Moving your business into a company: when a valuation is needed, and who does it
Sole trader, partnership, family trust or unit trust to company: which roll-overs test market value, what gets valued, and the fixed fee.
A valuation is often needed to move a business into a company when the roll-over your accountant uses compares market values, or when no roll-over is used and the parties are not dealing at arm's length. The roll-overs for a sole trader, a partnership and a unit trust each test market value; the small business restructure roll-over does not. Oliver Group values the business, its goodwill and the shares in one signed report, from $1,495 + GST.
Why owners move a business into a company
Many businesses start with a sole trader, a partnership or a family trust as the owner and later move into a company, for reasons such as limiting personal liability, bringing in a new owner or preparing for a sale. The business itself moves: its goodwill, plant, stock and contracts are transferred to the company. For capital gains tax, transferring an asset such as goodwill to the company is a disposal (CGT event A1), so the questions are which roll-over, if any, your accountant uses, and whether it turns on market value.
Do I need a valuation to move my business into a company?
Often, but not always: it depends on the roll-over your accountant chooses. The roll-overs for a sole trader or trustee (Subdivision 122-A), a partnership (Subdivision 122-B) and a unit trust (Subdivision 124-N) of the Income Tax Assessment Act 1997 each compare market values, so the value of what moves, and of the shares received, has to be known. The small business restructure roll-over (Subdivision 328-G) does not require market value consideration, so it often goes ahead without one. If no roll-over is used, the business is sold to the company, and where the parties are not dealing at arm's length, market value can replace the price for a CGT asset such as goodwill.
Which roll-overs can apply, and what each one tests
Your accountant decides which roll-over fits, and each has conditions of its own. The table shows the market value question in each.
| Moving from | Roll-over your accountant may use | The market value question |
|---|---|---|
| Sole trader | Subdivision 122-A: the owner moves a CGT asset, or all the assets of a business, to a company they wholly own, for shares | The shares' market value must be substantially the same as what moves, less liabilities the company takes on (section 122-20(3)) |
| Partnership | Subdivision 122-B: the partners move the partnership's assets to a company they wholly own | The same test, partner by partner (section 122-130(3)) |
| Family (discretionary) trust | Subdivision 122-A, where the trustee will own all the shares in the company as trustee of the same trust (section 122-25(1)). The unit trust roll-over is not available to a discretionary trust | As for a sole trader |
| Unit trust | Subdivision 124-N: all of the trust's assets move to a new company and the unit holders receive shares | Shares in the same proportion as the units, and at least substantially the same in market value (section 124-860(6)) |
| Any of these, for a small business | Subdivision 328-G: the small business restructure roll-over (aggregated turnover under $10 million, a genuine restructure, the same ultimate owners) | None for the transfer itself: the ATO says no market value consideration, or any consideration, is required |
| Any of these, with no roll-over | None: the business is sold to the company | Where the parties are not dealing at arm's length, market value can replace the price for a CGT asset such as goodwill (sections 116-30 and 112-20) |
Who can value a business that is moving into a company?
An independent business valuer values the business, including its goodwill, and the shares in the company, at the date your accountant confirms. Oliver Group does this for sole trader, partnership and trust to company restructures Australia-wide, with a separate conclusion for each entity in one signed report. The ATO's Market valuation for tax purposes guide says acceptability usually depends on the valuation process rather than who conducted it, so the report sets out the method, the evidence and the assumptions. A property valuer values any land and buildings.
Selling the business to the company instead of using a roll-over
Some owners sell the business to their new company at market value instead of using a roll-over. The capital gain may then qualify for the small business CGT concessions, which have market value tests of their own, including the $6 million maximum net asset value test. Because the buyer is the owner's own company, the parties may not be dealing at arm's length. Where they are not, for a CGT asset such as goodwill, market value can replace the price as the seller's capital proceeds (section 116-30) and is the first element of the company's cost base (section 112-20). Your accountant decides whether this route suits; we provide the market value it needs.
What gets valued, and how
The valuation covers what actually moves: usually the goodwill and other intangible assets, plant and equipment, stock and work in progress, less any liabilities the company takes on, and then the shares the owner receives. Goodwill can be a large part of a small business's value and is usually not on the balance sheet at all, so it is valued from the business's maintainable earnings and the evidence from comparable businesses. Each entity in the restructure gets its own conclusion, at the date its test applies.
When should the valuation be done?
Before the transfer is signed, if possible, so your accountant can set the price or check the roll-over test against it. For a disposal, the CGT event happens when the contract is made, or if there is no contract, when the company becomes the owner (section 104-10(3)); your accountant confirms the date to value at. If the business has already moved, we value as at that past date, on the market and the information as they stood then. We never value at a future date: the ATO's guide says a prospective assessment will not be considered reasonable or acceptable.
