Part one of Nexia’s series on capital gains tax (CGT) changes and the proposed 30% minimum tax on discretionary trusts
The CGT reforms have generated more questions from clients than any tax change we have seen in years. For many successful business owners, investors and family groups, one of the first questions is:
“Do I need a valuation?”
A better question is:
“What evidence should I have in place today to support my position tomorrow?”
For some clients, that may mean a formal valuation. For others, it may mean a structured valuation pack or a broader review of their family group’s ownership and succession arrangements. A valuation is likely to become an important part of planning under the new rules and the right approach depends on your circumstances, the types of assets you own, your structure and your long-term plans. It is therefore worth understanding what problem a valuation is intended to solve and where it creates the most value for you.
Why is a valuation as at 30 June 2027 beneficial?
The main reason for this is that capital gains generated up to 30 June 2027 will be taxed differently to capital gains generated from that date. Generally speaking, the former will be taxed under the current 50% CGT discount arrangements and the latter will be subject to cost-base indexation and a 30% minimum tax rate on those gains.
The benefit of obtaining a valuation of your business as at 30 June 2027 is that this newly established market value effectively becomes the starting point for measuring the new regime gain, and that starting value is then indexed for inflation until sale.
In the absence of a valuation being undertaken, there is a formulaic approach that has been proposed. The formula uses a compounding return basis to calculate the capital gain over time which means that capital gains are largely assumed to grow in value faster in the later years of holding an asset due to the compounding effect.
Depending on the level of capital appreciation of your asset and the holding period as at 30 June 2027, this may not result in the best taxable outcome for you. Therefore, having the ability in the future to plan the best tax outcome through the use of the Australian Taxation Office (ATO) formula or a valuation requires some action to be taken as at 30 June 2027.
Importantly, the ATO’s market valuation for tax purposes guide requires that the valuation is based on “the most relevant and reliable information that is known, or could reasonably be foreseen, at the valuation date.” The consequence for the future sale of the asset is that you cannot take into account what has happened since, but instead need to evidence what was known, as at 30 June 2027. The further you move beyond 30 June 2027, the more difficult and potentially more costly it may become to produce acceptable evidence for a reliable valuation, which could limit tax calculations and planning options.
What should you do before 30 June 2027?
While 1 July 2027 is an important date, it does not mean you must sell assets before then. Rather, the changes may affect the tax outcome when you later sell, transfer or restructure an asset. The main practical risk is not being ready, as poor records, inadequate valuations and rushed sale decisions could lead to worse tax and commercial outcomes.
Any tax planning or actions considered before 30 June 2027 should take into account price, funding, family, succession, asset protection and broader commercial objectives. CGT reform should be treated as one planning consideration rather than the sole driver, and you should consult your financial and tax advisors when preparing for the changes.
From a valuation perspective, the following steps should be considered:
- In conjunction with your advisors, prioritise high-risk valuation matters. Use a risk matrix to rank assets by valuation complexity (particularly in regard to ability to value them in the future), embedded gain, asset complexity, ownership structure, related-party involvement, documentation gaps and expected future transaction likelihood.
- Decide whether an independent valuation is required. Obtain specialist valuation advice where the value may materially affect the split between pre-reform and post-reform gains, or where the ATO formula is unlikely to produce the most supportable outcome. This will require modelling based on expectations of future events, including the timing and quantum of any post 1 July 2027 divestment and alternative transitional outcomes.
What should business owners do if they do not get a valuation?
Where it is determined that a valuation is not required as at 30 June 2027, it is important to preserve valuation evidence, financial information and other records supporting asset values at the transition date.
It is vital that the information package “speaks for itself” when a subsequent valuation of the asset is undertaken. For example, the information retained should include:
- Full financial information for the three financial years preceding 1 July 2027.
- Analysis and commentary on the prior three years, with a particular focus on unusual or one-off activity that affected financial performance over that period.
- Forecasts, budgets and business plans, which should specifically document assumptions and expectations against the historical trading performance.
Even if you do not undertake a full valuation, you may wish to have this information reviewed or compiled by a valuation specialist to ensure that your position is protected in the future. This may also include consideration of valuation approaches that would be appropriate at the time and relevant market research without a formal valuation report.
The bottom line
The CGT changes provide an opportunity to step back and review whether your existing structures remain fit for purpose. A valuation is often one piece of that conversation but it is rarely the whole conversation.
At Nexia, we are helping clients understand not only the tax implications of the reforms, but also the broader impact on wealth creation, succession planning, family structures and future asset ownership.
When it comes to these changes, the real question is not just what your assets are worth today, but whether your overall strategy is ready for tomorrow.
How Nexia can help
Every personal and business circumstance is different. The right approach will depend on your assets, structures, future plans and long-term wealth objectives.
Speak with your local Nexia Advisor to identify affected assets, confirm when valuations may be needed and consider any potential planning opportunities. Where appropriate, your Nexia Advisor can also involve a valuation specialist.
Planning early can help preserve flexibility and avoid rushed decisions close to the commencement date.
Important: This article is based on legislation and draft rules as proposed at the time of writing. Future government policy, legislation and the outcome of the next Federal Election may result in changes. The information provided is general in nature and should not be relied upon as a substitute for professional advice. Please seek advice tailored to your individual circumstances.
