The recent 2026 budget announcements got people talking about changes to Capital Gains Tax. People are curious about how these changes will impact property and shares. Business owners usually think about business valuations only when they plan to sell.

But in reality, the ATO requires business valuations in far more situations than most people realise.

Business valuations are essential for tax and compliance events in Australian SMEs. This includes restructures, employee share schemes, shareholder exits, and family law matters.

The ATO is paying more attention to private groups, related-party transactions, and market value assessments. So, if you get the business valuation wrong, it can become costly fast.

At RJD Advisory, we often help business owners, accountants, and lawyers. They need practical business valuations that match commercial reality and ATO expectations.

Why the ATO Requires Business Valuations

The ATO usually needs a business valuation if a transaction might change taxable value.

Common examples include:

• business sales and acquisitions

• capital gains tax (CGT) events

• business and trust restructures

• employee share schemes (ESS)

• share buy-backs

• shareholder disputes and buy-outs

• deceased estates and probate

• Division 7A matters

• related-party transactions

The core issue is usually the same:

Was the transaction completed at market value?

If not, the ATO can substitute its own market value assessment. This may lead to additional tax, penalties, or disputes.

What Does “Market Value” Mean?

The ATO generally defines market value as the price agreed between knowledgeable and willing parties dealing at arm’s length.

Importantly, market value is not the book or tax value, or historical cost. The business valuation needs to reflect commercial reality.

That means considering:

• profitability

• industry risk

• assets and liabilities

• market transactions

• goodwill

• capital structure

The Main Valuation Methods

The ATO does not require one single business valuation methodology. The right approach depends on the business and the purpose of the valuation.

Capitalisation of Future Maintainable Earnings (CFME)

This is one of the most common methods used for Australian SMEs.

It involves:

• normalising earnings

• removing one-off items

• adjusting owner remuneration

• applying a multiple based on risk and growth

This approach is commonly used for profitable service businesses and established SMEs.

Discounted Cash Flow (DCF)

DCF is more common for:

• startups

• technology businesses

• high-growth companies

This method forecasts future cash flows and discounts them back to present value.

The ATO expects assumptions to be reasonable and supportable.

Net Asset Value (NAV)

NAV is often used for:

• property entities

• investment companies

• asset-heavy businesses

Assets are adjusted to market value and liabilities deducted.

Market Multiples

This approach compares the business to similar transactions or listed companies.

Common multiples include:

• EBITDA

• EBIT

• revenue

• seller’s discretionary earnings (SDE)

The challenge is ensuring the comparables are genuinely relevant to the business being valued.

Common Business Valuation Issues the ATO Focuses On

Unrealistic Earnings

One of the most common problems we see is inaccurate earnings normalisation.

This often happens when owners run personal expenses through the business or pay themselves too much or too little. This can materially distort the valuation.

Related-Party Transactions

The ATO pays close attention to transactions between related parties.

This includes:

• shareholder loans

• business and trust restructures

• internal share transfers

If the transaction occurs below market value, the ATO may substitute its own market value assessment.

As part of the 2026 budget announcement, business owners will need to consider whether a business valuation is required for 30 June 2027. Any gain post that date will be indexed to inflation and the gain before that date will be on the old system. The legislation hasn’t been released or voted on yet. Still, business owners will need to decide soon.

Employee Share Schemes (ESS)

ESS valuations continue to attract significant scrutiny.

Under Division 83A of the Income Tax Assessment Act 1997, shares and options issued under an ESS generally need to be valued at market value. For private companies, this can become quite technical because there is no observable market price.

The business valuation may need to consider:

• equity value

• shareholder loans

• option pricing models

• minority interests

• preference shares

• capital structure adjustments

This is an area where independent business valuation support is often important.

2026 Budget Announcements Relevant to Business Valuations

Several recent budget measures are increasing the importance of proper business valuation processes.

Increased ATO Compliance Activity

The Government continues expanding funding to the ATO Tax Avoidance Taskforce.

This means greater scrutiny on:

• private groups

• trusts

• restructures

• related-party dealings

• business valuation methodologies

Businesses planning restructures or succession should expect increased scrutiny of market value evidence. The 2026 budget announcement highlighted concessions on the timing of restructures, which are linked to the proposed changes in the Capital Gains Tax Rules.

ESS and Innovation Incentives

The Government continues supporting startup and innovation-focused employee share schemes.

Business valuation documents are still in demand, especially for private companies offering options or shares.

Common Mistakes Business Owners Make

At RJD Advisory, we regularly review business valuation reports containing issues such as:

• relying on outdated multiples

• confusing enterprise value with equity value

• ignoring shareholder loans

• failing to normalise earnings

• using listed company multiples for SMEs

• relying on DIY valuation calculators

These issues can create problems during, tax reviews, shareholder and family law disputes and capital raisings.

Why Independent Business Valuations Matter

Technically, directors can sometimes determine value internally.

But independent business valuations usually provide:

• stronger ATO defensibility

• better governance

• improved investor confidence

• reduced dispute risk

• more credible negotiations

Final Thoughts

Business valuations are no longer just something done before a sale. For many SMEs, they now sit at the centre of tax compliance, strategic planning, and major business decisions.

With more ATO scrutiny on private businesses and related-party transactions, using rough estimates or outdated assumptions adds unnecessary risk.

A good business valuation should not just satisfy compliance requirements. It should help business owners see what creates value, spot risks, and make better decisions ahead.

At RJD Advisory, we help business owners with practical and defensible business valuations. Our business valuations meet commercial goals and align with ATO expectations.

📞 Book a free consultation today to discuss a business valuation for your business and the next steps.