Valuations 2025: Make Sure the Price Is Right

In Australian tax and accounting, “make sure the price is right” means ensuring every valuation used for tax, financial reporting, and transactions is supportable, well-documented, and aligned to the correct valuation basis (market value, fair value, arm’s length value)—because the ATO can and does challenge valuations that materially affect tax outcomes, and courts routinely prefer contemporaneous, objective evidence over after-the-fact estimates.

What does “make sure the price is right” mean in valuations?

It means the valuation must match the purpose, the legislative test, and the evidence standard expected by the ATO, auditors, and (if disputed) tribunals/courts.

• Relevant: uses the correct basis (e.g., market value vs fair value vs value-in-use).
• Reliable: based on credible data (comparable sales, earnings, cashflows, observable market inputs).
• Defensible: prepared contemporaneously, with assumptions documented and sensitivity considered.
• Consistent: aligns with contracts, accounting records, and related-party documentation.

• Amended assessments, penalties and interest under Taxation Administration Act 1953 (TAA 1953) administration provisions.
• Audit adjustments due to non-arm’s length dealings.
• Disputes with counterparties, shareholders, or family groups.

Why do valuations matter so much for Australian tax outcomes?

Valuations are central because many Australian tax rules hinge on market value or arm’s length value, particularly where parties are related or where non-cash consideration is involved.

• Capital Gains Tax (CGT): market value substitution rules can apply where parties are not dealing at arm’s length or consideration is not at market value (e.g., certain CGT events).
• Small business CGT concessions: eligibility often depends on value-based tests (for example, net asset values and business value considerations in practice).
• Division 7A (private company loans and payments): while Division 7A itself is mechanistic, valuations become relevant when transactions with shareholders/associates involve assets, use of assets, or debt arrangements that raise benefit and pricing issues.
• GST: where supplies are between associates or involve non-monetary consideration, valuation affects GST outcomes and can attract ATO attention.
• SMSFs: asset valuations underpin member balances, pension calculations, in-house asset limits, and audit evidence. The ATO has repeatedly emphasised that SMSF valuations must be based on objective and supportable data.

ATO guidance is clear in principle: valuations must be objective, supportable, and appropriate for the circumstances, with stronger evidence expected as materiality and risk increase. ATO publications on market valuation (including guidance for SMSFs and property) are frequently cited in reviews and auditor queries.

Which valuation basis should be used: market value, fair value, or something else?

You must use the basis required by the rule you are applying. Using the wrong basis is one of the most common reasons valuations fail.

• Market value (tax focus): typically reflects what a willing but not anxious buyer would pay a willing but not anxious seller in an arm’s length transaction.
• Fair value (accounting focus): under Australian Accounting Standards (AASB 13), fair value is an exit price in an orderly transaction between market participants at measurement date, based on a hierarchy of inputs.
• Arm’s length consideration (tax integrity focus): used when legislation tests whether parties have dealt at arm’s length or whether pricing reflects commercial reality.

• If the client’s position relies on a tax law “market value” concept, do not assume the financial statement fair value workpapers automatically satisfy the ATO. They can help, but the purpose, date, and assumptions must align.

When should an Australian accountant obtain an independent valuation?

An independent valuation should be obtained when the tax impact is material, the asset is hard to value, or the transaction is non-routine (especially related-party).

• Related-party transfers (businesses, units, shares, property).
• Pre-CGT / post-CGT asset boundary issues and restructures.
• Significant goodwill allocations in business sales.
• Equity issued to employees or founders (where tax or reporting consequences depend on value).
• SMSF assets that are illiquid or unlisted (property is “common” but still frequently reviewed).
• Small business CGT concessions planning where value thresholds or asset classifications are tight.

• Valuer has relevant credentials and experience in the asset class.
• Clear scope: valuation date, basis (market value/fair value), standard (valuation report quality).
• Transparent approach: methods used, data sources, assumptions, and limitations.

How does the ATO test whether a valuation is acceptable?

The ATO effectively asks: “If we challenge this, can you prove it?” The standard of proof is practical and evidence-based: contemporaneous support wins.

• Comparable sales (property, tangible assets) adjusted with rationale.
• Earnings/cashflow analysis (business valuations) with explainable normalisations.
• Independent reports and underlying working papers.
• Contracts and board minutes supporting transaction terms.
• Sensitivity analysis (what changes if growth/discount rates move?).
• Consistency checks against financing documents, budgets, and external market data.

• Valuation prepared after the transaction with no contemporaneous evidence.
• Unsupported discounts (e.g., “minority discount” asserted without analysis).
• Aggressive assumptions (revenue growth, margins) inconsistent with actual results.
• Reliance on generic multiples without comparable selection logic.
• A valuation that changes materially year-to-year without explanation (particularly in SMSFs).

Official sources frequently relied upon include ATO guidance on valuations (especially market value and SMSF valuation expectations) and the ATO’s general position that taxpayers must keep records sufficient to explain transactions and support positions taken (record-keeping requirements under tax administration frameworks).

What are the most defensible valuation methods in practice?

The “best” method depends on the asset, data availability, and valuation purpose. Defensibility increases when method choice matches the asset’s economic reality and uses observable inputs where possible.

• Market approach (comparable sales/multiples): strong when there is a deep market of comparables.
• Income approach (DCF/capitalisation of earnings): strong when cashflows are stable and assumptions are supportable.
• Cost approach (replacement cost): useful for specialised plant/equipment or assets where income/market data is thin.
• Net asset approach: used for investment entities, asset-rich businesses, or where earnings are volatile.

