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Division 296 changes the way many Australians with substantial superannuation balances will think about asset values, because the tax is driven by realised earnings and personal member outcomes, not by fund-level income alone. For SMSFs and other super funds holding business real property, shares in private companies, or other unlisted and illiquid assets, defensible market valuations are now central to compliance, tax reporting, and sensible financial planning. In practical terms, if a super fund owns assets that cannot be priced from a live market, a valuation engagement is no longer just good governance, it can directly affect the accuracy of the Division 296 calculation.

Why Division 296 puts valuations under the spotlight

Division 296 is a personal tax measured against an individual’s Total Superannuation Balance, with the additional tax applying to earnings attributable to balances between $3 million and $10 million, and at a higher rate above $10 million. The thresholds are indexed, the tax is assessed to the individual rather than the fund, and first assessments are issued in the 2027-28 year for the 2026-27 financial year. The key valuation issue is straightforward. If a super fund holds an asset without a readily observable market price, the fund still needs a supportable current market valuation to determine member balances and earnings attribution correctly.

That matters because the asset base inside an SMSF often contains holdings that are inherently hard to price, including business real property, private company shares, units in unlisted trusts, and interests in closely held operating businesses. In these cases, the market value input is not a formality. It is a core assumption that can materially change the member’s reported balance and, therefore, the Division 296 outcome.

For Australian business owners, this is especially important where business assets sit inside super, or where a company or trust structure has a close relationship with an SMSF. The valuation evidence must stand up to scrutiny, because the ATO’s market value guidance expects objective, supportable evidence rather than an owner’s estimate or a book value carried from the financial statements.

The valuation relevance for privately held business assets

Private business interests rarely trade on an open market, which is why business valuation expertise is essential. A valuer must assess what a willing but not anxious buyer would pay to a willing but not anxious seller, with proper regard to the asset’s cash flow, risk, control rights, marketability, and legal structure. That framework applies just as much to a super fund holding office premises used by a related operating business as it does to minority shares in a private company.

Business owners sometimes assume an accounting number is enough. It is not. Historical cost, director estimates, or net asset value based on unrevised carrying values may be useful internally, but they do not automatically represent market value. A credible valuation engagement considers the asset in context, including any lease covenants, related party occupancy, tenant strength, vacancy risk, maintenance liabilities, and whether the asset is truly saleable as a standalone investment.

Where the asset is an interest in a private operating business, the valuation becomes even more nuanced. A market valuation may need to reflect normalised earnings, one-off owner expenses, recurring adjustments to remuneration, working capital requirements, and capital expenditure needs. Depending on the facts, the valuer may use EBITDA multiples, maintainable earnings multiples, discounted cash flow analysis, or a combination of approaches. The best method is the one that most faithfully reflects how the market would price the asset.

How a valuer would approach an SMSF-held business asset

Current market value, not just a number on the balance sheet

APES 225 Valuation Services requires a structured, evidence-based approach suited to the purpose of the valuation. For Division 296-related work, that purpose is often to support a current market value at a specific date, commonly 30 June. If the fund is using the optional cost base reset to market value as at 30 June 2026, the quality of the valuation evidence becomes particularly important because that reset establishes a tax starting point for the future.

A proper valuation engagement will identify the asset, define the valuation basis, consider the relevant market participant assumptions, and test the inputs against Australian market evidence. Where the assignment does not require the full depth of a valuation engagement, APES 225 recognises limited scope valuation engagement or calculation engagement options, but the scope must still be fit for purpose. For Division 296, the choice of engagement type should be based on the complexity of the asset and the level of support needed if the valuation is reviewed by auditors, accountants, or the ATO.

Income, market, and asset-based methods

For operating businesses or business interests held through super, the income approach often carries significant weight. A DCF model may be appropriate where there is reliable forecast data, recurring revenue, or a business with measurable growth and capital expenditure patterns. In that process, the valuer will assess forecast free cash flow, terminal growth, discount rates, and working capital assumptions. WACC is central because private company risk is typically higher than for listed equities, and the appropriate discount rate must reflect size, concentration, customer, and key person risk.

Multiples-based approaches are also common, particularly where comparable Australian transactions or trading multiples provide a sound benchmark. For many small and mid-sized private businesses, EBITDA multiples may range from lower end earnings multiples for owner-dependent, lower growth businesses through to stronger multiples for more scalable and recurring-revenue models. Recurring revenue businesses can also be analysed using ARR or revenue multiples, but only where retention and churn support those metrics. A business with strong net revenue retention, low churn, and visible forward contracted income will usually justify a stronger valuation than a business with fragile customer stickiness.

