CGT events explained: which ones trigger a business valuation, and when.

CGT events are the specific transactions and occurrences that trigger a capital gains tax calculation under the ITAA 1997. Many of them — A1 disposals, C2 cancellations, the E4, E5 and E7 trust events, K6 pre-CGT share disposals — require a market valuation of the business, shares or units involved. Prismi prepares independent, evidence-led valuations for these events, documented so the position is defensible if the ATO reviews it.

When a CGT event triggers a valuation requirement

A business valuation is required whenever a CGT event happens and the tax outcome depends on market value rather than a price paid between strangers. That covers more situations than most owners expect — selling the business to a third party is only the most visible case. Transferring shares to a family member, restructuring into a new entity, cancelling units in a trust, distributing an asset to a beneficiary and disposing of pre-CGT company shares can all require a market valuation: sometimes of the business, sometimes of the shares or units, sometimes of the underlying assets. The common thread runs through the market value substitution and eligibility rules in the ITAA 1997. Where the parties are not dealing at arm's length, where no money changes hands, or where a concession such as the Div 152 small business CGT concessions is claimed, the legislation replaces or tests the actual proceeds against market value — and someone has to establish, with evidence, what that market value is.

The crosswalk: event, trigger, valuation date, what is valued, evidence standard

• ·A1 — disposal of a CGT asset. Trigger: sale or transfer of the business, shares or units. Valuation date: the date the contract is entered into (or the change of ownership if there is no contract). What is valued: the asset disposed of. Evidence standard: the contract price where the dealing is at arm's length; an independent market valuation where it is not, where proceeds are nil, or where concessions are claimed.
• ·C2 — cancellation, surrender or ending. Trigger: share buy-backs, unit redemptions, company deregistration, ending of contractual rights. Valuation date: when the asset ends (or the contract date where the ending occurs under contract). What is valued: the shares, units or rights that end. Evidence standard: independent valuation — a cancelled interest has no market price of its own.
• ·E4 — non-assessable payments from a trust. Trigger: a unit holder receives non-assessable distributions that reduce the cost base of their units, potentially below zero. Valuation date: the time of the payment, where the payment is property rather than cash. What is valued: the property distributed. Evidence standard: market valuation of the distributed property at the payment date.
• ·E5 — beneficiary becomes absolutely entitled. Trigger: a beneficiary becomes absolutely entitled to a trust asset as against the trustee. Valuation date: the time absolute entitlement arises. What is valued: the trust asset. Evidence standard: independent market valuation dated to the entitlement date.
• ·E7 — trustee disposes of an asset to a beneficiary. Trigger: the trustee transfers a trust asset to a beneficiary in satisfaction of their interest in the trust. Valuation date: the date of the disposal. What is valued: the asset transferred. Evidence standard: independent market valuation — the parties are by definition not dealing at arm's length.
• ·K6 — pre-CGT shares or trust interests. Trigger: a CGT event happens to shares acquired before 20 September 1985 in a company whose post-CGT property makes up at least 75% of its net value. Valuation date: the time of the other CGT event. What is valued: the company's post-CGT property and its net value, asset by asset. Evidence standard: the most evidence-intensive event on this list — an underlying-asset valuation, not a single business-level number.

Selling or transferring the business — event A1 and market value substitution

Event A1 is the disposal event. It happens when ownership of a CGT asset changes, and it covers the ordinary sale of a business, its goodwill, or the shares or units that hold it. Where the sale is at arm's length, the contract price is the capital proceeds and no valuation is usually needed. Where it is not — a transfer to a family member, a sale between related entities, a gift, a nominal-consideration transfer — s 116-30 ITAA 1997 substitutes market value for the actual proceeds, and the valuation becomes the number the tax outcome is calculated from. The valuation date is the contract date, not settlement. A1 is also where the Div 152 small business CGT concessions are usually claimed, and eligibility turns on market values — notably the maximum net asset value test, measured just before the event. Prismi's business sale and related-party transfer valuation services cover both contexts.

Distributing from a trust — events E4, E5 and E7

The E events deal with trusts, and they catch trustees who assume that moving assets within the family group is a non-event. E4 arises when a unit holder receives non-assessable payments that erode the cost base of their units — where the payment is property rather than cash, the property must be valued at the payment date. E5 arises when a beneficiary becomes absolutely entitled to a trust asset as against the trustee; the asset is treated as disposed of at market value at that time. E7 arises when the trustee transfers an asset to a beneficiary in satisfaction of their interest — again at market value, because the parties are not dealing at arm's length. In each case the trustee needs a valuation dated to the event itself, not to 30 June and not to whenever the paperwork catches up. Prismi's trust distribution and restructure valuation services are built for these events, and our retrospective service covers events already past.

Buy-backs, redemptions and pre-CGT companies — events C2 and K6

C2 is the ending event — it happens when an intangible asset is cancelled, surrendered, redeemed or otherwise ends. For business owners the common contexts are share buy-backs, unit redemptions and company deregistrations. Because a cancelled interest has no sale price, the proceeds are what is received for the ending — and market value substitution applies where the dealing is not at arm's length, which in buy-backs and redemptions it usually is not. K6 is the trap for pre-CGT companies: shares acquired before 20 September 1985 are not automatically exempt. Where a CGT event happens to those shares and the market value of the company's post-CGT property is at least 75% of the company's net value, K6 produces a capital gain referable to that property. Testing the 75% threshold requires valuing the underlying assets individually, which makes K6 one of the most valuation-dependent provisions in the CGT regime.

Why the valuation date differs between events

Each CGT event fixes its own timing rule, and the valuation must be dated to that rule — not to the financial year end, the settlement date, or the date the accountant discovers the issue. A1 dates to the contract; C2 dates to the ending of the asset; E5 dates to absolute entitlement; K6 dates to the event that happens to the shares. The difference matters because market value moves: a business valued at contract date in a strong trading period can support a materially different conclusion than the same business at settlement six months later. It also matters for evidence — a valuation dated to the event may rely only on information that was known or reasonably knowable at that date. Where the event is already past, a retrospective valuation reconstructs the position as at the historical date. That is routine work for a valuation practice, but it requires documented discipline about hindsight.

Which Prismi tier fits a CGT event valuation

For a single-entity A1 disposal with clean financials and no concession claim, the Essential report (from $1,495 + GST, 10–14 business days) is usually sufficient. Where the event involves market value substitution, a Div 152 concession claim, or trust events, the Comprehensive report (from $3,995 + GST, 15–25 business days) tests multiple methodologies and documents the supportable range. Where the position is high-value, contested or likely to attract review — K6 assessments, disputed related-party transfers — the Defensible Valuation File (from $8,995 + GST, 25–35 business days) is the appropriate scope. Retrospective valuation dates attract a $495 surcharge per historical date, and additional entities are $750 each. Fees are fixed at engagement and never contingent on the outcome. One boundary worth stating plainly: Prismi prepares the independent valuation only. Classifying the CGT event and applying the tax consequences are matters for your accountant or lawyer — we work alongside them, not in their place.