Business restructure valuations in Melbourne

Why a restructure needs a market value

In a sale, a buyer and a seller bargain over the price. In a restructure the same people usually sit on both sides: a sole trader moves the business into their own company, or a family group shifts a business from one of its entities to another. With nobody bargaining at arm's length, the price in the documents often says little about what the business is worth.

The tax rules fill that gap with market value. Where the parties do not deal at arm's length, the ordinary CGT rules can replace the price with the asset's market value (section 116-30), and several roll-overs only work if the market values match. A private business has no quoted price, so its value is worked out from its earnings, assets, risks and market evidence, with the reasoning written down. That is what our report does. Your accountant or tax adviser decides which rules apply; we provide the value.

A market value is often needed when a roll-over tests it, or when a business, shares or units move between related parties without one. Restructures where one is needed, or wanted on file:

• Moving a sole trader or partnership business into a company
• Moving a unit trust's business into a company
• Putting a holding company on top of a company or unit trust
• Demerging part of a group
• Shares, units or a business moving between family members or related entities
• A small business restructure where your accountant wants the value on file

Common restructures and the market value test in each

Most roll-overs set their own market value test, applied at a set time. Your accountant picks the roll-over; we value to the test it sets.

The small business restructure roll-over (Subdivision 328-G)

This roll-over lets a small business move active assets between entities without an income tax bill at the time. Each party must be a small business entity, with aggregated turnover under $10 million, or be connected with or an affiliate of one, or be a partner in a partnership that is one. The transfer must be part of a genuine restructure of an ongoing business, and the individuals who ultimately own the assets, and each one's share, must stay the same (family trusts have an alternative test).

The assets move at the transferor's tax cost, and the ATO says this roll-over does not require market value consideration, or any consideration. So the transfer often goes ahead without a valuation of the assets moved. The ATO also notes that stamp duty and GST may still need to be considered. Where the roll-over does not apply, the ordinary CGT rules do, and between parties who do not deal at arm's length the law can replace the price with market value (section 116-30). If your accountant wants the market value at the transfer date on file, we prepare it.

Victorian duty when land moves in a restructure

Income tax roll-overs do not switch off Victorian duty, which is why the ATO itself says stamp duty may still need to be considered. In Victoria the question usually turns on land. If a restructure moves Victorian land between related parties, the State Revenue Office says the market value must be declared and supported with an independent valuation. Moving shares or units is different: their transfer has not been dutiable in Victoria since 1 July 2002 (Duties Act 2000 s 7(3A)), but landholder duty can apply where the company or trust holds Victorian land worth $1 million or more and someone acquires 50% of a private company or 20% of a private unit trust. A new holding company over a land-rich trading company, or units moving within a family group, are the kinds of steps to raise with your lawyer early.

A property valuer values the land. We value the shares, units and business, to the same date. Whether duty applies, any relief, and the amount are for your lawyer, your accountant or the SRO.

What the ATO looks at in a valuation

The ATO's guide to market valuation says a valuation for tax is usually judged on the process rather than on who did it. When it reviews one, it generally has a valuer look at how well the process was documented, the market value definition, the method, and the assumptions and information relied on. Our report sets out each of those. A figure typed into the restructure documents with no report behind it has none of them on record. Every report is signed by the valuer responsible and carries an independence statement.

What gets valued: one conclusion per entity

Each entity in a restructure is valued on its own facts: a trading company with goodwill is valued differently from an entity that only holds assets. Each gets its own conclusion at the date its test applies. Where a holding company goes on top, for example, the law compares market values just before the first exchange and just after the last one. All of it sits in one signed report.

We value companies, unit trusts, and businesses run by a sole trader, a partnership or a discretionary trust, including goodwill. Real property is valued by a property valuer.

What your accountant receives

Your accountant tells us which roll-over or test applies and the dates that matter. We value against that test and state exactly what was valued, and as at when.

• One signed report, with a separate conclusion for each entity
• The date of each conclusion, matched to the test your accountant names
• The market value definition, and the method with the reasons for it
• The evidence, assumptions and information relied on
• A supportable range as well as the concluded value
• An independence statement and the signature of the valuer responsible
• The working file kept for ten years

See a sample report (52 pages, PDF)

When to value: before signing, or at a past date

The valuation is often done before the restructure documents are signed, so your accountant can check the numbers against the test. Otherwise it is done afterwards, at the date or dates your accountant confirms. Each test applies at a set time.

If the restructure has already happened, we value as at the date the test applies. The ATO's guide judges prudence at the valuation date, not with hindsight, so the report relies on the market and the information as they stood then. We never value at a future date: the guide says a prospective assessment will not be considered reasonable or acceptable for tax.

Documents we need

You do not need any documents to start. Before you engage we tell you exactly what is needed. For a restructure it is usually:

• Financial statements for the last three years, and year-to-date accounts, for each entity
• The structure before and after, ideally as a diagram
• The draft restructure documents, if they exist
• The asset register and depreciation schedule
• Share and unit registers
• Related-party loans and transactions
• Your accountant's note of the roll-over and the dates to value at

Fees for restructure valuations

You know the full fee before we start, however many entities the restructure involves. Business Valuations Melbourne's fees are set by the annual turnover of the business: $1,495 + GST under $2 million, $2,495 + GST from $2 million to $3 million, $3,495 + GST from $3 million to $10 million, and a written quote above $10 million. A small-business report arrives in 2 business days and a medium or large report in 3 business days; above $10 million we agree the delivery date before work begins. Delivery time starts once payment and all required information have been received. Each extra entity is +$795 and each past valuation date is +$495, both agreed at engagement. Everyone pays the same published fee, and it never moves with the value we reach.