Will the ATO accept my business valuation for capital gains tax?

The ATO does not pre-approve any business valuation. It will accept a valuation for capital gains tax when the report is independent, uses a method appropriate to the business, documents the evidence and assumptions relied on, and arrives at a market value a reviewer can follow and test. A signed report prepared to the ATO's market valuation guidance meets that standard.

There is no such thing as an ATO-approved valuation

The ATO does not run a register of approved valuers, does not pre-approve reports, and does not issue a confirmation before a valuation is relied on. Any firm advertising ATO-approved valuations is overstating what is possible. What the ATO publishes instead is guidance on what a market valuation for tax purposes should contain, and it assesses a valuation against that guidance only if and when it looks at one.

What the ATO's guidance actually asks for

The ATO's market valuation for tax purposes guide is principles-based. Read together, its expectations come down to five things.

• ·Market value as defined for tax purposes: the price a willing but not anxious buyer and seller would agree, both informed and acting at arm's length.
• ·A methodology appropriate to the business and the purpose, with the choice explained, not just applied.
• ·Evidence: the financial statements, adjustments, comparable data and market information relied on, documented so a reviewer can see them.
• ·Assumptions that are reasonable and stated, including how earnings were normalised and why a particular multiple or discount rate was chosen.
• ·A valuer with the competence and independence to stand behind the conclusion, identified by name and signing the report.

Where valuations fail

When the ATO does challenge a valuation, it is rarely because of the arithmetic. The usual failures are a valuation date that does not match the CGT event, a fee or a valuer that depends on the outcome, undocumented add-backs that flatter earnings, a multiple asserted rather than evidenced, and reports that cannot show how the number was reached. Each of those is a documentation and independence problem before it is a valuation problem.

What a signed report from Oliver Group contains

Every Oliver Group report is signed by Jackson Wilson, the valuer who prepared it, and states the purpose, the valuation date, the entity, the methodology and why it was chosen, the normalisation of earnings with each adjustment listed, the market evidence relied on, the assumptions and limitations, and an independence statement. The fee is fixed before work starts and never depends on the value reached, which is the incentive the ATO's guidance is most alert to. Signed Essential and Comprehensive reports are delivered in 7 business days once complete financials are held.

When you need more than a standard report

Higher-value, retrospective or contested matters, and anything likely to draw a review, are better served by a fuller evidence file: more comparables, a second methodology as a cross-check, sensitivity analysis and a working file prepared for a reviewer. That is what the Defensible Valuation File tier is for, and it is scoped in writing before any fee is charged.

• ·Market valuation for tax purposes (guide), Australian Taxation Office
• ·Market valuation of assets, Australian Taxation Office
• ·Small business CGT concessions, Australian Taxation Office
• ·Small business CGT concessions: eligibility conditions, Australian Taxation Office
• ·Income Tax Assessment Act 1997, Federal Register of Legislation