The methodology applied to assets in a business sale valuation – or a partial disposal of one – carries significant consequences for the tax position of parties involved. A ruling by the Full Federal Court, Kilgour v Commissioner of Taxation [2025] FCAFC 183, establishes important judicial guidance on the proper determination of “market value” within the capital gains tax framework.

Practitioners and business owners engaged in sale transactions, structural reorganizations, or succession planning would do well to absorb the Court’s reasoning: tax valuations carry little weight unless they faithfully reflect the commercial circumstances of the transaction rather than resting on abstract assumptions.

Business Sale Valuation: The Facts in Issue

The dispute arose from a 2016 transaction in which three family trusts sold their shares in Punters Paradise Pty Ltd—an online wagering business—to News Corp for approximately $31 million. Shareholding was distributed as follows:

• Pettett Trust: 60%
• Kilgour Family Trust: 20%
• Reuhl Family Trust: 20%

The business sale evaluation proceeded on arm’s length terms, subject to due diligence and included a working-capital adjustment on completion.

Each 20% minority holder sought access to the small business CGT concessions, requiring net assets to remain below a $6 million threshold. They argued that an interest of that size would naturally attract a material discount when assessed independently.

The Commissioner rejected this, contending that each 20% parcel formed part of a unified 100% transaction and should be valued at 20% of the $31 million consideration. The Court upheld this approach.

The Court’s Reasoning on Market Value

The Court reaffirmed the “willing buyer/willing seller” standard from Spencer v Commonwealth, anchoring it in the commercial realities before it. Two significant points emerge.

1. Foreseeable circumstances inform the valuation date

The statutory provisions require value to be assessed “just before” the contract is executed. The Court held that a valuer cannot disregard circumstances within contemplation at that point. As completion was a practical certainty, the negotiated consideration was the most reliable indicator of market value.

A purchaser’s willingness to pay a premium—whether for control, synergies, or strategic positioning—forms part of the valuation context and cannot be excluded.

2. Transactional terms prevail over theoretical discount adjustments

The taxpayers relied on conventional minority discount principles. The Court rejected this as commercially artificial, noting three features:

• The shareholders had agreed to divest simultaneously and as a unified whole.
• The purchaser sought complete ownership, making fragmented acquisitions irrelevant.
• A 100% sale inherently supports the full attributed value of each parcel, regardless of size.

A notional purchaser would have had no rational basis for applying a minority discount. Each interest derived its value from participation in the aggregate transaction. Coordinated disposals can result in interests being valued above what a disaggregated analysis produces.

Business Sale Valuation Considerations for Owners and Advisers

• Minority interests may carry greater value than assumed. Where a purchaser is motivated by control or synergistic benefits, the market value of a modest shareholding may exceed what a mechanical discount suggests. Advisers must ensure the full commercial context informs every business sale valuation exercise.

• Contemporaneous records are essential. Documentation gathered during the transaction—negotiation correspondence, independent valuations, and evidence of the purchaser’s rationale—will be central to substantiating a tax position where CGT concessions are in issue.

• CGT concession eligibility warrants early analysis. Owners intending to rely on small business concessions should review their position before binding steps are taken, including execution of heads of agreement. Structural adjustments may produce different outcomes, though anti-avoidance provisions must be assessed carefully.

• Shareholder expectations must be aligned. Minority holders in private or family enterprises often assume their interests will be assessed in isolation. Kilgour confirms courts examine the transaction as a whole, and collective conduct among co-owners shapes how interests are valued.

Concluding Observations

Kilgour reinforces a foundational principle: a business sale valuation disconnected from genuine commercial conditions is unlikely to withstand scrutiny. Business owners and advisers should engage well before contractual commitments are made, ensuring business sale valuations are properly constructed and documented. Where CGT concessions are at stake, the difference between a defensible and an ill-considered valuation may prove both substantial and irreversible.

Need Help?

By working with us as your professional tax accountant and mortgage broker, you can be confident that your loans are structured to protect your tax position, maximise deductions, and avoid costly mistakes, giving you greater peace of mind and more control over your financial future.

