Market valuations for unit trust redemptions, cancellations and new unit issues.

A unit trust redemption valuation is an independent market valuation of units redeemed, cancelled or issued in a private Australian unit trust, prepared as evidence for CGT event C2 and aligned with ATO market valuation guidance. It replaces the deed's redemption formula — often stale net asset value — with a defensible market value at the redemption date. Prismi prepares senior-reviewed unit trust redemption valuations for trustees, unitholders and accountants.

When a redemption or issue valuation is required

A unit trust redemption or issue valuation is required whenever units are redeemed, cancelled or issued off-market at a price that must withstand tax scrutiny under ATO market valuation guidance — unitholder exits, admission of new unitholders, trustee redemptions in a restructure, and estate or succession events. There is no exchange price for units in a private trust, and in most cases the parties are related. The critical discipline is timing. Market value is assessed at the redemption or issue date, with evidence contemporaneous to that date — not the balance date of the last signed accounts, which may be a year stale by the time the units change hands.

The CGT events the redemption price drives

Redemption or cancellation of a unit is CGT event C2 (s 104-25, ITAA 1997) for the exiting unitholder — capital proceeds measured against cost base. Where the trustee has made non-assessable payments in respect of the units over the years, CGT event E4 (s 104-70) will have progressively reduced that cost base, so the gain on redemption is often larger than the unitholder expects. And where the parties are not dealing at arm's length, the market value substitution rule (s 116-30) replaces the actual price with market value. Pricing a redemption below market value does not reduce the tax — it substitutes an unevidenced number for an evidenced one, and the difference surfaces years later on review or on the next transaction in the trust.

When the trust deed formula fails scrutiny

A trust deed's redemption formula fails scrutiny when it prices units by a mechanism — commonly net asset value per the most recent accounts, sometimes with trustee discretion to adjust — that does not reflect market value for tax purposes. The deed governs the mechanics between trustee and unitholder, but the ATO tests the transaction against market value, not the deed price. Where the formula relies on historical-cost carrying values, ignores goodwill, or references a balance date months before the redemption, the deed price and market value diverge — and the tax analysis follows market value, tested against the Spencer v Commonwealth (1907) standard of a willing but not anxious buyer and seller. The supportable approach is to price the redemption at market value and document how the deed mechanism was satisfied at that price, so the deed and the tax position tell the same story.

Related-party redemptions and value shifting

Most private unit trust redemptions are between related parties — family members, related trusts and controlled companies. Redeeming one unitholder below market value, or issuing new units to an associate at a discount, shifts value between unitholders without any unit being sold. The direct value shifting rules in Division 725 (ITAA 1997) can then adjust cost bases or crystallise gains for the remaining holders, on top of market value substitution applying to the redemption itself. The valuation must be at the interest level, not just the entity level — any discount for lack of control or marketability, or premium for control, is quantified and reasoned in the report, because the exiting interest and the remaining interests are rarely worth their proportionate share of the trust. Prismi prepares the valuation evidence only — we are not a registered tax agent, and your tax adviser confirms how CGT events C2 and E4, the market value substitution rule and Division 725 apply to the redemption.

NAV or going-concern value — matching the basis to the trust

For a passive trust holding property or investments, net asset value with assets marked to current market is usually the supportable basis. For a trading trust, NAV understates value because it ignores goodwill and going-concern earnings — the supportable basis is enterprise value from capitalised or discounted earnings, less net debt, allocated across the unit classes according to their rights. Where the trust is mixed — a trading business plus surplus assets — we test both approaches, document why each method was adopted or rejected, and conclude at the most supportable position within the range, consistent with IVS 104 and APES 225. A NAV-only redemption price for a profitable trading trust is one of the most common failure points we see in adviser files.

Documents the file needs

• ·Trust deed and all amending deeds, including the redemption and issue clauses
• ·Unit register and class rights schedule
• ·Last 3–5 years of financial statements and current year-to-date management accounts
• ·Recent appraisals or valuations for property and investments held
• ·History of prior unit issues, redemptions and transfers, with pricing
• ·Related-party loan and transaction schedule, including unpaid present entitlements
• ·Trustee resolutions (or drafts) fixing the redemption or issue date and mechanism

Tier recommendation

Most unit trust redemption and issue valuations sit at the Comprehensive tier (from $3,995 + GST, 15–25 business days). A single-asset passive trust with clean, current asset values may suit the Essential tier (from $1,495 + GST, 10–14 business days). Related-party redemptions in trading trusts, multi-class structures and matters likely to attract review warrant the Defensible Valuation File (from $8,995 + GST, 25–35 business days); contested or multi-scenario adviser-led matters may justify the Valuation Range & Scenario Review (from $12,995 + GST, 30–45 business days). Where the redemption has already occurred, a retrospective surcharge of $495 per historical date applies; additional entities in the structure are $750 each. Fees are fixed at engagement and never contingent on the outcome.