Owners who have already built substantial value in a private business have the strongest case for a 1 July 2027 valuation, particularly founders who paid little for their shares and owners of established businesses now growing more slowly. For them, an independent valuation will usually attribute more of the eventual gain to the period that keeps the 50% CGT discount than the alternative apportionment formula would.
The Bottom Line
A future gain on a business asset held across 1 July 2027 is split at that date, either by an independent market valuation or by a formula that assumes the asset grew at a constant rate over the whole holding period. A valuation favours owners whose value was built before 1 July 2027. The formula can favour owners whose growth accelerates afterwards. The choice is made at sale, so a valuation obtained now keeps both options open.
What is a 1 July 2027 transition valuation?
Business assets held by individuals and trusts at 30 June 2027 are deemed to be sold and immediately reacquired just before 1 July 2027. The gain accrued up to that date keeps access to the existing 50% CGT discount, subject to eligibility. The gain accrued afterwards falls under the new regime of CPI indexation and a 30% minimum tax. The background to the change is set out in our article on the 1 July 2027 CGT changes.
Splitting a future gain between the two periods requires a value at 1 July 2027. The owner can establish that value with an independent market valuation, or use the alternative apportionment formula. A transition valuation is the first of these: an assessment of market value as at 1 July 2027, prepared to support the split.
Who is affected, by ownership structure
- Individuals and trusts. Eligible individuals and trusts holding private company shares or other business CGT assets across 1 July 2027. This is the principal audience.
- Sole traders and individual partners. Affected through business assets such as goodwill.
- Companies. Generally cannot claim the 50% discount on their own asset sales, so the split matters less at company level. Eligible shareholders selling their shares may still qualify.
- Corporate trustees. Do not turn a trust gain into a company gain. The trust’s position is what counts.
- Pre-CGT assets. Assets that retain pre-CGT status require separate consideration under the transition rules, including relevant company-held assets.
Which businesses have the strongest case for a valuation?
The strongest case arises where actual market value at 1 July 2027 exceeds the value the formula would imply. A valuation then supports a larger gain being attributed to the period eligible for the discount. Established businesses with slower future growth are a useful starting point, subject to each owner’s acquisition cost.
| Business or ownership profile | Why a valuation merits consideration |
|---|---|
| Mature family and private businesses | Professional services firms, manufacturers and distributors often accumulated most of their goodwill well before 2027, and future growth is steadier. |
| Founders with nominal share costs | Shares issued for a few dollars may now be worth millions. The formula compounds from that low cost base, which can understate value at 1 July 2027 dramatically. |
| Businesses reaching major milestones before 1 July 2027 | A contract, product launch or regulatory approval secured before the date may lift value immediately, even if the resulting revenue arrives later. |
| Businesses with valuable intangible assets | Brands, software, IP and customer relationships may support share value well beyond accounting net assets. Direct sales of IP need separate tax classification. |
When the formula can be the better choice
The formula works backwards from the eventual sale price, assuming the asset grew at the same annual rate in every year it was held. Where growth accelerates after 1 July 2027, that assumption spreads the later growth back across the earlier years, and can imply a higher value at 1 July 2027 than an independent valuation would support.
The comparison depends on acquisition cost, holding period and the eventual sale price. It is separate from CPI indexation, which adjusts the cost base for inflation when calculating later gains under either approach.
Future revenue is not the same as future value creation. Buyers may already price in expected revenue at 1 July 2027, giving a growing business substantial market value despite low current earnings. Growing businesses should assess both methods before concluding a valuation is unnecessary.
Worked example: formula versus valuation
Two owners each sell for $10 million. The method that favours them is opposite in each case.
| Founder with nominal shares | Business growing faster after 2027 | |
|---|---|---|
| Acquired | 1 July 2012 for $100 | 1 July 2017 for $1.0m |
| Sold | 1 July 2037 for $10.0m | 1 July 2032 for $10.0m |
| Value at 1 July 2027 under the formula | $0.1m | $4.6m |
| Independent valuation at 1 July 2027 | $6.0m | $2.0m |
| Gain in the discount period (formula) | $0.1m | $3.6m |
| Gain in the discount period (valuation) | $6.0m | $1.0m |
| Method that favours the owner | Valuation | Formula |
Illustrative only. Figures rounded. Ignores CPI indexation, discount eligibility, losses and concessions, and models the formula as constant compound growth over the holding period.
