Market valuation for tax purposes: why getting it wrong is expensive

Market values are required in many circumstances and for a variety of purposes. 

In this article we set out when a valuation is required, what the ATO expects from it, and the ramifications of an inadequate valuation. It also covers the market valuations that many taxpayers will need as the 2027 capital gains tax (CGT) reform takes effect. 

When do I need a market valuation? 

You must determine market valuation of an asset when required by tax law, for example when transacting between related parties, or other transaction and liquidity events that may give rise to potential tax consequences.  

Common examples include: 

• Establishing an asset's value as at 1 July 2027 under the new CGT reform (see below). 

• Non-arm's length transactions, including transferring property or shares between related parties, such as family members or related group entities. 

• Employees receiving shares or options under an employee share scheme. 

• Small businesses meeting the asset threshold tests for CGT concessions. 

• Businesses undertaking restructuring activities, acquisitions, consolidation or de-consolidation, assessing available fractions, or determining stamp duty. 

Market value is the amount that a willing buyer and seller would agree to in an arm's length transaction. 

Talk to your Findex advisor about whether your next transaction needs a market valuation. 

What does the ATO require of a market valuation? 

The ATO requires that the valuation be objective and supportable with appropriate evidence. 

The ‘Market valuation for tax purposes guide’ sets out the principles and processes for establishing a market value for tax purposes, the ATO’s expectations, the evidence and processes the ATO expects to support a valuation, and the most common valuations for tax purposes. 

The ATO’s view is that market valuations undertaken by professional valuers are more credible than those provided by someone who isn't a professional valuer. 

Determining market value requires careful consideration of the asset, business or entity, environment, market and any other relevant factors. It is not without challenges, and valuation professionals build expertise over many years and through a variety of engagements. 

The ATO expects the preparer of a market valuation to be: 

• suitably knowledgeable and experienced

• appropriately instructed

• objective, and free of obstacles or limitations that would inhibit their work

• able to reach a reasonable market value, supported by credible evidence, using a recognised valuation methodology. 

What happens if the ATO reviews your valuation? 

Commissioning an external valuation provides much stronger evidence to support the arms’ length market value. The ATO has the authority to review any market valuation supporting a tax calculation. If it does, the onus for providing a replicable and defensible valuation sits with the taxpayer, not the ATO. 

ATO investigations are typically very thorough and can be lengthy, taking time, effort and resources away from your day-to-day business operations. 

If the ATO can demonstrate that the valuation is deficient, it will require you to correct any resulting errors in your tax calculation, and it may also charge interest and penalties. 

A review is more likely where the asset's value is high, or the valuation methodology is contentious. In those cases, the ATO will expect greater depth of evidence and explanation to support the position taken. 

A real litigation example

A Victorian family business restructured in 2015 on the advice of its accounting firm and the family trust sold its business to a related entity. An individual employed by the accounting firm valued the business at an amount low enough to access the small business CGT concessions (which require net assets under $6 million). 

The ATO audited the restructure, disagreed with the valuation, found it to be deficient, and commissioned its own valuation, which valued the business significantly higher (approximately triple the value). Based on the ATO's figure, the business failed the $6 million asset test and the concessions were denied, creating a capital gain in excess of $3 million. 

Upon appeal, the taxpayer engaged another valuer, and this revised valuation was ultimately accepted by the tribunal and the small business CGT concessions were reinstated. The court thoroughly contrasted two conflicting expert valuations, and the tribunal dissected every detail: maintainable EBITDA, capitalisation multiples, and transaction metrics. The court highlighted that a valuation is poor if it fails to factor in certain risks. Whilst no penalties were imposed, this case illustrates how valuer quality gets picked apart, the lengthy process of an investigation, the resources involved in responding to the ATO and attending court, and the costs of commissioning an additional valuation with a reputable valuer.

Taxpayers who prepare their own valuation, or use valuations from people without adequate qualifications, carry a heightened risk of misrepresenting their tax position and therefore a heightened exposure to interest and penalties as a result. 

How Findex Corporate Finance can help 

A reasonable estimate of market value requires skill, knowledge and experience.  

A valuation report carried out by a suitably qualified professional, following commonly accepted industry standards and professional codes of conduct, generally contains sufficient evidence and reasoning to allow for testing or replication. As a result, they are considered more credible and reliable by the ATO. 

Our Corporate Finance team has deep and vast experience in preparing market valuations for tax purposes. We also directly support the ATO with their review and investigation of tax valuations and understand first-hand their expectations.  

