When you sell a business, or even a share of one, the way your assets are valued for tax purposes can have a significant impact on what you actually walk away with.
A recent Full Federal Court decision, Kilgour v Commissioner of Taxation [2025] FCAFC 183, offers a timely and practical lesson on how market value is really determined for capital gains tax purposes. If you are planning an exit, a restructure, or any transaction involving a change in ownership, this case is worth understanding.
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 across the trusts was 60%, 20%, and 20%.
The two minority holders, each owning a 20% stake, sought to access the small business CGT concessions. To qualify, their net assets needed to fall below $6 million. They argued that a 20% minority interest should be valued at a discount to its proportional share of the sale price, on the basis that minority stakes are typically worth less on a standalone basis.
The ATO took a different view. Because all three trusts had sold together as part of a coordinated 100% transaction, the ATO argued each 20% parcel should simply be valued as 20% of the $31 million deal price. No discount applied.
The Full Federal Court agreed with the ATO.
The Court applied the well-established "willing buyer, willing seller" principles from Spencer v Commonwealth, but grounded its analysis firmly in the commercial reality of what actually happened. Two key findings stand out.
The tax rules required the Court to assess value "just before" contracts were signed. But the Court made clear that you cannot ignore circumstances that were reasonably predictable at that point. Key takeaways here:
The minority holders argued for a standard minority discount, a recognised valuation concept that reflects the reduced influence a small stakeholder typically has. The Court rejected this. The reasons were clear:
Because the minority interests were sold as part of that coordinated whole, the Court found they effectively carried the value of the full deal. No discount was warranted.
The Kilgour decision has practical implications for any business owner thinking about an exit, whether that is a full sale, a partial sale, or a staged transaction.
Your interest may be worth more than a standard minority valuation suggests. If the buyer is pursuing control or synergies, and shareholders are selling together, the commercial reality of that transaction will likely be reflected in how each stake is valued for CGT purposes. That can work in your favour when calculating capital gains, but it can also affect your eligibility for concessions that depend on asset thresholds.
The small business CGT concessions require early planning. If you are relying on the small business concessions, which can significantly reduce or eliminate a capital gain, you need to test your eligibility before signing anything, including heads of agreement. Once a transaction is underway, the Court's approach in Kilgour shows that the commercial context will be taken into account. There may be limited room to restructure after the fact, and the integrity rules in the tax system need careful consideration.
Documentation and evidence matter. The Court's analysis was heavily influenced by what the negotiations, correspondence, and deal terms actually showed. Thorough records of buyer motivations, valuation methodologies, and the commercial intent behind a transaction can be powerful in supporting your tax position. Gaps in documentation leave room for the ATO to fill them in on its own terms.
Minority owners in family groups should not assume a discount will apply. In private company and family trust structures, it is common for minority shareholders to assume their stake will be valued conservatively on a standalone basis. Kilgour demonstrates that courts will often look at the transaction as a whole. If shareholders are acting collectively, each interest can carry significantly more value than an isolated slice would suggest.
The broader lesson from Kilgour is not that valuations are unpredictable. It is that they are anchored in commercial reality, and that reality can be shaped by how a transaction is structured and documented.
If you are approaching a sale or a significant ownership change, involve your adviser before you reach heads of agreement, not after. Key steps to take early:
Kilgour is a clear reminder that market value for tax purposes reflects the real commercial world, including the buyer's motivations, the structure of the deal, and how shareholders choose to act together. Theoretical discounts and textbook valuation models will not always hold up when tested against what the transaction actually looks like.
If you are planning an exit or ownership change, getting your valuation approach and CGT position right from the start is essential. Get in touch with the Trekk Advisory team to start planning your exit with confidence.
Trekk Advisory provides accountant-led tax, bookkeeping, and advisory services for Australian business owners. This article is general in nature and does not constitute personal advice. Please speak with a qualified adviser regarding your specific circumstances.