Choosing between an independent market valuation and the apportionment formula for the 1 July 2027 CGT transition means comparing two numbers. One of them is arithmetic your tax adviser can run at no cost. The other is the market value of your business at the transition date, and it cannot be calculated. It has to be established. Without it, there is nothing to compare the formula against except an estimate.
The Bottom Line
The apportionment formula is a calculation, so it is always available and costs nothing to produce. Market value at 1 July 2027 is not a calculation, and an owner’s estimate of it is not a substitute. Obtaining a valuation is what turns the choice between the two methods into a decision your tax adviser can actually make, rather than a judgement call made on a guess. The valuation does not have to be used, but it cannot be created later.
The comparison needs two numbers, and you only have one
The transition rules separate gains built up before 1 July 2027 from those arising afterwards. Eligible gains from the earlier period retain access to the existing 50% CGT discount. Splitting the gain requires a value at the transition date, and there are two ways to arrive at one. The background to the change is set out in our article on the 1 July 2027 CGT changes.
| The two numbers | Where it comes from | What it costs to obtain |
|---|---|---|
| Apportionment formula result | Arithmetic. Treasury’s draft works from the acquisition amount, the holding period and the eventual sale proceeds, assuming a constant compounding growth rate. | Nothing. Your tax adviser can calculate it, and it does not require a valuer. |
| Market value at 1 July 2027 | An assessment of what the shares or assets were actually worth immediately before the transition date, based on evidence available then. | A valuation engagement. This is the only number that has to be established rather than calculated. |
This is the asymmetry that governs the whole decision. The formula result will always exist, because it is derived from figures that are known or assumed. Market value at 1 July 2027 only exists if someone assessed it. An owner weighing the two methods without a valuation is not comparing two numbers. They are comparing one number against an impression.
Why an estimate is not a substitute
The natural response is to estimate the value informally and compare from there. In practice the usual substitutes are unreliable, and they are unreliable in ways that are hard to see from inside the business.
| Common substitute for a valuation | Why it misleads at 1 July 2027 |
|---|---|
| The price of the last capital raise | Priced a minority parcel, often with preference terms, and may be years old. It is not market value of the whole at the transition date. |
| An industry rule of thumb or sector multiple | Applies an average to a specific business. The variance between businesses within a sector is routinely wider than the gap between the two CGT methods. |
| Accounting net assets | Omits goodwill and internally generated intangibles entirely. For a business whose value sits in brands, software, IP or customer relationships, this can understate value by most of it. |
| An offer received, or an informal appraisal | Reflects one buyer’s position and strategic interest, not market value, and usually carries no documented methodology to support it later. |
| The owner’s own sense of the business | Honest, and frequently wrong in both directions. It also carries no evidence trail, which is the part that matters if the position is ever reviewed. |
The gap between these estimates and an assessed market value is frequently larger than the gap between the two CGT methods. A comparison built on a figure that is out by a wide margin does not produce a reliable answer, however carefully the rest of the calculation is done.
Who does what
This matters because the two halves of the decision sit with different people, and neither can do the other’s work.
| Sherwood Australia | Your tax adviser or accountant |
|---|---|
| Assesses market value of the shares or business assets as at 1 July 2027, under AFSL 563351. | Confirms whether both methods are available to you for these particular assets. |
| Documents the methodology and the evidence relied on, so the figure holds up on later review. | Calculates the apportionment formula result. |
| Provides the report your adviser uses as an input. | Compares the two, applies losses, concessions and indexation, and advises which method to elect. |
| Does not advise on tax, and does not make the election. | Makes the call. The election is lodged in the return for the year of the sale. |
Sherwood Australia is a licensed valuation firm, not a tax agent. We do not advise on tax positions, calculate tax payable, or recommend which method to elect. What we provide is the one input your adviser cannot produce themselves, prepared to a standard that holds up if the position is examined years later.
The decision only runs in one direction
The choice between the two methods is made when lodging the tax return for the year of the actual sale, which may be many years after 2027. At that point your adviser has the real sale price, the real date, and the formula result. What they will not have, unless it was obtained at the time, is a credible market value at 1 July 2027.
