Don’t let a formula decide when your business created its value
If you may sell your business after 1 July 2027, the value established at that date could materially affect how a future capital gain is divided and taxed.
Under the new capital gains tax rules, gains accruing before 1 July 2027 will remain under the existing CGT discount regime, if eligible.
For affected taxpayers, gains accruing from that date will be subject to cost base indexation and a minimum 30% tax rate, subject to applicable exemptions and concessions.
For business owners, this makes 1 July 2027 an important dividing line.
Establishing a defensible market value at the transition date can provide a stronger basis for separating the value already created from future capital growth. Leaving that exercise until the business is sold may mean relying on Treasury’s proposed apportionment formula or attempting to reconstruct the business’s former position years later.
Why Treasury’s formula may not reflect your business
The proposed formula is intended as an alternative to obtaining a formal market valuation for property and assets without a readily ascertainable market value, including interests in private businesses.
As currently drafted, it estimates value at the end of 30 June 2027 by assuming the asset grew at a compounded daily rate across the entire ownership period. Important parts of the calculation are also driven by the original acquisition cost rather than necessarily reflecting the owner’s full economic investment.
Businesses rarely grow in such a smooth or predictable way. Value may change sharply following:
A major contract win or loss
The launch of a new product or service
An acquisition or restructure
Investment in systems, staff or intellectual property
Improved profitability or recurring revenue
The loss of a key person or customer
Changes in the industry or competitive environment
A formula calculated at the time of a future sale may allocate growth across the ownership period in a way that does not reflect when the value was actually created.
Depending on the circumstances, this could produce a better or worse tax result. The concern is that the formula – not the commercial history of the business – may determine how much growth is attributed to each CGT regime.
Establish the 1 July 2027 position while the evidence is current
A professional business valuation prepared as at the transition date can capture the factors influencing the business at that time, including:
Maintainable earnings and cash flow
Customer and supplier concentration
Key-person reliance
Management capability and business systems
Contracts and recurring revenue
Intellectual property and goodwill
Industry conditions
Identifiable risks and growth prospects
The valuation does not necessarily need to be commissioned on 1 July 2027. A retrospective valuation may be prepared when the business is eventually sold.
However, the longer owners wait, the harder it may become to recreate an accurate picture.
Management accounts may be archived or lost. Contracts may expire. Employees may leave. Systems may change. Later success can also make it difficult to separate what was genuinely known or achievable at the transition date from opportunities developed afterwards.
Preparing now allows owners to preserve the financial records, forecasts, contracts, board papers, customer information and commercial evidence required to support a future valuation.
A stronger basis for future CGT planning
Consider a business that experienced substantial growth before 1 July 2027 following years of investment, improved systems and major contract wins. Its performance then stabilises before the owners sell several years later.
Treasury’s formula may assume the value grew continuously throughout the entire ownership period. This could attribute some of the earlier commercial growth to the post-2027 period, even though the value had already been created by the transition date.
A defensible market valuation can provide evidence of the business’s actual position at that date.
This does not guarantee a lower tax bill. In some circumstances, Treasury’s formula may produce the more favourable result. Establishing the transition-date value gives owners and their advisers a stronger basis for comparing the available outcomes instead of discovering the issue only after a buyer appears, or a decision to transition ownership emerges.
It may also support earlier decisions about:
The timing and structure of a future sale
Succession or ownership changes
Eligibility for small business CGT concessions
Business improvements that could increase future value
The records needed to support the eventual tax position
Prepare now (not when the sale is underway)
A future business sale or transition of ownership is likely to involve due diligence, negotiations and significant commercial decisions. Reconstructing the business’s value as at 1 July 2027 should not become another urgent task during that process.
Establish your 1 July 2027 asset cost base while the evidence is current
The CGT reforms are coming. If you leave your business valuation until a future sale, important financial and commercial evidence may be difficult to reconstruct, and Treasury’s allocation formula may not reflect when your business created its value.
Strategy360’s Business Position Assessment provides a structured, cost-effective way to document your business’s financial performance, risks and value drivers, supporting a defensible valuation position for future CGT purposes.
Whether you are a Collins Hume client or not, our Business Valuation Specialists can help you prepare for the transition date, establish your business value and preserve the evidence needed to support future CGT planning.
We also work with accountants, advisers and property valuers who require specialist business valuation expertise for their clients.
Talk with Strategy360 about preparing your 1 July 2027 asset cost base now.
View our factsheet
Important: The first stage of the CGT reforms has become law, but the detailed apportionment method discussed above remains in exposure draft at the date of publication and may change. This article provides general information only. Obtain professional tax and valuation advice for your circumstances.
Further reading
Australian Treasury, Capital Gains Tax and Negative Gearing – Tranche 2 Legislation
Australian Financial Review (19 August 2026), Inside Treasury’s nine-step CGT formula: are you set to win or lose?
