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Division 296 has become a valuation issue, not just a superannuation tax issue, because the final law taxes realised earnings only, rather than unrealised gains. For privately held businesses, that shift matters. If a self-managed superannuation fund holds business real property, shares in an unlisted company, or other private business assets, the fund may need a current market valuation to support the member’s Division 296 position, including the optional cost base reset to market value at 30 June 2026. For Australian business owners, the practical message is clear, valuation evidence now plays a direct role in a personal tax outcome assessed at the member level.

From unrealised gains to realised earnings, what changed?

The original policy design for Division 296 was widely discussed as a tax on unrealised gains. In valuation terms, that would have meant taxing increases in value before any sale, distribution, or other crystallising event. For business owners and investors, that approach created a major issue, because valuation changes can be volatile, subjective, and heavily influenced by market sentiment, discount rates, and peer multiples at a point in time.

The final law took a different path. Division 296 now applies to realised earnings only. That means the tax is no longer based on paper gains sitting inside the member’s superannuation balance. Instead, it applies to earnings that have been realised under the legislation. The additional tax is imposed personally on the individual, not on the fund. The thresholds of $3 million and $10 million are indexed, and the first assessments are issued in the 2027-28 year for the 2026-27 financial year.

For a business valuer, the significance of this change is that valuation still matters, but in a more targeted and defensible way. The valuation is no longer being used to tax unrealised growth directly, but it remains essential where a superannuation fund holds assets that must be measured at market value for compliance, inclusion, or capital base purposes.

Why the realised earnings model matters for privately held businesses

Privately held businesses are rarely valued using a simple book value approach. Their worth usually depends on maintainable earnings, growth prospects, customer concentration, recurring revenue quality, and the market evidence available from comparable businesses. That is why a change in tax design can materially alter the role of a valuation engagement.

Under the unrealised gains concept, business owners would have faced the prospect of paying tax on estimated value movements, even where the underlying shares or business real property had not been sold. That would have increased the importance of valuation disputes, discount assumptions, and the treatment of minority interests and illiquidity. The realised earnings model reduces that pressure, but it does not remove the need for a professional valuation where the superannuation fund holds private assets.

In practice, many SMSFs hold interests in small private companies, business real property, or other illiquid assets linked to the owner’s operating business or investment structure. Where Division 296 is relevant, the fund needs supportable market value information. That is especially important when a business owner is considering the optional cost base reset to market value as at 30 June 2026. A valuation engagement at that date can help establish a defensible starting point for future calculations.

How a professional valuation supports Division 296 related reporting

A valuation for Division 296 purposes is not the same as a casual estimate or an internal management view. It must be grounded in accepted valuation methodology and consistent with APES 225 Valuation Services. Depending on the complexity of the asset and the purpose of the engagement, a valuer may undertake a full valuation engagement, a limited scope valuation engagement, or a calculation engagement.

A full valuation engagement is generally appropriate where the asset is significant, the ownership structure is complex, or the value needs to stand up to scrutiny from trustees, accountants, auditors, or the ATO. A limited scope valuation engagement may be suitable where the assignment is narrower in nature, but the valuer still exercises professional judgement over the assumptions and inputs used. A calculation engagement is more restricted and depends more heavily on information supplied by the client, which can make it less suitable where market value needs to be evidenced robustly.

For Division 296 purposes, the valuation must reflect current market value principles, not convenience values or internal book numbers. That can mean considering recent transactions, industry trading multiples, earnings normalisation, capital structure, and any restrictions on transferability. For private company shares, the valuer will often examine EBITDA or SDE multiples, revenue multiples for recurring revenue businesses, or a discounted cash flow analysis where forecasts are sufficiently reliable.

Valuation methods that may be relevant

The appropriate method depends on the asset, the industry, and the available data. For established Australian service businesses, trades businesses, and small to mid-market private companies, maintainable earnings multiples remain common. EBITDA multiples often sit in broad ranges such as 2x to 6x for lower-growth, owner-reliant businesses, and higher for stronger, recurring revenue models with scale and quality margins. SDE multiples are more common where owner remuneration and discretionary expenses distort reported EBITDA.

