CGT reform is coming: Why a valuation is now critical for every business

CGT reform is changing how gains are taxed but valuation is becoming the real battleground. It’s no longer just about the number, but how well you can prove it. Our corporate finance team have summarised their guidance, perspectives and key planning actions for asset owners.

CGT reform is coming: Why a valuation is now critical for every business

The 2026 Federal Budget introduces a fundamental shift in Australia’s capital gains tax framework, one that will fundamentally change how business owners assess value, timing and after-tax outcomes.

Our corporate finance team have summarised their guidance, perspectives and key planning actions for business owners below.

At the centre of these reforms is a move away from the longstanding 50% CGT discount toward an indexation-based system, combined with a minimum tax on gains. While the detail will continue to evolve, the policy direction is becoming clearer, although further detail is still expected. The direction off the back of the federal budget release indicates that future tax outcomes will depend far more heavily on how value is measured, evidenced and defended.

For many business owners, valuing their business will no longer be a downstream consideration; it is a core planning step.

A structural change to the CGT system

From 1 July 2027, the core features of the CGT regime will change:

• The 50% CGT discount will be removed
• It will be replaced with inflation-based indexation of the cost base
• A 30% minimum tax will apply to all net capital gains
• The changes apply broadly across business interests, including shares, property and certain pre-CGT interests

This is not a narrow reform. From our corporate advisers' perspective, it represents a significant structural reset that will shift how business owners assess risk, return and after-tax outcomes.

The shift to a 'split-period' world

A defining feature of the new regime is how it treats business interests held across the transition date.

• Gains accrued up to 1 July 2027 will continue to be eligible for the existing 50% CGT discount, even where the business interest is sold after this date
• Gains arising after that date will be subject to indexation and the 30% minimum tax

The method for apportioning gains between pre- and post-1 July 2027 periods is yet to be finalised.

A time-based apportionment approach may be adopted; however, if this does not produce a favourable or appropriate outcome, obtaining a valuation as at 30 June 2027 may be critical in supporting an alternative position.

This creates a dual system for many existing business interests, one that depends heavily on how value is determined at the transition point.

Why valuation suddenly matters more

The reforms elevate valuation from a supporting exercise to a core tax consideration.

In particular, where a valuation approach is adopted, this will directly impact the portion of any capital gain that remains eligible for the 50% CGT discount. Establishing a robust valuation at 30 June 2027 will therefore be central to determining how gains are apportioned and ultimately taxed.

This is consistent with existing ATO expectations.

As future CGT outcomes become increasingly dependent on how value is determined at the transition date, the quality and robustness of that evidence will become increasingly important.

Our corporate advisory team continue to emphasise to clients that without robust valuation evidence, the risk of dispute or adjustment increases.

Different business interests, different challenges

How that value is determined will depend on the nature of the business interest:

• Shareholdings in privately owned businesses may require more detailed analysis, particularly where there is no active market to establish value
• Businesses with significant property assets may require separate valuation analysis of both the operating business and the underlying real property interests
• Private businesses and unlisted investments will involve earnings, forecasts, market multiples and capital structure considerations
• Specialised business assets may require more advanced valuation techniques

The more complex the business interest, the greater the need for clear, defensible methodology.

The ATO's guidance reinforces this expectation, noting that valuations should be supported by "credible evidence using an appropriate recognised valuation methodology."

Valuation can also affect access to CGT concessions

The importance of valuation extends beyond determining how gains are apportioned under the proposed reforms.

For some business owners, valuation outcomes may also influence eligibility for existing small business CGT concessions. The ATO notes that "The maximum net asset value test is a first step to qualifying for a small business CGT concession" and states that, to satisfy the test, "the total net value of CGT assets owned by you, entities connected with you, affiliates and entities connected with your affiliates, must not exceed $6 million.”

Importantly, the test is based on the market value of relevant assets. The ATO notes that the net value of CGT assets is worked out using "the sum of the market values of those assets less any liabilities of the entity that are related to those assets.”

As a result, the quality and supportability of valuation evidence may have implications beyond the calculation of a capital gain itself. In some circumstances, it may also influence whether a taxpayer can substantiate their eligibility for valuable small business CGT concessions.

For business owners intending to rely on the Small Business CGT Concessions in the future, valuation evidence may therefore become important for more than one reason. It may influence both the calculation of a capital gain and the ability to demonstrate eligibility for concessions that can substantially reduce the resulting tax liability.

As valuation becomes increasingly central to both tax outcomes and concession eligibility, obtaining appropriate valuation evidence may help provide greater certainty when planning future business sales, restructures or succession events.