Pitt Martin Group is a firm of Chartered Accountants, providing services including taxation, accounting, business consulting, self-managed superannuation funds, auditing and mortgage & finance. We spend hundreds of hours each year on training and researching new tax laws to ensure our clients can maximize legitimate tax benefit. Our contact information are phone +61292213345 or email info@pittmartingroup.com.au. Pitt Martin Group is located in the convenient transportation hub of Sydney’s central business district. Our honours include the 2018 CPA NSW President’s Award for Excellence, the 2020 Australian Small Business Champion Award Finalist, the 2021 Australia’s well-known media ‘Accountants Daily’ the Accounting Firm of the Year Award Finalist and the 2022 Start-up Firm of the Year Award Finalist, and the 2023 Hong Kong-Australia Business Association Business Award Finalist.

Pitt Martin Group qualifications include over fifteen years of professional experience in accounting industry, membership certification of the Chartered Accountants Australia and New Zealand (CA ANZ), membership certification of the Australian Society of Certified Practising Accountants (CPA), Registered Australia Tax Agents, certified External Examiner of the Law Societies of New South Wales, Victoria, and Western Australia Law Trust Accounts, membership certification of the Finance Brokers Association of Australia Limited (FBAA), Registered Agents of the Australian Securities and Investments Commission (ASIC), certified Advisor of accounting software such as XERO, QUICKBOOKS, MYOB, etc.

This content is for reference only and does not constitute advice on any individual or group’s specific situation. Any individual or group should take action only after consulting with professionals. Due to the timeliness of tax laws, we have endeavoured to provide timely and accurate information at the time of publication, but cannot guarantee that the content stated will remain applicable in the future. Please indicate the source when forwarding this content.

The Australian Taxation Office has released a Preliminary Tax Determination TD 2026/D1 which examines how residential real estate acquired through inherited property CGT is managed. Various sector specialists have labeled this a “hidden inheritance levy,” although the actual situation remains slightly more intricate than that description suggests. This preliminary advice concentrates on one particular facet of the regulations concerning the application of primary residence tax relief to inherited assets, potentially exposing legacy estates and heirs to heavy taxation if not structured correctly.

Below is what you should understand in functional terms.

Why TD 2026/D1 Is Significant

Under existing statutes, legal personal representatives or successors can potentially dispose of a departed person’s previous family residence without incurring inherited property CGT if specific criteria are satisfied. This tax break is exceptionally lucrative for dwellings held over decades, where accumulated paper profits might be immense.

To secure a total tax waiver, you generally must ensure the asset is sold within two years of the passing date (though the Commissioner may potentially prolong this window) or that the home served as the primary dwelling of certain eligible parties from the time of death until the final sale.

These eligible parties might include the surviving partner of the deceased individual, the successor disposing of a stake in the asset, or any person granted a right to reside in the dwelling via the deceased’s final testament.

The preliminary ATO guidance emphasizes this final category. Specifically, it questions what constitutes having “a right to occupy the dwelling under the deceased’s will.” To summarize, the ATO’s interpretation is that:

• The entitlement to inhabit the property must be explicitly bestowed in the testament to a designated person.
• Wide-ranging autonomous powers granted to executors, separate legal pacts, or even testamentary trusts (TTs) are considered inadequate in the Tax Office’s perspective.

For instance:

• A testament granting an executor the choice to permit a member of family to inhabit the residence fails to satisfy this criterion.
• A trustee of a TT who permits a successor to reside in the dwelling is viewed as independent of the testament and might spark inherited property CGT upon disposal.

Various legal and property professionals caution that this could compel households to offload residences within two years of a passing to avoid CGT, particularly in premium locations. Reflect on this: inheriting a $2 million residence with a capital increase of $1.5 million might expose the successors to $300,000–$600,000 in liabilities, depending on available concessions and income brackets.

Nevertheless, it remains vital to recognize that alternative methods exist for the asset disposal to qualify for a complete CGT exemptions.

Practical Strategies to Reduce CGT on Inherited Property

While awaiting the Taxation Office to conclude its advice in this field, there are maneuvers you can execute to shield your household’s wealth:

• Analyze and modify your testament, particularly if you intend to grant specific parties the entitlement to inhabit a dwelling. Does the document currently offer this entitlement to uniquely identified successors?
• Strategize the sale schedule – The two years waiver period persists, but if you receive a dwelling and plan to keep it longer, compare any possible inherited property CGT risk against incoming rental profits or family requirements. Partial CGT exemptions might still be accessible, but the statutes and math can be difficult.
• Consult expert advisors, especially if your legacy strategy utilizes TTs. You will typically need to collaborate closely with tax and statutory consultants to organize the strategy effectively.
• Observe market trends – Estate planning can overlap with market cycles. Rapid disposals might protect CGT exemptions, but this must be balanced against non-tax considerations.

