourable.
• Using information that arose after the valuation date without considering whether it was reasonably foreseeable at that date.
• Treating the valuer’s report as a substitute for the tax adviser’s eligibility analysis.

The calculation is only as strong as its weakest component. A technically correct spreadsheet cannot cure an incomplete group map, an incorrect valuation date or unsupported market values. Early coordination between the tax adviser, client and valuer is usually the most efficient way to protect the file.

Selected references

– Australian Taxation Office – Maximum net asset value test

– Australian Taxation Office – Market valuation for tax purposes

– Income Tax Assessment Act 1997 – Federal Register of Legislation

– APESB – Valuation Services and APES 225

Editorial note and disclaimer: This article provides general valuation information and does not constitute tax or legal advice. Eligibility for the small business CGT concessions depends on the legislation and the client’s circumstances. Obtain advice from a qualified Australian tax adviser.