Why You'll Need a Business Valuation by 1 July 2027

The 2026–27 Federal Budget proposes replacing the 50% CGT discount with cost base indexation. For private business owners and IP holders, the market value of your assets at 1 July 2027 becomes a permanent number in every future capital gains calculation.

The Bottom Line

From 1 July 2027, the value of your private company shares, business interests or intellectual property at that date will determine how much of your eventual capital gain is taxed under the favourable existing rules and how much falls under the new, less generous regime. An independent valuation prepared at the transition date is the most accurate and defensible way to establish that number.

What Is Changing on 1 July 2027

The 2026–27 Federal Budget introduced proposed changes to Australia's capital gains tax framework that will reshape how gains on company shares, business interests and intellectual property are taxed. From 1 July 2027, the 50% CGT discount available to individuals, trusts and partnerships will be replaced by cost base indexation, with a 30% minimum tax applying to real capital gains.

For investors in listed securities, the transition is largely straightforward. The quoted market price at the transition date provides a readily available and defensible reference point. For investors and owners of private companies, unlisted assets and intellectual property, no such observable reference exists. The transition demands deliberate preparation, specifically, establishing an accurate and defensible market value for those assets as at 1 July 2027.

For most private businesses, the only reliable way to establish that value is an independent valuation.

Why a Business Valuation at 1 July 2027 Is Now Essential

The new CGT regime makes the value of your business or intellectual property as at 1 July 2027 a permanent feature of every future capital gains calculation. Until now, owners of private companies rarely needed a valuation unless a transaction was imminent. The budget changes that.

The 1 July 2027 value becomes the dividing line that determines how much of an eventual gain is taxed under the favourable existing rules, and how much falls under the new, less generous regime. Put simply, the value at the transition date is no longer an abstract figure. It is a number that will directly affect the tax payable when the asset is eventually sold.

This affects a wide range of holders:

•     Founders and shareholders in private companies

•     Family business owners

•     Trusts holding business interests

•     Private equity and joint venture investors

•     Holders of valuable intellectual property such as patents, trademarks, software and licensing rights

For each of these, an independent business or IP valuation at 1 July 2027 is fast becoming an essential piece of tax and succession planning.

The Mechanics of the Transition

Under the proposed changes, gains on assets held over the 1 July 2027 commencement date will be split into two components. Gains accrued up to that date retain access to the existing 50% CGT discount. Gains accruing after that date are subject to the new indexation and minimum tax framework.

Determining that split requires establishing the market value of the asset as at 1 July 2027. The Government has indicated that taxpayers will be able to obtain a formal independent valuation, or alternatively rely on an ATO apportionment formula that estimates the asset's value based on its historical growth rate.

Why the ATO Formula May Not Work for Private Companies

The ATO apportionment formula has not yet been finalised, and the detail remains subject to consultation and exposure draft legislation. However, credible commentary based on Treasury's stated intent and worked examples suggests the formula may operate by applying a constant compound growth rate to the asset across its holding period.

In effect, the formula assumes the asset grew at a steady, constant rate over the entire period it was held, and derives a 1 July 2027 value from that assumed growth curve, rather than assessing the asset's actual market value at the transition date.

For a listed share this is academic. For a private company or an intellectual property asset, it can materially misstate value. Growth in private businesses is rarely linear. Value creation is typically concentrated in specific periods: following a product launch, a major new contract, a capital raise, a successful acquisition, or a phase of rapid market expansion. A formula that assumes smooth, even growth simply cannot capture that reality.

This matters most for established, profitable businesses in the lower-to-mid market, precisely the businesses most likely to need a valuation. A founder-led business may have grown substantially in its first several years before settling into a mature, stable earnings base. An investor who acquired shares five or more years ago may hold a company that has largely completed its growth trajectory before the transition date even arrives. In those circumstances, the constant growth rate assumption embedded in the ATO formula will likely understate the proportion of gains accrued before 1 July 2027, the very portion that still qualifies for the 50% discount. The result can be a higher tax bill than the business's real value history would support.

How Much the Valuation Method Can Matter

Consider an investor who acquired shares in a private company for $1 million in January 2020 and sells them for $5 million in January 2030, a total gain of $4 million. The company grew strongly in its early years before reaching a stable, mature earnings base well before the transition date.

	ATO FORMULA	INDEPENDENT VALUATION
Acquisition cost (Jan 2020)	$1,000,000	$1,000,000
Estimated value at 1 July 2027	$3,400,000	$4,500,000
Sale price (Jan 2030)	$5,000,000	$5,000,000
Pre-2027 gain (50% discount applies)	$2,400,000	$3,500,000
Post-2027 gain (new regime applies)	$1,600,000	$500,000
Gain shifted to favourable tax treatment	-	+$1,100,000

In this example, the independent valuation shifts $1.1 million of gain into the more favourably taxed pre-2027 period, a difference driven entirely by the choice of valuation method. The formula necessarily relies on an assumed growth profile that may bear little resemblance to how the business actually grew.