A valuation prepared close to the transition date rests on contemporaneous evidence: the FY2027 accounts, the order book, the contracts and the market conditions as they actually were. A valuation attempted a decade later is a reconstruction, and a materially weaker one. The timing question is covered in more detail in our article on when a 1 July 2027 valuation can be backdated.
So obtaining a valuation is not a commitment to using it. If the formula produces the better outcome at sale, your adviser simply elects the formula and the valuation goes unused. The reverse is not available. A valuation that was never prepared cannot be produced after the fact with the same weight behind it.
When the case is strongest
A valuation is most likely to change the outcome where value was built before the transition date rather than after it. Founders who paid a nominal amount for their shares, established businesses whose growth has steadied, and businesses whose value sits largely in intangible assets are the clearest cases. We set these out in our article on who needs a 1 July 2027 CGT valuation.
It matters least where the business is early in its growth, where accumulated gains are modest, or where the asset is listed and a quoted price already exists. Your tax adviser is the right person to judge whether the potential difference justifies the cost in your particular circumstances.
What this means in practice
- Confirm eligibility. Ask your tax adviser whether both methods are open to you for these particular shares or assets.
- Establish the value. Obtain a market valuation as at 1 July 2027, prepared close to the date while the evidence is current.
- Preserve the evidence. Keep the FY2027 accounts, forecasts, contracts, board papers and ownership records that support the figure.
- Hand both numbers to your adviser. With both in hand, your adviser can model the two methods against realistic sale scenarios and advise accordingly.
- Decide at sale. The election is made in the return for the year of the sale, by which point the real figures are known.
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.
A valuation supporting a tax position may be relied on a decade after it was prepared and reviewed later still. A licensed, standards-based process, documented at the time, is what allows a figure to be defended rather than merely asserted. Where much of the value sits in intellectual property, software or brands, that documentation matters more again, because those assets rarely appear on the balance sheet.
See our Tax & CGT valuation service for how an engagement works.
Frequently asked questions
Why can I not just estimate the value and compare?
Because the usual substitutes, a past raise price, a sector multiple, accounting net assets or an informal appraisal, are frequently out by more than the difference between the two CGT methods. An estimate also carries no documented methodology, which is the part that matters if the position is reviewed.
Does the apportionment formula cost anything to calculate?
No. It is arithmetic based on the acquisition amount, the holding period and the eventual sale proceeds. Your tax adviser can produce it. The market value at 1 July 2027 is the only figure that has to be established rather than calculated.
Does obtaining a valuation commit me to using it?
No. Your adviser elects the method in the return for the year of the sale. If the formula produces the better outcome, the valuation is not used. A valuation that was never prepared, however, cannot be created later with the same evidential weight.
Can Sherwood tell me which method to choose?
No. Sherwood Australia is a licensed valuation firm, not a tax agent. We assess and document the market value at 1 July 2027. Your tax adviser or accountant compares the methods, applies losses, concessions and indexation, and advises on the election.
When should the valuation be prepared?
Close to 1 July 2027, once the FY2027 accounts are settled. A report built on contemporaneous evidence is considerably stronger than one reconstructed years later.
What records should I keep?
FY2027 financial statements and management accounts, forecasts approved before 1 July 2027, board papers, the order book, the share register, active key contracts and the asset register including intellectual property. Retain them as a single dated pack.
Is CPI indexation the same as the apportionment formula?
No. Indexation adjusts the cost base for inflation when calculating gains under the new regime, and can apply under either approach. The apportionment formula is an alternative to a market valuation for establishing the value at 1 July 2027.
What if my business is still growing quickly?
The formula may suit you better, because it spreads later growth back across the whole holding period. That said, a valuation at 1 July 2027 can already reflect expected future earnings, so the growth story alone does not settle it. Your tax adviser is the right person to weigh it up.
Disclaimer
This article is general information only and does not constitute tax, legal or financial advice. Sherwood Australia provides valuation services and does not provide taxation advice. The apportionment method described is based on Treasury’s draft and remains subject to the final legislated form. You should obtain advice specific to your circumstances from a registered tax adviser before acting.