Why this matters if you intend to sell your business in the future

If the proposed reforms proceed as expected, the way value is established at 30 June 2027 could directly influence how future capital gains are apportioned between the current and future tax regimes. Without a credible and well-supported valuation, business owners may face greater uncertainty around how gains are calculated, how much tax is ultimately payable and how well their position can be supported if reviewed.

This is particularly relevant for founders, family businesses and long-term owners who may not be planning a transaction today but expect one to occur in the years ahead. Understanding value before the transition date may provide greater certainty, improve planning outcomes and reduce the need to reconstruct evidence years after the event.

Valuation is now a strategic issue, not just a compliance step

These changes extend beyond technical tax compliance.

Valuation will now influence:

• Transaction planning, particularly understanding after-tax proceeds before disposal
• Restructuring decisions, including timing and tax exposure
• Estate and succession planning for long-term business transfers
• Business exit strategy, encouraging owners to focus on long-term commercial value creation rather than solely tax outcomes

These considerations may be particularly important for business owners planning intergenerational transfers, management buyouts or broader succession strategies. Decisions made before and after the transition date could produce different tax outcomes depending on how value is established and documented.

For family-owned businesses, valuation may become an increasingly important part of succession planning conversations, helping stakeholders understand the commercial value of the business while supporting future tax positions with clear and well-documented evidence.

Our corporate finance advisers are of the view that this reform will move decision-making away from being predominantly tax-driven and toward being more grounded in long-term commercial outcomes.

Why capturing valuation evidence in real-time matters

Although retrospective valuations may be possible, they introduce additional complexity and uncertainty. The ATO states that "it is important that the valuation is based on the most relevant and reliable information that is known, or could reasonably be foreseen, at the valuation date."

Capturing valuation evidence at the relevant date allows business owners to rely on real-time information, including:

• Market conditions
• Comparable transactions
• Financial performance and forecasts
• Lease, contract and business data

Where valuations rely on information that was unavailable at the time, or fail to properly reflect market conditions that existed at the valuation date, there may be a greater risk that the valuation outcome is challenged or given less weight during a review process. This is one reason why capturing evidence at the relevant point in time can be significantly more effective than attempting to reconstruct it years later.

The risk of waiting too long for a valuation

While obtaining a valuation closer to the point of sale may appear sufficient, delaying the process can create additional challenges.

For business owners, waiting too long may mean:

• Relying on retrospective evidence that is more difficult to verify and support
• Facing greater uncertainty around future tax outcomes
• Increasing the risk of dispute if a valuation position is later challenged
• Losing time to organise financial records, ownership history and supporting documentation
• Having to reconstruct business information, assumptions and market conditions years after the relevant date
• Entering a period of heightened demand for valuation services closer to the transition date

The practical reality is that evidence is often strongest when it is collected and documented at the time relevant events occur. Early preparation can provide greater flexibility and reduce the risks associated with attempting to support a valuation after the fact.

A growing focus on evidence and data quality

In the event of an ATO review or audit, the burden of proof rests with the taxpayer to substantiate how their tax position has been determined. Independent valuation advice remains highly valuable.

The ATO is explicit that "the onus for providing a replicable and defensible valuation remains with you even when a professional is engaged to provide the valuation."

Preparing your data now

One of the most practical challenges is ensuring data readiness ahead of the transition date.

Record keeping will be equally important. The ATO states that you “must keep records of everything that affects your capital gains and capital losses."

The ATO also specifically identifies "any market valuations" as records that taxpayers may need to retain. Maintaining these records alongside supporting documentation can help establish how a valuation was determined and support future CGT calculations if reviewed.

Business owners should be reviewing and organising:

• Acquisition records and ownership history
• Capital improvements and development activity
• Lease and contractual documentation
• Financial performance, forecasts and prior valuations
• Supporting evidence for any material changes in business use

For larger groups, maintaining a structured CGT valuation register can help prioritise where formal valuations may be needed.

Key planning actions to get you started

With the transition date approaching, early preparation is critical.

• Review exit timing before 1 July 2027
• Identify business interests that may be sold, transferred or restructured in future
• Confirm that cost base information is complete and well supported
• Determine which interests may require a formal valuation at the transition date
• Consider how valuation positions would be defended if reviewed

The new CGT reforms reflect more than a change in how gains are taxed

While the CGT reforms remain subject to further legislative detail, the practical direction is becoming clearer.

From our advisers’ perspective:

• Business owners and founders should be modelling after-tax proceeds under both regimes
• Valuers are likely to be in high demand around the implementation date
• Planning now may provide greater certainty around future tax outcomes, improve sale and succession planning, and reduce the risks associated with reconstructing valuation evidence after the transition date

Ultimately, this is not just a change in how gains are taxed; it is a change in how value must be understood, evidenced and defended.

Our corporate finance team recommend a formal valuation for all businesses as part of their planning before 30 June 2027.