• Prefer observable inputs over subjective inputs.
• Document every adjustment (normalisations, one-offs, owner wages).
• Reconcile methods (e.g., DCF outcome cross-checked against multiples).

What valuation mistakes most often cause disputes and amended assessments?

The most common cause is not “bad maths”—it is bad evidence and wrong basis.

• Wrong valuation date: using year-end value when the tax event is earlier (or vice versa).
• Wrong standard: using accounting fair value assumptions for a tax market value test without reconciliation.
• Unsubstantiated goodwill: overstating/understating goodwill without explaining customer concentration, key-person risk, or churn.
• Related-party bias: internal “friendly” valuations that do not reflect arm’s length reality.
• Ignoring restrictions: lease terms, zoning, title restrictions, or minority interests that materially affect value.
• No audit trail: no working papers, no data sources, no rationale for inputs.

A disciplined valuation file should allow a reviewer to re-perform and understand the valuation without guessing.

How should valuations be documented to stand up to ATO review?

A valuation should be documented as if it will be reviewed by the ATO or an SMSF auditor—because it often will be.

• Purpose: why the valuation is required (CGT, restructure, SMSF reporting, etc.).
• Legislative/ATO basis: market value vs fair value vs arm’s length and why.
• Valuation date: the exact date and why.
• Asset description: what is being valued and what is excluded.
• Method selection: why that method is appropriate.
• Key assumptions: revenue, margins, growth rates, discount rates, terminal value assumptions, capitalisation rates, and why.
• Data sources: comparable sales, market reports, financials, external benchmarks.
• Sensitivity analysis: at least 2–3 key variable sensitivities for income-based valuations.
• Conclusion and reconciliation: reconcile to other indicators (offers, financing, prior transactions).

What are real-world valuation scenarios Australian practices face?

Valuation issues arise most often in ordinary work—year-end compliance, entity changes, and client exits.

• Best practice: independent valuation report, comparable sales, evidence of conditions and adjustments.
• Risk if wrong: market value substitution adjustments and flow-on effects across tax outcomes.

• Best practice: earnings normalisation schedule, customer and key-person risk analysis, cross-check multiple methods.
• Risk if wrong: disputes between buyer/seller, and scrutiny of allocations.

• Best practice: documented methodology each year, evidence of underlying assets, rationale for discount/premium.
• Risk if wrong: audit qualification risk and ATO attention where valuations appear unrealistic.

• Best practice: conservative, well-supported assumptions; engage specialist valuers early where thresholds are tight.
• Risk if wrong: loss of concession eligibility and significant retrospective tax cost.

How do MyLedger and automated workflows help you keep valuation-driven accounts “right”?

Keeping the “price right” is not only about the valuation report—it is also about ensuring the accounting file, reconciliation, and supporting records are consistent, traceable, and review-ready.

• Automated bank reconciliation: MyLedger AutoRecon typically reduces reconciliation time from 3–4 hours to 10–15 minutes per client (90% faster), improving the speed at which you can validate cashflows and earnings inputs used in valuations.
• Cleaner evidence trail: AI-supported categorisation and transaction comments help ensure valuation assumptions (normalised expenses, owner drawings, once-off items) can be traced back to source data.
• Working papers automation: MyLedger’s working papers suite reduces manual Excel handling, supporting consistent documentation for year-end positions that rely on valuation inputs.
• ATO integration accounting software (practice focus): direct ATO portal integration supports more complete compliance context (lodgement history, due dates, statements), which strengthens the overall file quality and reduces the risk of “missing facts” when valuations are questioned.

If you are also evaluating platforms, MyLedger is commonly assessed as an Xero alternative for firms that want AI accounting software Australia designed around practice workflows rather than small-business ledgers.

MyLedger vs Xero/MYOB/QuickBooks: which is better for valuation-heavy compliance work?

For valuation-heavy work, the winning platform is the one that produces fast, accurate, auditable source data with minimal manual handling.

• Automated bank reconciliation:
• Working papers automation:
• ATO integration accounting software:
• Pricing model (practice scalability):
• Best fit:

What is a practical step-by-step process to “get the price right” every time?

A consistent internal process reduces risk more than any single valuation method.

1. Identify the rule that drives the valuation basis
2. Lock in the valuation date
3. Select the method that matches the asset
4. Assemble evidence and reconcile to source records
5. Document assumptions and run sensitivities
6. Decide whether independence is required
7. File the valuation pack

Next Steps: How Fedix can help keep valuations defensible

If your firm is doing valuation-adjacent compliance work (CGT events, restructures, Division 7A, SMSF reporting, small business CGT planning), the fastest win is improving the quality and auditability of the underlying ledger.

• Automating transaction processing with AI-powered reconciliation (often 90% faster).
• Producing cleaner, review-ready files that support valuation assumptions.
• Reducing manual Excel working paper rework with integrated, automated workflows.
• Connecting to ATO data to strengthen compliance context and reduce missing-information risk.

Learn more at home.fedix.ai and consider trialling MyLedger if you are comparing an AI-powered Xero alternative for valuation-heavy client bases.

Frequently Asked Questions

Q: What does the ATO generally accept as a “good” valuation?

Q: Do I always need an independent valuer in Australia?

Q: Can I use financial statement fair value work for tax market value purposes?

Q: How should an SMSF value property or unlisted assets for year-end reporting?

Q: How does automated bank reconciliation help with valuations?

Disclaimer: This article is general information for Australian accounting and tax professionals as of December 2025 and does not constitute legal or tax advice. Tax laws, ATO guidance, and valuation standards are complex and subject to change. Specific transactions should be reviewed with qualified tax advisers and, where appropriate, accredited valuation professionals.