Brett Goodyer

It’s the final quarter of the financial year, and now, the importance of integrating business valuations and appraisals with strategic tax planning becomes particularly significant. This is a crucial period for accountants who aim to leverage every available tool to ensure optimal financial health outcomes for their clients.

Business valuations and tax planning are intrinsically linked. Understanding the value of your client’s business and its constituent parts provides a foundation for effective tax planning, particularly concerning Capital Gains Tax (CGT) concessions. This is particularly important when considering exit and succession planning for your clients as it can have a significant impact on CGT payable when it comes time for the business or entity to be sold or restructured. Understanding and applying the CGT concessions correctly hinges on not only understanding its value at the time of the transaction, but ought to be monitored to ensure compliance with specific CGT concession requirements, whilst also providing crucial information for the creation and safe-guarding of value over time.

One of the primary tests in CGT concessions is the 80:20 rule, which requires careful consideration and documentation, as it stipulates that at least 80% of the assets held by an entity must be used in the active conduct of a business for it to qualify. This is not at a single point in time, but rather it must be satisfied for more the majority of the years it has been held in its current shareholding (up to 15 years). Misinterpretations or miscalculations in applying this rule can lead to substantial tax implications.

As such, regular appraisals play a vital role in maintaining an up-to-date understanding of the value of the business and the value of any goodwill it might hold, which is often critical in determining the value of the underlying assets of the business and will affect the assessment of the proportion of active to inactive assets. Regular appraisals ensure that businesses are not undervalued or overvalued at critical junctures, such as a sale, acquisition, or annual tax assessment, and by their very nature create a permanent file note for future reference.

Sometimes an appraisal is not going to be sufficient to meet the compliance requirements, and you will need to either perform or have a third party perform a valuation that meets APES225 – Valuation Services requirements. This is going to be wherever a transaction is taking place where shares change hands or where a business is bought or sold as a part of a restructuring transaction. Whereas an appraisal is perfectly suited to delivering advice for ‘internal purposes’, and for making file notes. Occasionally, you might seek to outsource an appraisal, or have a valuation performed in its stead so that you can have an independent third party provide advice around critical features of an appraisal or valuation, such as the quantum of working capital required by the business, or where rapid depreciation has distorted the balance sheet of the entity to such an extent that you need expert guidance. In these cases, the judicious use of independent valuers can be a useful derisking exercise, to ensure that you can demonstrate due diligence in your professional assessment of the business or entity in question.

For accountants, deepening their understanding of these elements is not just about compliance—it's about providing strategic advice that can significantly impact a client's financial trajectory. Compelling business valuations empower accountants to offer more than just tax advice; they enable proactive business planning that aligns with long-term goals and market realities.