Formula value derived by applying a constant compound growth rate across the holding period. This is an illustrative reconstruction of the apportionment methodology based on Treasury's stated intent and is subject to the final legislated formula.

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Why Timing Matters

A valuation prepared at or close to 1 July 2027 constitutes contemporaneous evidence of market value at the transition date. It reflects conditions as they actually existed and can be supported by market data and professional judgement.

By contrast, a valuation prepared years later, looking back at what a business was worth at a past date, is inherently less reliable and more open to challenge. The window to establish a strong, contemporaneous valuation position for 1 July 2027 is therefore finite.

Steps for Investors and Business Owners

The proposed legislation has not yet passed Parliament, and the final form of the apportionment methodology remains subject to confirmation. However, the broad policy direction is clear, and the case for beginning the valuation planning process now is strong.

Practical steps include:

1.     Identify affected assets. Private company shares, trust and joint venture interests, intellectual property including patents, trademarks and software.

2.     Get your records in order. Ensure financial statements, management accounts, forecasts and asset registers are accurate and up to date before engaging a valuer.

3.     Engage an independent valuer early. For private and unlisted assets, well ahead of the transition date.

4.     Coordinate where there are multiple shareholders. Consider a single independent valuation process that all shareholders can rely upon.

5.     Monitor the legislation. Watch for the exposure draft and ATO guidance, particularly the final form of the apportionment formula.

Why an AFSL-licensed valuation matters. ASIC classifies equity valuation as a financial service under the Corporations Act. Sherwood Australia holds Australian Financial Services Licence 563351, which means valuations are provided under a regulated framework. For valuations relied on for tax positions, shareholder transactions, or ATO review, this distinction matters.

Disclaimer

This article is general information only and does not constitute tax, legal or financial advice. The proposed CGT measures and the ATO apportionment formula described above are not yet law and remain subject to consultation and exposure draft legislation. You should obtain advice specific to your circumstances before acting.

Frequently Asked Questions

What changes on 1 July 2027?

The 50% capital gains tax discount available to individuals, trusts and partnerships is being replaced by cost base indexation, with a 30% minimum tax applying to real capital gains. Gains accrued up to 1 July 2027 retain access to the existing 50% discount. Gains accruing after that date fall under the new regime.

Who needs a valuation at 1 July 2027?

Holders of private company shares, family business interests, trust and joint venture interests, private equity holdings, and intellectual property assets such as patents, trademarks, software and licensing rights. For listed securities, the quoted market price provides the reference value, so no formal valuation is required.

Can I use the ATO apportionment formula instead of a valuation?

Yes, taxpayers are expected to be able to rely on an ATO apportionment formula that estimates value based on a constant compound growth rate across the holding period. However, this approach can materially misstate value for assets that did not grow at a steady rate, which describes most private businesses. An independent valuation captures the actual market value at the transition date and is the more defensible position.

When should I get my business valuation for 1 July 2027 done?

A valuation prepared at or close to 1 July 2027 constitutes contemporaneous evidence of market value at the transition date. Valuations prepared years later, looking back at historical value, are inherently less reliable and more open to challenge. The window to establish a strong contemporaneous valuation position is finite, and the process should begin well before the transition date.

Why does Sherwood Australia hold an AFSL for valuations?

ASIC classifies equity valuation as a financial service under the Corporations Act. Sherwood Australia holds Australian Financial Services Licence 563351, which means valuations are provided under a regulated framework. This matters when the valuation is relied on for tax positions, shareholder transactions, or ATO review.

Is the legislation already in effect?

No. The proposed CGT measures were announced in the 2026–27 Federal Budget and remain subject to consultation and exposure draft legislation. The broad policy direction is clear, but the final form of the apportionment methodology has not yet been confirmed. Despite this, the case for beginning valuation planning now is strong given the finite window to establish a contemporaneous market value.

What does a Sherwood valuation engagement involve?

An initial confidential discussion to understand the asset, its history and the purpose of the valuation. A scoped proposal covering methodology, timing and fee. Engagement and information gathering. A draft valuation for review, followed by a final report that meets professional standards and is suitable for tax, shareholder or regulatory purposes.

Prepare for 1 July 2027 with a confidential strategy session

Whether you're a founder, shareholder, trustee or IP holder, Sherwood Australia can help you understand what the proposed changes mean for your position and what a 1 July 2027 valuation involves. Initial conversations are confidential, senior-led, and at no cost.

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