The ATO's market valuation guidelines in plain English.

The ATO's 'Market valuation for tax purposes' guidance sets out how tax-purpose valuations should be prepared: by a suitably qualified, objective valuer, using a recognised methodology, supported by credible evidence, and documented so the process can be replicated. It applies whenever a tax provision turns on market value — CGT events, small business CGT concessions, restructures and Division 7A dealings. Prismi prepares independent valuations documented to this standard.

What the guidance is, and when it applies to your business

The ATO's 'Market valuation for tax purposes' guidance, published on the ATO Legal database, is the closest thing Australia has to an official manual for tax-purpose valuations. It applies whenever a tax provision turns on market value: capital proceeds substituted at market value under s 116-30 ITAA 1997, the eligibility tests for the Div 152 small business CGT concessions, Subdiv 328-G restructure rollovers, Division 7A dealings between private companies and their shareholders, share buy-backs and related-party transfers. The guidance is principles-based rather than prescriptive — there is no template or checklist that guarantees acceptance. It is not law either: market value takes its meaning from case law, principally the willing-but-not-anxious principle in Spencer v Commonwealth (1907), and from IVS 104. But it is the standard ATO valuation specialists work from when a valuation is questioned, which makes it the practical standard for anyone preparing one.

Who the ATO will accept to value your business

The most misunderstood part of the guidance. With narrow exceptions, the ATO does not maintain a register of acceptable valuers — the guidance states that acceptability usually depends on the process undertaken, not on who conducted it. The exceptions are specific contexts such as the GST margin scheme (a 'professional valuer') and the Cultural Gifts Program (an 'approved valuer'); neither applies to ordinary business valuations. For business valuations, the ATO regards a valuer as qualified either through formal valuation qualifications or through knowledge, experience and judgement recognised by their professional community — typically demonstrated by current membership of a relevant professional body, with the standards that membership carries, such as APES 225 Valuation Services. The guidance also places responsibilities on the taxpayer: instruct the valuer accurately, provide complete information, impose no obstacles or limitations, and let the valuer remain objective. A valuation steered toward a preferred number fails the independence expectation regardless of the valuer's letters. This is why Prismi's fees are fixed at engagement and never contingent on outcome, and why we decline engagements where a client asks us to work toward a predetermined figure.

What your valuation file must prove: process over conclusion

The guidance is explicit that the ATO assesses the process behind the number, not just the number. Three expectations sit at the centre. Replicability: the report must be documented in enough detail that another valuer, given the same information, could understand how the conclusion was reached and test it — a bare conclusion with no visible working fails on its face. Contemporaneous evidence: the valuation must rest on information available at the valuation date; hindsight — events after the date that were not reasonably foreseeable at it — cannot support the conclusion. Complete working papers: every material input should be traceable to a source, from the earnings normalisations to the multiple selected and the adjustments applied to it. Prismi reports are built around these three expectations: methodology selection reasoned in writing with rejected methods discussed, evidence cited for each input, assumptions stated and bounded, the report signed by a senior reviewer, and the complete working file retained for ten years so the process can be demonstrated long after lodgment.

The deficiencies the ATO sees most often, in plain English

The guidance groups the failures it commonly finds into four families — documentation, analysis, methodology and assumptions. Translated out of ATO language, the recurring deficiencies are:

• ·The wrong methodology for the asset, purpose or available information — or the right methodology applied incorrectly against industry and professional standards
• ·A valuation approach that does not match the tax provision it serves: the wrong asset, the wrong interest, or the wrong valuation date
• ·Assumptions that are unreasonable, unsupported, internally inconsistent — or simply missing from the report
• ·Historical performance used as a proxy for value without testing whether it still reflected the business at the valuation date
• ·Relevant information available at the valuation date omitted from the analysis, or hindsight relied on in its place
• ·Conclusions inconsistent with the evidence cited elsewhere in the same report
• ·Size, risk and other adjustments to the discount rate or capitalisation multiple asserted with no support for the adjustment

The tax-event evidence matrix

Different tax provisions lean on market value in different ways, and the evidence the ATO expects scales with what is at stake. This is the map we work from when scoping an engagement:

What triggers a review, and what it means for penalties

The ATO does not individually review most tax-purpose valuations. Review typically arises through audit activity, Div 152 concession claims, restructure rollover claims, Division 7A and related-party dealings, and positions that appear favourable against the taxpayer's risk profile. The mechanics of a review — who conducts it, what is asked, how a challenge unfolds — are covered in our companion resource, How the ATO Reviews Business Valuations; this page stays with what the guidance says about consequences. Where a review produces a tax shortfall, administrative penalties scale with behaviour: 25 per cent of the shortfall for failing to take reasonable care, 50 per cent for recklessness and 75 per cent for intentional disregard. The guidance then makes the point that matters most to owners: relying in good faith on the advice of a professional valuer is consistent with taking reasonable care, even if the valuation later proves deficient — provided the valuer was properly instructed and given complete information. A properly commissioned independent valuation is therefore evidence twice over: for the value itself, and for the care taken in adopting it. Prismi prepares the valuation only — we are not registered tax agents and do not advise on penalties, remission or the tax application of the value. That is your accountant's role, and we work alongside them.

Which Prismi engagement meets the standard

The right tier follows the tax at stake and the likelihood of review, not the size of the business. For straightforward single-entity matters where the guidance applies but the dollars are modest, Essential (from $1,495 + GST, 10–14 business days) delivers a market valuation with the methodology and evidence documented. For most Div 152 concession claims, restructures and Division 7A matters — where the value drives a material tax outcome — Comprehensive (from $3,995 + GST, 15–25 business days) tests multiple methodologies and documents the supportable range and the reasoning for the concluded position. Where review likelihood is elevated or the tax at stake is significant, the Defensible Valuation File (from $8,995 + GST, 25–35 business days) is built specifically around the working-paper expectations described above. Valuations at historical dates attract a $495 surcharge per date, and additional entities are $750 each. Advisers who want the range and concluded position stress-tested before lodgment can add the premium Valuation Range & Scenario Review.

How this page fits with our other ATO resources

This page translates what the ATO's guidance expects before you lodge — the valuer, the evidence, the file. What happens after a review begins is covered in How the ATO Reviews Business Valuations. What 'ATO-aligned' does and does not mean — including why 'ATO-approved' is not a real thing — is covered in What is an ATO-Aligned Market Valuation. And the qualification question in depth, including professional-body accreditations, is covered in Who Can Value a Business in Australia. Read this page first; the others pick up where it stops.