What counts as a business interest held by an SMSF?
Shares in a private company, or units in a unit trust, that runs a trading business. The fund owns a proportion of the entity, not the business assets directly. A company or trust that mainly holds investments is an investment entity instead, valued from its net assets. Whether a fund may hold a business interest is a question for the trustees and their advisers. We value it. See private company shares and unit trusts for the entity side.
How is a trading business valued?
On what it can sustainably earn and how risky those earnings are. The valuer chooses the method that suits the business and tests the answer against another.
| Method | How it works | When it suits |
|---|---|---|
| Capitalisation of maintainable earnings | Estimates the earnings the business can sustain, then converts them to a value using a rate that reflects the risk of earning them. | Established businesses with a steady earnings history. |
| Net assets | Values the assets at market value less liabilities, and acts as a floor under the earnings-based value. | Asset-heavy businesses, and as a check on the earnings method. |
| Discounted cash flow | Forecasts future cash flows and discounts them to today at a rate that reflects risk. | Businesses whose earnings are expected to change in ways one year's figure cannot show. |
Maintainable earnings are the profits the business can keep earning, after adjusting for the owners' pay, one-off items and arrangements that are not on commercial terms. Surplus assets and debt are then dealt with separately, to get from the value of the business to the value of the entity. The rate that converts earnings into value reflects the risks of the particular business, and the report explains it. Where a business is growing quickly or is about to lose a major contract, one year's profit can mislead. A forecast with stated assumptions, tested against the business's history, is then more reliable.
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Why do owner reliance and customer concentration matter?
Because they decide how likely the earnings are to continue. A business that depends on its owner may earn less when the owner steps back, and one that depends on a few customers can lose a large part of its revenue with one decision. The valuer asks about both and allows for them in the rate. Earnings quality works the same way: profit that is steady, documented and supported by the accounts and tax returns carries less risk than profit that swings or cannot be traced.
Why is the fund's interest valued as a proportion?
Because the fund owns a share of the entity, not the business itself. The value of the interest starts as the fund's proportion of the entity's value, and then the valuer considers what the rights attached to that proportion allow.
- The percentage held: a larger share carries more say.
- Control: whether the fund, alone or with related parties, can decide dividends, appoint directors or sell the business.
- Classes of shares or units: different classes may carry different rights to income and capital.
- Agreements: the constitution, shareholders agreement or trust deed, including transfer restrictions and buy-sell clauses.
- The other holders: who they are and whether they are related to the fund.
There is no standard discount or premium. Whether any adjustment is appropriate depends on those rights and the facts, and the report explains the reasoning.
What does a business interest valuation cost?
The fee follows the business's annual turnover and is fixed before we start.
- Turnover under $2 million: $1,495 + GST.
- Turnover $2 million to $10 million: $2,495 + GST.
- Turnover over $10 million or a complex structure: $3,495 + GST.
- Each additional trading entity: $795 + GST.
- Each additional valuation date: $495 + GST.
- Annual 30 June update of a valuation we prepared last year, same entity, no restructure or major change: $495 + GST per entity.
We confirm the fee in writing before we start. No hourly billing. See pricing.
Documents we usually ask for: business interests
- Financial statements and tax returns for the last three years, and year-to-date accounts
- Annual turnover, and a profit and loss by month or quarter for the current year
- A list of the business's main customers and the share of revenue each provides
- Details of the owner's role, hours and pay, and any related-party staff
- The constitution, shareholders agreement or trust deed, and the register of shares or units
- Loan balances, including loans from shareholders or unit holders
- Contracts, leases and licences the business depends on
- Any earlier valuation, any recent sale or issue of shares or units, and any offer received for the business
Documents come only through the private upload link on your matter, never by email and never through this website.
How we value it, and what it costs
Investment entity
Unit trust or company holding property, cash or listed investments
$995 + GST
Report in 2 business days
Trading business, smaller
Annual turnover under $2 million
$1,495 + GST
Report in 2 business days
Trading business, established
Annual turnover $2 million to $10 million
$2,495 + GST
Report in 3 business days
Trading business, larger or complex
Annual turnover over $10 million, or a complex structure
$3,495 + GST
Delivery agreed before we start
Annual 30 June update
A valuation we prepared last year, same entity, no restructure or major change
$495 + GST
Report in 2 business days
We confirm the fee in writing before we start. No hourly billing. Delivery time starts once payment and all required information have been received. How our fees work
Business interests valuation questions
Does the fund's interest in a business need a valuation every year?
The fund needs a market value for every asset at 30 June. A previous independent valuation can be relied on if it is still appropriate and the trustees assess and document that, but not if it is materially inaccurate or the value has changed significantly. A change in the business's character is one of the significant events that may call for a new valuation or other evidence.
Can the trustees value the business interest themselves?
For the accounts, yes, if the process is fair and reasonable and based on objective and supportable data, and the method and assumptions are set out. The ATO recommends a qualified independent valuer when the interest is a significant part of the fund or the valuation is likely to be complex, and valuing a trading business can be both.
Why does the valuer ask about the owner's role?
Because earnings that depend on the owner may not continue if the owner steps back. The valuer separates what the owner is paid from what the business earns in maintainable earnings, and allows for the risk of reliance in the rate used to convert earnings into value.
Is a minority interest in a business valued at a discount?
It depends on the rights attached to the shares or units and the facts, and there is no standard percentage. The valuer reads the constitution, shareholders agreement or trust deed and explains any adjustment in the report.
What if the business is held through a trust?
The fund holds units, so we value the units from the trust's value: the business's value plus the trust's other assets, less its debt. The trust deed decides how that value is shared across the units. See unit trusts.
How long does a business interest valuation take?
Delivery is 2 business days for turnover under $2 million and 3 business days for turnover $2 million to $10 million. Larger or complex valuations are agreed before we start. Delivery time starts once payment and all required information have been received.
Short answers about business interests
- How are unlisted shares in an SMSF valued?Unlisted shares are valued by considering the company's assets and the consideration paid, because there is no quoted price, the ATO says. Evidence...
- How much does an SMSF valuation cost?An SMSF valuation has a fixed fee set by what the fund holds. Investment entity: $995 + GST. Trading business, by annual turnover: $1,495 + GST...
- Does my SMSF need an independent valuation?Usually no. The ATO says trustees are not required to use a qualified independent valuer for the fund's accounts and statements. The law requires one...
- How often do SMSF assets need to be valued?Every year. SMSF trustees must value fund assets at market value for the accounts and statements, as at 30 June. The ATO has named valuing only every...
- Who can value SMSF assets?Trustees are responsible for valuing SMSF assets. Depending on the situation, the ATO says the valuer can be a registered valuer, a professional...
- What is a qualified independent valuer for an SMSF?In the ATO's guidance, a qualified independent valuer has formal qualifications or recognised knowledge and experience in their professional...