When a deceased estate needs a date-of-death business valuation
Death is generally not a capital gains tax event. Where a business, private-company shares or trust units pass to an Australian-resident legal personal representative (the executor or administrator) or beneficiary, section 128-10 of the ITAA 1997 disregards any capital gain or loss that would otherwise arise on death — the tax is deferred, not triggered. Despite that, a market valuation as at the exact date of death is needed in several common situations: where the interest is a pre-CGT asset whose cost base is set at market value under section 128-15; where CGT event K3 applies because the interest passes to a foreign resident, an exempt entity or a complying superannuation fund; where the executor has to strike the estate accounts, distribute fairly between beneficiaries, or answer a family provision claim; and where the small business CGT concessions are being tested within two years of death. In every case the operative date is fixed — the day the person died — and the figure has to be built as evidence, not estimated after the fact.
What section 128-15 actually does to the cost base
This is the most misunderstood part of estate CGT, because Australia does not give every inherited asset a market-value 'step-up' the way some overseas regimes do. Under the table in section 128-15(4), the treatment turns on when the deceased acquired the interest. For a post-CGT interest — one the deceased acquired on or after 20 September 1985 — the beneficiary inherits the deceased's own cost base; there is no reset to market value, so what matters is the deceased's original acquisition records, not a date-of-death figure. For a pre-CGT interest — acquired before 20 September 1985 — the first element of the beneficiary's cost base becomes the market value of the interest on the day the deceased died. That is where a date-of-death valuation is indispensable: it fixes the cost base the beneficiary will use whenever they later sell. Without a contemporaneous valuation of a pre-CGT business or shareholding, the beneficiary can be left unable to substantiate any cost base at all on a future disposal, exposing the full sale proceeds to tax.
- ·Post-CGT interest (acquired on or after 20 September 1985): the beneficiary inherits the deceased's cost base — no market-value reset, so the deceased's acquisition records govern.
- ·Pre-CGT interest (acquired before 20 September 1985): the first element of cost base becomes market value at the date of death — a date-of-death valuation is essential.
- ·Main-residence dwelling: a separate rule gives market value at death, but that is real property valued by a property valuer, not the business or share interest itself.
Beyond the cost base: CGT event K3, estate accounts and the two-year concession rule
A date-of-death valuation is often needed even for a post-CGT interest that inherits its cost base, because three separate rules turn on the value at death rather than on a reset. First, CGT event K3 (section 104-215): where a business interest passes to a tax-advantaged entity — a foreign-resident beneficiary, an exempt entity, or the trustee of a complying superannuation fund — a capital gain crystallises in the deceased's date-of-death return, calculated as the market value of the interest on the day of death less its cost base. The valuation supplies the proceeds figure. Second, estate administration: the executor needs a defensible market value to strike the estate accounts, to divide the estate fairly where one beneficiary takes the business and others take cash or property, and to answer a family provision claim in which the size of the estate is contested. Third, the small business CGT concessions: under section 152-80 the estate can generally access the concessions the deceased could have accessed if a CGT event happens within two years of death, and testing eligibility — including the $6 million maximum net asset value test — depends on market values at the relevant time. None of these is a cost-base reset, but each still needs the date-of-death figure.
Valuing shares or units by class: read the constitution first
A deceased rarely owned 'the business' outright — they owned a specific parcel of shares in a company, or units in a trust, of a specific class, carrying specific rights. The valuation has to value that interest, not a notional slice of the whole enterprise, and the rights that define it live in the company constitution and any shareholders' agreement, or in the trust deed. Before any number is struck, those documents are reviewed to establish voting rights; entitlement to dividends or trust distributions; the right to capital on a winding up; any preference, redemption or conversion terms; and transfer restrictions such as pre-emptive rights and drag-along or tag-along clauses. Those rights change the answer. A minority parcel of non-voting or restricted shares is not worth a straight pro-rata share of equity value: minority interests typically attract a discount for lack of control, and shares in a private company attract a discount for lack of marketability because there is no ready market to sell into. Where there are several share classes — ordinary, preference, redeemable — each is valued on its own rights, and the deceased's actual holding as at the date of death is what is measured.
Why the date-of-death figure differs from the eventual sale price
Executors often assume the price the business eventually sells for can simply be used as the date-of-death value. It cannot, and treating the two as interchangeable is a common source of trouble. They are different concepts at different dates. The date-of-death value is a hypothetical: the market value of the interest on the day of death, being the amount a willing but not anxious buyer and seller would agree — the Spencer v Commonwealth (1907) standard that underpins market value in IVS 104 and the ATO's market valuation guidance. The eventual sale is a real transaction at a later date (CGT event A1, tested at the contract date), reflecting a specific buyer, specific negotiations, and whatever the business and its market had become by then. The two figures legitimately diverge — trading changes, a contract won or lost, market movement, or simply the passage of time. On a later disposal of a pre-CGT interest, the taxable gain is the sale proceeds less the date-of-death cost base, so the two numbers do different jobs and are rarely equal. A retrospective date-of-death valuation must also be built only from information reasonably available at the date of death; using the later sale price to back-fit the value is hindsight, and it does not survive review.
Executor liability, the property-valuation distinction, and how the file is built
An executor carries a duty to administer the estate correctly, and valuation is where that duty is most easily breached. Under-value a pre-CGT interest and the cost base is understated, so the beneficiary overpays tax on a later sale; under-value for CGT event K3 and the date-of-death return understates the gain, inviting an amended assessment with interest and penalties. Over-value and the estate may distribute on an inflated basis, distort a family provision outcome, or hand the beneficiary a cost base the ATO later reduces. An executor who distributes without providing for a tax liability can be personally exposed — an independent, defensible date-of-death valuation is the protection. It is also a different instrument from a property valuation: land and the deceased's dwelling are valued by an Australian Property Institute (API) Certified Practising Valuer under property standards, but a trading business, private-company shares or trust units are valued by a business valuer applying income and asset methodologies — capitalisation of future maintainable earnings, discounted cash flow, or net asset value — under IVS 104 and APES 225. An accountant's balance-sheet figure is book value, not market value, and the two are rarely the same. Oliver Group prepares independent, retrospective date-of-death valuations as part of its estate and succession service: senior-reviewer signed, fixed fees agreed before work begins (a retrospective date-of-death date adds $495), and no referral fees or commissions paid to the referring accountant or lawyer, because paying for the introduction would compromise the independence the estate is relying on. The lead valuer, Jackson Wilson, has personally valued more than 3,000 businesses across his career. Oliver Group provides valuation evidence only — it is not a registered tax agent, and nothing here is tax, legal or financial advice; how section 128-15, CGT event K3 or the concessions apply to a particular estate is a matter for the estate's accountant or lawyer, working from a valuation built to be defended.