The primary lesson is evident: estate planning is a sophisticated field and must be steered with precision to protect family assets and prevent accidental tax consequences.

Need Help?

By working with us as your professional tax accountant and mortgage broker, you can be confident that your loans are structured to protect your tax position, maximise deductions, and avoid costly mistakes, giving you greater peace of mind and more control over your financial future.

Pitt Martin Group is a firm of Chartered Accountants, providing services including taxation, accounting, business consulting, self-managed superannuation funds, auditing and mortgage & finance. We spend hundreds of hours each year on training and researching new tax laws to ensure our clients can maximize legitimate tax benefit. Our contact information are phone +61292213345 or email info@pittmartingroup.com.au. Pitt Martin Group is located in the convenient transportation hub of Sydney’s central business district. Our honours include the 2018 CPA NSW President’s Award for Excellence, the 2020 Australian Small Business Champion Award Finalist, the 2021 Australia’s well-known media ‘Accountants Daily’ the Accounting Firm of the Year Award Finalist and the 2022 Start-up Firm of the Year Award Finalist, and the 2023 Hong Kong-Australia Business Association Business Award Finalist.

Pitt Martin Group qualifications include over fifteen years of professional experience in accounting industry, membership certification of the Chartered Accountants Australia and New Zealand (CA ANZ), membership certification of the Australian Society of Certified Practising Accountants (CPA), Registered Australia Tax Agents, certified External Examiner of the Law Societies of New South Wales, Victoria, and Western Australia Law Trust Accounts, membership certification of the Finance Brokers Association of Australia Limited (FBAA), Registered Agents of the Australian Securities and Investments Commission (ASIC), certified Advisor of accounting software such as XERO, QUICKBOOKS, MYOB, etc.

This content is for reference only and does not constitute advice on any individual or group’s specific situation. Any individual or group should take action only after consulting with professionals. Due to the timeliness of tax laws, we have endeavoured to provide timely and accurate information at the time of publication, but cannot guarantee that the content stated will remain applicable in the future. Please indicate the source when forwarding this content.

For business owners and investors, spare time is scarce. It is hardly surprising that many people now rely on AI tools such as Chat GPT for quick tax guidance on deductions, super contributions or structural ideas. The responses appear confident, arrive in seconds and cost nothing. What might possibly go wrong? Quite a bit.

Australia’s tax and superannuation environment is detailed, highly dependent on individual facts and subject to constant change. AI technology can be a handy starting point but using it as the basis for real decisions can leave you exposed to reviews, penalties and unintended financial consequences. We are increasingly seeing cases where AI-generated guidance has led clients down the wrong path and requires professional correction.

Where AI Can Assist (and Where It Falls Short)

AI is very capable of explaining simple concepts in everyday language. It can outline what negative gearing involves, describe the difference between concessional and non-concessional contributions, or remind you to think about documentation. Rely in AI tools in tax can save time and help you prepare more focused questions.

The difficulty begins when AI shifts from general explanations to something that resembles advice.

Tax and super outcomes depend on your individual circumstances—your income, business structure, age, residency, assets, timing, and long-term objectives. AI tools do not have access to these factors unless you disclose them, and in most cases you should not. Even when detailed information is provided, they cannot exercise professional judgement or weigh risks and trade-offs in the way an experienced adviser can.

The Accuracy Problem: Authoritative, yet Incorrect

AI platforms are known to “hallucinate”, producing statements that sound convincing but are wrong or incomplete. In practice, this can involve:
• Recommending deductions that are unavailable in your situation.
• Calculating capital gains tax incorrectly or overlooking integrity provisions.
• Suggesting super strategies that exceed caps or failing eligibility tests.
• Citing legislation, cases, rulings or concessions that are outdated or entirely fictional.

To a non-expert these mistakes may be invisible, but they are usually obvious to the ATO, the courts and seasoned practitioners.

A recent decision of the Administrative Review Tribunal highlights these dangers. In Smith and Commissioner of Taxation [2026] ARTA 25, the taxpayer appeared to depend on AI tools to locate authorities supporting their position, and the Tribunal dismissed that approach. Some of the cases were imaginary, while others were irrelevant to the issue at hand.