Our market valuations are performed in compliance with the ATO’s Market Valuation for Tax Purposes guidelines and reflect the concept of market value, which is defined as: 

“The price that would be negotiated in an open and unrestricted market between a knowledgeable, willing but not anxious buyer and a knowledgeable, willing but not anxious seller acting at arm’s length.” (Spencer v. Commonwealth (1907) 5 CLR 418 Griffith CJ and Capricorn Diamonds Investments Pty Ltd v. Catto and Ors [2002] VSC 105 (10 April 2002). 

Every engagement is conducted in accordance with APES 225 Valuation Services, issued by the Accounting Professional and Ethical Standards Board, and complies with the International Valuation Standards set by the IVSC, the independent global standard setter for the valuation profession. 

Our valuation professionals have deep experience in preparing valuations for tax purposes. Our market valuations are: 

• robust, objective and thoroughly documented

• supportable and defensible

• prepared to withstand ATO scrutiny

• employ the most appropriate inputs and methodology. 

In our experience, the benefit of an independent market valuation outweighs the cost involved, particularly when it is delivered alongside collaborative advice from our Tax Advisory team. Together, this gives you credibility in your tax calculations and helps optimise your tax outcomes. 

Talk to your Findex advisor about getting an independent market valuation before your next transaction. 

What's ahead: the 2027 capital gains tax reform 

The Treasury Laws Amendment (Tax Reform No. 1) Act 2026 is now law, and it's the most significant change to Australian capital gains tax in more than 25 years. Have you considered your tax circumstances and started preparing your market valuations ahead of the new capital gains tax (CGT) regime implementation?

From 1 July 2027, the 50% CGT discount for individuals, trusts and partnerships is replaced by cost base indexation and a 30% minimum tax on net capital gains. Every business asset, sale, exit, and succession plan built under the current rules will need to be assessed against the new regime.

A market valuation as at 1 July 2027 is not compulsory. An alternative apportioning method is available, although this may not accurately reflect when changes in value have taken place over the life of the asset. Also, for higher-value or more complex assets, a dated, independent valuation is the clearest evidence of the value that separates your pre-reform gain (still eligible for the 50% discount) from your post-reform gain (taxed under the new rules). It is generally harder and more costly to reconstruct that value later. 

Key dates 

• 26 June 2026: Treasury Laws Amendment (Tax Reform No. 1) Act 2026 received Royal Assent. 

• 1 July 2027: New CGT rules commence. The 50% CGT discount is replaced by cost base indexation and a 30% minimum tax on net capital gains for individuals, trusts and partnerships. 

Frequently asked questions 

Is a market valuation compulsory for the 1 July 2027 CGT reset? 

A market valuation must be determined. The reset value defaults to the asset's market value just before 1 July 2027, but there is also an apportionment method now in place which time allocates the change in value, based on the change in CPI over the life of the asset. It therefore is not possible to have certainty on the outcome of this apportionment until the asset is later disposed of. A professional valuation matters most where that formula would understate the asset's real value, or where you want independently defensible evidence. 

What happens if the ATO finds my valuation inadequate? 

You will be required to correct the resulting errors in your tax calculation, and the ATO may also charge interest and penalties. The onus is on you, as the taxpayer, to provide a replicable and defensible valuation. 

Who can prepare a market valuation for tax purposes? 

Taxpayers could attempt a valuation, but the complexity should not be underestimated. The ATO considers valuations from a suitably qualified, experienced and objective professional valuer more credible than a taxpayer's own estimate, particularly where the asset value is high or the methodology is contentious. 

When a market valuation is supporting tax advisory services, the accuracy and credibility of both streams of work should be prioritised. 

What standards does Findex apply to its tax valuations? 

Our valuations are performed in compliance with the ATO’s Market Valuation for Tax Purposes guidelines. prepared in accordance with APES 225 Valuation Services and the International Valuation Standards, and reflect the ATO's definition of market value. 

Our valuations can be relied upon as robust and credible and when delivered in conjunction with our tax advisory services, we provide you with a suite of quality services. Entertaining the idea of seeking a poor-quality valuation compromises the overall exercise and puts you, the taxpayer, at risk of an ATO investigation. 

Start your planning conversation 

An inadequate valuation can cost far more than the valuation itself, in corrected tax, interest, penalties and time. A deficient valuation compromises the entire suite of tax related services. Whether you need a valuation for a related-party transaction, an employee share scheme, or the 2027 CGT reset, Findex Corporate Finance can help you get it right the first time. 

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