Stamp duty and GST
The ATO notes that stamp duty and GST may still need to be considered when a small business restructures, and the same applies without a roll-over. Duty is a state and territory matter and the rules differ. Any relief for restructures has conditions and may not cover a move from a sole trader, partnership or trust. Your accountant or lawyer confirms the position. Where duty turns on the value of the business or its goodwill, we value those; a property valuer values any land.
What does the valuer need, and what does the report contain?
Once you engage, send the documents below; nothing is needed to start. The signed report states exactly what was valued and as at when, with the market value definition, the method and the reasons for it, the evidence and assumptions relied on, a supportable range and the concluded value, an independence statement and the signature of the valuer responsible. A second valuer reviews every report before it is signed, and the working file is kept for ten years. Usually we need:
- ·Three years of financial statements, plus year-to-date figures, for the business
- ·The structure before and after, and the draft sale or transfer documents if they exist
- ·The asset register and depreciation schedule
- ·Any loans or other liabilities the company will take on
- ·Your accountant's note of the roll-over and the date to value at
What does it cost, and how do I start?
The fixed fee depends on the annual turnover of the business being valued, from $1,495 + GST; to start, send the enquiry form, with no documents needed. We reply within one business day, and a fifteen-minute call confirms the package, the fixed fee and the delivery date. The fee is $1,495 + GST under $2 million, with the signed report in 2 business days; $2,495 + GST from $2 million to $3 million and $3,495 + GST from $3 million to $10 million, each in 3 business days; and over $10 million, quoted in writing before work starts. Delivery time starts once payment and all required information have been received. Add-ons, agreed in writing before work starts: +$795 + GST for each additional entity and +$495 + GST for each retrospective (past) valuation date. Everyone pays the same published fee. Tax advice is not included: Oliver Group is not a registered tax agent.
- ·ITAA 1997 s 122-15: Subdivision 122-A roll-over, ATO legal database
- ·ITAA 1997 s 122-20: consideration and market value, ATO legal database
- ·ITAA 1997 s 122-25: exceptions, including shares held in the same capacity, ATO legal database
- ·ITAA 1997 s 122-130: partnership to company, ATO legal database
- ·ITAA 1997 s 124-855: unit trust to company roll-over (not for a discretionary trust), ATO legal database
- ·ITAA 1997 s 124-860: unit trust to company, ATO legal database
- ·ITAA 1997 s 116-30: market value substitution, ATO legal database
- ·ITAA 1997 s 112-20: market value substitution for cost base, ATO legal database
- ·ITAA 1997 s 104-10: CGT event A1 and its timing, ATO legal database
- ·ITAA 1997 s 152-15: maximum net asset value test, ATO legal database
- ·Small business restructure roll-over, ATO
- ·Market valuation for tax purposes (guide), ATO
- ·AASB 138 Intangible Assets, paragraph 48: internally generated goodwill, Australian Accounting Standards Board
- ·Change your sole trader business to a company, business.gov.au
Common questions.
Do I need a valuation to change from a sole trader to a company?+
Often. If your accountant uses the Subdivision 122-A roll-over, the shares you receive must be worth substantially the same as the business you move, less liabilities the company takes on, so both values matter. Under the small business restructure roll-over, no market value consideration is required. If you sell the business to your company without a roll-over, the law can replace the price with market value where you and your company did not deal at arm's length (section 116-30).
Can I move my business into a company without a valuation?+
Sometimes. The small business restructure roll-over does not require market value consideration, so if its conditions are met your accountant may not need a valuation for the transfer itself. The other roll-overs turn on market value, and so can a sale without a roll-over, where you and your company do not deal at arm's length.
Is goodwill valued when a sole trader moves to a company?+
Yes, where the value matters. Goodwill can be a large part of a small business's value and is usually not on the balance sheet, so it is valued from the business's earnings and market evidence, alongside the plant, stock and liabilities that move with it.
Can a family trust move its business into a company?+
Yes, with conditions your accountant confirms. The unit trust roll-over is not available to a discretionary trust, but Subdivision 122-A can apply where the trustee will own all the shares in the company as trustee of the same trust, and the small business restructure roll-over has an alternative test for family trusts.
How much does a valuation for moving a business into a company cost?+
The base fee depends on the annual turnover of the business being valued, from $1,495 + GST, and each additional entity is +$795 + GST, agreed in writing before work starts. Each retrospective (past) valuation date is +$495 + GST.
Will the ATO accept the valuation?+
No one can promise that. The ATO can review any market valuation, and its guide says a review looks at the documentation, the market value definition, the method, and the assumptions and information relied on. Our report sets out each of those.
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Small Business Valuation
$1,495 + GST
For a business with annual turnover under $2 million. Signed report in 2 business days. Delivery time starts once payment and all required information have been received. The fee is fixed in writing before we start and never tied to the outcome.
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