For a subscription or software business, valuation analysis may place greater weight on annual recurring revenue, net revenue retention (NRR), churn, gross margin, and customer acquisition efficiency. A business with NRR above 110 per cent, low churn, and strong gross margins will usually justify a materially higher multiple than a business with concentrated customers and weak retention. These patterns matter if the shares are held inside superannuation and need to be valued for a Division 296-adjacent purpose.

A discounted cash flow model can also be appropriate where cash flow forecasts are credible and the business has a clear growth path. In that case, the valuer considers a weighted average cost of capital (WACC), long-term growth assumptions, working capital requirements, and capital expenditure needs. The result should be tested against market comparables and precedent transactions, not used in isolation.

Australian tax and compliance considerations that often intersect with valuation

Business valuations in Australia rarely exist in a tax vacuum. Even where the focus is Division 296, owners and advisers often need to think about CGT, the small business CGT concessions, Division 7A on private company loans, GST treatment on going concern sales, and the ATO’s market value guidance. These issues can all influence how value is measured, evidenced, and documented.

For example, if the asset inside super includes business real property, the valuation may need to consider the property’s highest and best use, lease terms, tenancy risk, and whether value should be assessed on an as-is basis or as part of a broader business holding. If the owner later sells the business, the valuation used for tax planning may also intersect with the 15-year exemption and the active asset rules under the small business CGT concessions.

Similarly, where a private company has shareholder loans or historic distributions linked to the business structure, Division 7A can affect the economic value of equity and therefore the valuation narrative. A compliant valuation engagement helps distinguish between market value, tax value, and accounting carrying amounts, which are often very different in private business settings.

What changed in practice for members and trustees?

The biggest change is that members are no longer dealing with a tax framed around unrealised gains. That reduces the risk that a sharp but temporary valuation uplift, such as a market re-rating in a strong sales year, will directly produce a Division 296 liability on paper profits alone. From a valuation perspective, this is important because private business values can move significantly from year to year when market multiples expand or contract.

However, trustees and advisers should not assume that market valuations are now irrelevant. They remain critical where fund assets must be measured at market value, where a 30 June 2026 cost base reset is contemplated, or where the member’s broader superannuation position depends on an accurate asset value. A poorly supported valuation can still create compliance risk, weak documentation, and avoidable disputes.

For business owners, the practical lesson is to keep valuation records current. If the superannuation fund holds an operating company interest, business real property, or related private assets, the valuation should be reviewed whenever there is a material change in trading performance, debt, lease arrangements, customer concentration, or comparable transactions in the market.

Common mistakes to avoid

One common mistake is treating an accountant’s balance sheet value as market value. For privately held businesses, book value often bears little resemblance to the price a willing buyer would pay. Another mistake is relying on a generic multiple without matching it to the business model, growth rate, and risk profile.

Another issue is failing to normalise earnings properly. Owner salaries, related party costs, one-off legal fees, abnormal trading conditions, and non-recurring expenses should be adjusted before applying a multiple or feeding assumptions into a DCF. Without these adjustments, the valuation may overstate or understate the true maintainable earnings base.

It is also risky to ignore marketability and control. Minority interests in private companies may justify discounts for lack of control and lack of marketability, while strategic control positions may command a premium. These concepts are central to business valuation and can materially influence the result in an SMSF context.

Conclusion

The move from unrealised gains to realised earnings under Division 296 is a meaningful policy shift, but it does not eliminate the need for robust valuation evidence. For Australian business owners with self-managed superannuation funds holding private business assets, current market value remains highly relevant, particularly for the 30 June 2026 cost base reset and ongoing compliance support. A valuation prepared under APES 225, using appropriate methods and well-supported assumptions, provides the foundation for defensible reporting and clearer decision-making.

If you hold business assets inside superannuation and need a professional view of market value, InteleK Business Valuations & Advisory can assist with a confidential valuation consultation tailored to your circumstances.