The maximum net asset value test: what the valuation needs to show

The short answer, explained

The maximum net asset value test is one of the ways a taxpayer can satisfy the basic conditions for the small business CGT concessions. Section 152-10 of the Income Tax Assessment Act 1997 lists it as one alternative; another is being a CGT small business entity, which section 152-10(1AA) ties to the small business entity test with a $2 million turnover threshold. The active asset test must also be met, and further conditions apply to shares and trust interests.

Under section 152-15, the test is satisfied if, just before the CGT event, the total of three amounts does not exceed $6,000,000:

This guide works through what the valuation has to establish for each of those amounts. For whether a valuation is needed at all for the concessions, Oliver Group, the Valuo practice for restructures, tax and CGT, explains the question in do I need a valuation for CGT concessions?.

What "net value of the CGT assets" means

Section 152-20(1) defines the net value of an entity's CGT assets as the total of their market values, less:

• the liabilities of the entity that are related to the assets; and
• provisions for annual leave, long service leave, unearned income and tax liabilities.

The result can be positive, negative or nil. Three points follow for the valuation.

Market value, not book value. The Act uses market value. The ATO's guide to market valuation for tax purposes explains that, unless a provision says otherwise, market value takes its ordinary meaning: a price agreed between a willing but not anxious buyer and seller. Land, plant and especially goodwill usually differ from their book amounts. Depreciating assets are CGT assets, so they are included.

Only related liabilities. Section 152-20(1) deducts only liabilities related to the CGT assets counted. A loan used to buy business premises relates to those premises. A bank overdraft that funds working capital is likely to relate to the business assets generally. A liability that relates only to a disregarded asset is not deducted, except a liability related to interests in a connected entity, which section 152-20(2)(a) keeps in.

Not every provision in the balance sheet is deducted. The Act allows only four kinds of provision as deductions (s152-20(1)(b)): annual leave, long service leave, unearned income and tax liabilities. A provision of another kind, such as for possible damages in a pending lawsuit, is not deducted unless it is a liability related to the assets.

Assets that are left out

The personal use exclusion is narrow. It covers only assets used solely for personal use and enjoyment, so an asset with any income-producing use, such as an interest-earning personal bank account, is counted.

Which entities are counted

Connected entities. Under section 328-125, an entity is connected with another if either controls the other, or both are controlled by the same third entity. Control of an entity other than a discretionary trust is generally an entitlement (with affiliates) to at least 40% of income or capital distributions, or for a company at least 40% of voting power. Control of a discretionary trust is tested by whether the trustee acts, or could reasonably be expected to act, in accordance with the entity's wishes, and by distributions of at least 40% in any of the four preceding income years. Control can be indirect, through a chain of entities. Section 328-125(6) allows the Commissioner to determine that an entity with a control percentage of at least 40% but less than 50% does not control another entity in certain circumstances. For these tests, section 152-78 also lets the trustee of a discretionary trust nominate beneficiaries as controllers of the trust in some circumstances.

Affiliates. Under section 328-130, an individual or company is an affiliate if it acts, or could reasonably be expected to act, in accordance with the taxpayer's directions or wishes, or in concert with the taxpayer, in relation to its business affairs. A business relationship alone does not make someone an affiliate. For the small business concessions, section 152-47 can also treat a spouse or a child under 18 as an affiliate in situations involving passively held assets.

Partnerships. Partnerships need separate care in working out what is counted; confirm the treatment with the tax adviser.

Identifying connected entities and affiliates is a tax question to settle before valuation work starts, because it decides which balance sheets the valuer must value.

Worked example: a hypothetical calculation

This example is hypothetical. The people, entities and figures are invented, rounded, and chosen to show the steps. Market values are assumed to be supported by valuations at the time just before the CGT event.

Alex owns 100% of Alpha Pty Ltd, which runs a business. Alex controls Alpha, so Alpha is connected with Alex. Alpha operates from a warehouse owned by Sam, Alex's spouse. For the example, assume Sam is Alex's affiliate under the tests above. Sam also holds a share portfolio that has nothing to do with Alpha's business.

Each card below shows the net value counted for one person or entity. Amounts shown as $0 are assets the Act tells you to disregard, or a provision the Act does not allow as a deduction.

Check: Alex: $1,200,000 less $700,000 is $500,000, plus $50,000 is $550,000, less $200,000 is $350,000. Alpha: assets of $1,800,000 + $400,000 plant + $300,000 debtors + $250,000 cash = $2,750,000, less $350,000 + $90,000 + $60,000 = $500,000, gives $2,250,000. Sam: $1,100,000 less $400,000 is $700,000. Total: $350,000 + $2,250,000 + $700,000 = $3,300,000; $6,000,000 less $3,300,000 is $2,700,000.

Why the goodwill figure matters. Suppose a valuation of Alpha's business instead supported goodwill of $4,600,000, $2,800,000 more than assumed above.

Check: Alpha's net value becomes $2,250,000 + $2,800,000 = $5,050,000, and the total is $350,000 + $5,050,000 + $700,000 = $6,100,000, which exceeds $6,000,000. The test would be failed on the strength of a single valuation input. In practice the goodwill of the business, and the earnings and multiple behind it, can decide the test. See what goodwill is in a business valuation.

What the valuation needs to show

• The right date. Values just before the CGT event, not at the financial year end. When the CGT event happened depends on the kind of event, so confirm the time with the tax adviser before the valuation date is fixed.
• Every counted entity. A list of the taxpayer, each connected entity and each affiliate, with the reason each is or is not counted.
• Market values, with method and evidence. Particularly for goodwill and real property. The ATO's guide gives an example of a company that valued its properties itself, was found on review to have understated them, failed the test and was penalised.
• Transaction evidence. Where the CGT event is a sale of the business or shares to an unrelated buyer at arm's length, the price agreed is strong evidence of market value, and a total value for the entity that sits well below it will need explaining. A price agreed with a related party is not reliable evidence; see Example 3 in the ATO's market valuation guide.
• Liabilities and provisions classified. Each balance sheet item marked as a related liability, a provision that section 152-20(1)(b) allows, or an amount that is not a liability for the test.
• Exclusions explained. Each disregarded asset, the provision relied on and, for a main residence used partly to produce income, the apportionment.
• No double counting. Interests in connected entities left out, but the liabilities related to them kept in.

Limitations

• This page explains the maximum net asset value test only. Eligibility for the concessions depends on all of the basic conditions in section 152-10 and the further conditions for each concession, which are not covered here.
• Whether entities are connected or affiliated is a question of fact and law for the tax adviser. The worked example simply assumes the answers.
• Look-through earnout rights have special rules in section 152-20(5) to (7) that are not covered by the example.
• This page describes the law in the compilation of the Income Tax Assessment Act 1997 current at 1 October 2026. It is general information and is not tax advice.

Next steps

• Map the taxpayer's connected entities and affiliates with the tax adviser before ordering any valuation.
• Identify the time just before the CGT event and gather balance sheets for each counted entity as close to it as possible.
• Obtain market values for goodwill and property, with the method and evidence documented.
• Classify every liability and provision against section 152-20(1), and use the enterprise to equity value calculator to check the company-level figures.

General educational information, not financial, tax or legal advice. Worked examples are hypothetical and do not value a real business. A valuation depends on its purpose, the evidence and the agreed scope.