When selling a business, or even a portion of one, how you value the assets involved can have a significant impact on the tax outcome. This makes the below case study quite timely as we approach the end of financial year.
A recent Full Federal Court decision, Kilgour v Commissioner of Taxation [2025] FCAFC 183, provides timely guidance on how “market value” is determined for capital gains tax (CGT) purposes.
When preparing for a transaction, restructure or potential exit, the Kilgour case is a useful reminder: a sound business valuationneeds to reflect real commercial conditions, not just theoretical models.
Let’s Take a Look at What Happened
In 2016, three family trusts sold 100% of the shares in Punters Paradise Pty Ltd, an online wagering business, to News Corp for approximately $31 million. The ownership split was:
• Pettett Trust – 60%
• Kilgour Family Trust – 20%
• Reuhl Family Trust – 20%
The sale was negotiated at arm’s length, involved extensive due diligence, and included a working-capital adjustment after completion.
The minority beneficiaries (20% holders) sought to apply the small business CGT concessions, which in this case required the seller’s net assets to be below $6 million. To fall under this threshold, they argued their 20% minority interests should be heavily discounted in value, on the basis that smaller holdings are typically worth less on a standalone basis.
The ATO disagreed, arguing that each 20% interest formed part of a coordinated 100% sale and should be valued simply as 20% of the final $31 million deal price.
The Court agreed with the ATO.
How the Court Approached Market Value
The Court applied the long-standing “willing buyer/willing seller” principles from Spencer v Commonwealth, but through a more modern, commercial lens. Two key messages emerge:
- Real-world expectations outweigh rigid valuation points
Although the tax rules require assessing value “just before” signing the sale contract, the Court made it clear you can’t ignore what was reasonably foreseeable at that time. In this case, the sale was effectively locked in through negotiations, so the agreed price became the strongest indicator of market value.
Key takeaway: If a buyer is clearly willing to pay a premium - for control, synergies, strategic value or growth opportunities, those factors will likely shape the business valuation for tax purposes.
- Actual deal terms carry more weight than theoretical discounts
The taxpayers argued for a typical “minority discount”. However, the Court focused on the commercial reality:
• All shareholders intended to sell together.
• The buyer wanted the entire business, not individual stakes.
• A coordinated 100% sale generally increases the value of each holding.
As a result, a hypothetical buyer would not insist on a discount. The minority interests effectively benefited from the value of the full sale.
Key takeaway: When shareholders act collectively, the tax valuation of each interest can increase, sometimes significantly.
What This Means for Business Owners
- Don’t undervalue your stake
If a buyer is pursuing control or strategic benefits, your interest may be worth more than a standard minority-based business valuation suggests. Make sure your financial advisers consider the full commercial context.
- Evidence is everything
Keep thorough records, including negotiations, correspondence, valuations and buyer motivations. These can be critical in supporting your tax position and accessing concessions.
- Plan CGT concession eligibility early
If you’re relying on small business concessions, test different deal scenarios before signing contracts including a heads of agreement. In some cases, restructuring ownership or staging a sale can make a material difference, but integrity and anti-avoidance rules in the tax system must still be carefully considered.
- Align shareholder expectations
In family groups and private companies, minority owners often assume their shares will be valued in isolation. Kilgour shows that courts are more likely to assess the transaction as a whole, not each interest separately.
The Bottom Line
Kilgour reinforces that a credible business valuation for tax purposes must reflect the commercial reality of the deal, not just theoretical assumptions. Before you sell, restructure or negotiate with a potential buyer, involve your accountant early. A well-supported valuation can mean the difference between accessing valuable CGT concessions or missing out.
If you’re planning a sale or reviewing your position, contact the team at Azimuth Partners. We’re always available to deliver meaningful insights tailored to your unique needs.
*Source – The Knowledge Shop
