Tax and Succession Planning Starts with Understanding Business Value

Understanding the underlying value of a business is critical for accountants and financial advisors when providing guidance to their clients.

Whether it’s retirement planning, succession, or an eventual business sale, transactions involving private business interests such as transfers to a trust, self-managed superannuation funds or between family members, can have direct tax implications driven by market value.

Accountants and financial advisers are normally involved in these transactions, however, and far too often, advice is provided before a reliable view of value has been established.

While these transactions are typically driven by tax or estate planning objectives, one key question should always be addressed at the outset: What is the value of the business interest and assets being transferred?

The question is particularly important when assessing eligibility for the small business and CGT concessions, including the $6M net asset test, and determining market value can materially influence whether a client falls above or below this threshold.

Incorrect or unsupported valuations are one of the most common triggers for ATO reviews during restructures and succession transactions. A quick independent appraisal can avoid costly mistakes and protect both you and your client.

The ATO specially states that taxpayers may need a market valuation for:

• Transfers of property or shares between related parties or family members
• Small business CGT concession asset threshold tests
• Business restructures
• Employee share schemes
• GST and consolidation transactions

The ATO also notes that valuations should be objective, supportable and based on appropriate evidence, and that professional valuations are generally more credible than non-professional assessments.

Engaging a valuation professional early in the process helps ensure that advice is based on a credible and supportable assessment of market value and gives advisors a defensible foundation for their tax advice thereby reducing risk and strengthening the quality of their recommendations.

Importantly, most clients don’t need a full valuation and our Business Appraisal Reports are a fast, practical and cost-effective alternative (often completed in days not weeks). Each year, we support accountants with appraisal reports that help their clients access concessions with confidence.

A Business Appraisal Report can give advisers confidence that an appropriate value is being applied, while also providing supporting documentation to assist in satisfying the Australian Taxation Office’s requirements.

If you have a client considering a restructure, trust transfer or retirement planning in the next 12 months, WCT Advisory can work alongside you to provide independent, tailored business appraisals for private companies - helping clients complete transactions with greater clarity and confidence.