The founder paid $100 for shares that were worth an estimated $6 million by 1 July 2027. Compounding at a constant rate from $100 to $10 million over 25 years implies only about $100,000 at the transition date, so the formula would push almost the entire gain into the new regime. A valuation attributes $6 million of it to the discount period.
The second owner bought for $1 million in 2017 and sold for $10 million in 2032, with most of that growth coming after 1 July 2027. The formula spreads the later growth evenly and implies $4.6 million at the transition date, well above the $2 million an independent valuation would support. Here the formula is the better choice.
Who is unlikely to need one
Companies selling their own assets gain little from the split, because the discount is generally unavailable at company level either way. Owners with modest accumulated gains may find the cost of a valuation outweighs the tax difference. And where most value creation is still ahead, the formula may already produce the better outcome. In each case the decision is worth testing with a tax adviser rather than assuming.
A valuation keeps both options open
The choice between a valuation and the formula is made when lodging the tax return for the year of the actual sale, which may be many years away. The formula is always available at that point. A valuation is only available if one exists, and a report prepared close to 1 July 2027 on contemporaneous evidence is considerably stronger than one reconstructed years later. We cover this in more detail in our article on when to get your 1 July 2027 valuation, and whether it can be backdated.
For an owner who is unsure which method will win, a valuation is an option rather than a commitment. It can be set aside at sale if the formula produces the better result.
What this means in practice
A 1 July 2027 valuation is worth modelling if any of the following apply:
- The business or your shareholding has increased significantly in value since you acquired it
- You paid a nominal amount for your shares
- The business is established and its growth is slowing
- A significant contract, approval or launch will land before 1 July 2027
- Much of the value sits in brands, software, IP or customer relationships
Compare an estimated value at 1 July 2027 with the formula’s result across a range of possible sale prices and dates. Ask your tax adviser to check whether the potential saving outweighs the cost of a valuation, allowing for losses, indexation and available concessions. Keep financial statements, forecasts, contracts and ownership records dated at 30 June 2027 to support the value.
Why the valuer’s licensing matters
ASIC classifies equity valuation as a financial service under the Corporations Act. Sherwood Australia holds Australian Financial Services Licence 563351, covering equity valuations, and is an AVI Certified Business Valuer (AVI 20281). Reports are prepared in accordance with the principles of APES 225 Valuation Services and the International Valuation Standards.
Where much of a business’s value sits in intellectual property, software or brands, the valuation turns on assets that rarely appear on the balance sheet. That is the work Sherwood specialises in.
Frequently asked questions
Who needs a business valuation for 1 July 2027?
Individuals and trusts holding private company shares or business assets that have already grown substantially in value. Founders who paid a nominal amount for their shares and owners of established, slower-growing businesses have the strongest case.
What is the 1 July 2027 apportionment formula?
An alternative to a market valuation for splitting a gain between the periods before and after 1 July 2027. It works backwards from the sale price, assuming the asset grew at a constant rate over the whole holding period.
When is a valuation better than the formula?
When actual market value at 1 July 2027 is higher than the formula implies. This is common where value was built early, where shares were acquired for a nominal amount, or where growth has slowed.
When is the formula better than a valuation?
When growth accelerates after 1 July 2027. The formula spreads later growth evenly across the holding period, which can imply a higher value at the transition date than an independent valuation would support.
Does getting a valuation commit me to using it?
No. The choice between a valuation and the formula is made in the tax return for the year of sale. A valuation can be set aside if the formula produces the better outcome.
Do companies need a 1 July 2027 valuation?
Generally less so for their own asset sales, because companies cannot usually claim the 50% CGT discount. Eligible shareholders selling their shares in a company may still benefit.
Are sole traders and partners affected?
Yes. Sole traders and individual partners may be affected through business assets such as goodwill.
Does a corporate trustee change how a trust is treated?
No. A corporate trustee does not turn a trust gain into a company gain.
Disclaimer
This article is general information only and does not constitute tax, legal or financial advice. The worked example is illustrative and does not reflect any individual position. You should obtain advice specific to your circumstances before acting.