For asset-heavy holdings such as business real property, an asset-backed or capitalisation approach may be more appropriate than a pure earnings method, especially if the property is related-party occupied and market rent needs to be determined. Comparable sales, replacement cost, and capitalised rental value may all be relevant. In every case, a good valuation engagement tests whether the asset could actually be sold for the amount being used in the financial and tax position.

Why evidence matters more when the asset is illiquid

Illiquidity is one of the main reasons private assets can produce disputes. A quoted share price is objective. A private company shareholding is not. Because of that, discounts for lack of marketability are often relevant, and in some situations a discount for lack of control may also be appropriate. The size of those discounts depends on the facts, including dividend policy, exit restrictions, shareholder agreements, and whether the interest is a minority or controlling parcel.

For Division 296 purposes, the concern is not simply academic. If a super fund member’s balance is overstated because the underlying private asset is overvalued, the reported earnings attribution can be distorted. If it is understated, the member may understate the tax base and later face a review or amendment. Either result is undesirable. A defensible valuation reduces the risk of dispute and creates a paper trail that shows how the figure was reached.

This is where precedent transactions and local market evidence are valuable, but they must be handled carefully. Transaction data can be distorted by vendor finance, earn-out structures, distressed sales, or strategic premiums. A valuer must strip out those distortions before translating observed deals into a sensible benchmark for the asset being valued.

Australian tax and regulatory issues that intersect with the valuation

Division 296 does not sit in isolation. In practice, the same valuation may also support broader Australian tax and compliance issues. For example, a private business interest held in super can interact with CGT planning, small business CGT concessions, and the 15-year exemption and active asset rules if ownership changes or restructuring occurs. Market value also matters for related party transactions, including those that may attract scrutiny under Division 7A where private company loans or benefits are involved.

Business owners should also remember that GST treatment on a business sale as a going concern can influence transaction structure, but it does not replace the need for a proper valuation of the business itself. Likewise, ATO market value guidance expects evidence that can be explained and defended. An informal estimate, even if prepared in good faith, is rarely enough where the balance sheet effect is material.

In the superannuation context, trustees and advisers need to be alert to the fact that valuations may be required not only for year-end reporting, but also for significant events such as acquisitions, disposals, rebalancing, related party transfers, and admission or exit of members. The earlier the valuation evidence is prepared, the easier it is to manage deadlines and avoid rushed assumptions.

Common mistakes business owners and trustees should avoid

One common mistake is relying on book value when the asset is a private business or an investment property used by a related entity. Book value is an accounting measure, not market value. Another mistake is using a rule of thumb multiple without testing whether the business actually fits the benchmark. A software business with high annual recurring revenue, low churn, and high gross margins should not be analysed in the same way as a labour-intensive trade business with owner dependency and uneven profitability.

Other errors include failing to normalise earnings, ignoring related party rent, omitting excess cash or debt-like items, and overlooking working capital requirements. For business real property, owners sometimes value the premises as if it were owner-occupied rather than considering market rent and yield from an arm’s length investor perspective. For private company shares held in super, the absence of a control premium or marketability discount analysis can be just as problematic.

Perhaps the biggest misconception is that one valuation can be used forever. Valuation is date specific. Division 296 increases the importance of having a current number at the relevant date, especially where a business is growing, debt levels change, or the market has moved. A reliable valuation from last year may already be out of date if the underlying cash flows, capital structure, or market conditions have changed materially.

Conclusion

Division 296 has made one thing very clear for Australian business owners with substantial superannuation balances, especially those holding unlisted or illiquid assets. If the asset cannot be priced by reference to an active market, then a professional valuation is essential to support the tax calculation and the reporting position. For SMSFs holding business real property, private company shares, or interests in closely held entities, that means evidence-based market value work prepared in line with APES 225 and tailored to the purpose at hand.

If you need a defensible valuation for a superannuation-held business asset, or you want to understand how Division 296 may affect your structure, contact InteleK Business Valuations & Advisory for a confidential valuation consultation. A carefully prepared valuation engagement can provide clarity, reduce tax risk, and support better decision-making across your wider business and wealth position.