If the user of the tool fails to confirm the cases exist and read them to check relevance, “the Tribunal’s resources are being wasted, as the Tribunal must look for cases that don’t exist and read cases that have no relevance at all”.

ATO Attention is Increasing, not Decreasing

The ATO is not hostile to AI—they use it themselves for analytics and fraud detection. However, for taxpayers, the ATO’s misinformation guidance makes clear that using AI in tax may deliver false, inaccurate, incomplete or outdated material. Their message is simple: check everything or accept the consequences. Surveys indicate many businesses seek AI accounting assistance first, only to have professionals unravel the problems later, burning extra time and money.

ATO AI transparency statement | Australian Taxation Office

Protect yourself from misinformation and disinformation | Australian Taxation Office

Where inaccuracies are identified, the ATO typically revises the return, charges interest, and may also apply penalties—regardless of whether the mistake arose from misunderstanding or from relying on AI-generated tax information rather than any deliberate action.

This issue is becoming particularly apparent in areas such as working-from-home expenses, rental property claims, and compliance obligations for SMSFs.

Superannuation: High Stakes, Minimal Room for Error

Super is an area where AI suggestions can be particularly hazardous. Self-managed funds operate within strict boundaries. AI frequently misses matters such as eligibility, timing, purpose requirements and investment limits. The consequences can include breaches, forced reversals of transactions and penalties that reach thousands of dollars.

Errors in super can also cause permanent damage to retirement savings.

Data Security and Privacy

There is another practical exposure people often forget: entering personal or financial data into AI systems. Once the information is submitted, control over how it may be stored or used is lost. The privacy and fraud risks are simply not worth accepting.

A Better Way: AI with Professional Guidance

AI delivers the greatest value when used as a research and learning tool rather than as the final authority. It can help build general knowledge, but any significant tax or superannuation decision should be assessed in the context of your full financial position and long-term objectives.

In our practice, we encourage clients to ask questions early, explore potential strategies, and discuss them with us before taking action. Addressing issues upfront is almost always simpler and far less costly than fixing problems after the fact.

The bottom line is straightforward: AI can be useful in tax, but it is not your accountant. When safeguarding your wealth and maintaining compliance, personalized professional advice remains critical.

Need Help?

By working with us as your professional tax accountant and mortgage broker, you can be confident that your loans are structured to protect your tax position, maximise deductions, and avoid costly mistakes, giving you greater peace of mind and more control over your financial future.

Pitt Martin Group is a firm of Chartered Accountants, providing services including taxation, accounting, business consulting, self-managed superannuation funds, auditing and mortgage & finance. We spend hundreds of hours each year on training and researching new tax laws to ensure our clients can maximize legitimate tax benefit. Our contact information are phone +61292213345 or email info@pittmartingroup.com.au. Pitt Martin Group is located in the convenient transportation hub of Sydney’s central business district. Our honours include the 2018 CPA NSW President’s Award for Excellence, the 2020 Australian Small Business Champion Award Finalist, the 2021 Australia’s well-known media ‘Accountants Daily’ the Accounting Firm of the Year Award Finalist and the 2022 Start-up Firm of the Year Award Finalist, and the 2023 Hong Kong-Australia Business Association Business Award Finalist.

Pitt Martin Group qualifications include over fifteen years of professional experience in accounting industry, membership certification of the Chartered Accountants Australia and New Zealand (CA ANZ), membership certification of the Australian Society of Certified Practising Accountants (CPA), Registered Australia Tax Agents, certified External Examiner of the Law Societies of New South Wales, Victoria, and Western Australia Law Trust Accounts, membership certification of the Finance Brokers Association of Australia Limited (FBAA), Registered Agents of the Australian Securities and Investments Commission (ASIC), certified Advisor of accounting software such as XERO, QUICKBOOKS, MYOB, etc.

This content is for reference only and does not constitute advice on any individual or group’s specific situation. Any individual or group should take action only after consulting with professionals. Due to the timeliness of tax laws, we have endeavoured to provide timely and accurate information at the time of publication, but cannot guarantee that the content stated will remain applicable in the future. Please indicate the source when forwarding this content.

By Sally Tran @ Pitt Martin Tax