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A business valuation for a deceased estate in Australia establishes the market value of a deceased person’s business interest at the date of death, or at another legally relevant date for estate administration and tax purposes. For executors, beneficiaries, accountants and advisers, this is not a formality. The valuation determines how the asset is recorded, how gains or losses are measured for Capital Gains Tax (CGT), how business interests are distributed, and how disputes over fairness between beneficiaries are reduced. In private business ownership, where there is no quoted market price, a properly prepared valuation engagement is often the foundation of a defensible estate outcome.

Why deceased estate valuations matter

When a privately held business forms part of an estate, the executor must work with a value that can withstand scrutiny from the Australian Taxation Office, beneficiaries and, in some cases, the courts. The relevant figure is usually the market value of the deceased’s interest at the date of death. That value may differ materially from book value, from a shareholder’s subjective view of worth, or from a simple transaction multiple lifted from an unrelated business.

The practical importance is significant. A valuation can affect the cost base for assets passing to beneficiaries, the calculation of taxable capital gains on a later sale, and the treatment of business interests held through a company, trust, partnership or self-managed superannuation fund. It also informs estate equalisation, especially where one beneficiary receives a business interest while others receive cash or passive assets.

For executors, this means the valuation must reflect the actual economic reality of the interest being transferred. A minority shareholder interest may require discounts for lack of control and lack of marketability. A controlling interest may attract a premium if it confers decision-making power, access to distributions and the ability to reshape the business. These are not accounting adjustments, they are valuation judgements grounded in market evidence.

Date-of-death value and the legal and tax context

In Australia, a deceased estate valuation is often required at the date of death because that is the benchmark used to establish the tax position of assets passing through the estate. For CGT purposes, the market value at death can become the starting point for later disposals by beneficiaries or trustees, subject to the specific asset and tax rules that apply. The small business CGT concessions, including the 15-year exemption and active asset rules, may also be relevant where the business interest itself, or the underlying business assets, qualify under the legislation.

It is important not to treat a business valuation as a generic estimate. The ATO expects market value evidence that is supportable and consistent with accepted valuation methodology. In practice, that usually means a reasoned analysis of maintainable earnings, cash flow, growth prospects, capital structure and risk. Where the business is owned through a proprietary company, the valuation may need to consider Division 7A issues on loans and entitlements, and where a sale is contemplated, GST treatment on the sale of a business as a going concern may influence the commercial structure, even if it does not directly change market value.

An estate valuation can also matter for superannuation-linked assets. Where an SMSF holds business real property, a stake in a private company, or another business asset, current market valuations may be needed for compliance and reporting purposes, including in relation to Division 296, the superannuation tax that commenced on 1 July 2026. The key valuation point is that business assets inside SMSFs may need updated market values, including where a cost base reset to market value at 30 June 2026 is relevant. Division 296 taxes realised earnings only, applies as a personal tax to the individual rather than the fund, uses indexed thresholds of $3 million and $10 million, and the first assessments are issued in the 2027-28 year for the 2026-27 financial year.

How a valuer approaches a deceased estate business interest

A professional valuer will start by identifying exactly what is being valued. This is often the most important step. A deceased estate may hold ordinary shares, preference shares, units in a unit trust, a partnership interest, or a direct interest in the underlying business assets. Each structure carries different rights and constraints, and those differences can materially alter value.

The next step is to assess the business on a maintainable basis. Historical financial statements are adjusted for non-recurring items, owner-specific expenses, abnormal wages, private use items and related-party transactions. If the deceased was the principal operator, key person risk may need explicit consideration, because the business can be worth less without the founder’s relationships, technical knowledge or personal reputation.

Where appropriate, the valuer may rely on several methods and cross-check the results. The discounted cash flow method is often useful for businesses with meaningful growth, project pipelines or recurring revenue. It involves forecasting future free cash flows and discounting them back using a risk-adjusted rate, commonly derived from the weighted average cost of capital (WACC) or an equivalent return threshold. Mature businesses with stable earnings may be valued using EBITDA or SDE multiples, depending on the size and owner-dependence of the enterprise. Revenue multiples can be relevant for subscription businesses or early-stage operators, but only where gross margin, net revenue retention (NRR), churn and cohort quality support that method.

Industry comparables and precedent transactions provide market evidence, but they must be adjusted carefully. A SaaS business with 110 per cent NRR, low churn and strong gross margins may justify a materially higher multiple than a service business with the same revenue but volatile customer retention. Similarly, a manufacturing business with cyclical working capital demands and exposed customer concentration may warrant a lower return profile than a diversified recurring revenue business.

Control, minority and marketability adjustments

Not every estate valuation should assume full control. A minority holding in a private company is usually less liquid and less influential than a controlling holding, even if the underlying business is profitable. The valuer may therefore apply a discount for lack of control where the interest does not confer decision-making power, and a discount for lack of marketability where there is no ready market for the shares or units. The size of those discounts is not formulaic. It depends on constitution documents, shareholder agreements, exit rights, dividend policy, transfer restrictions and the practical ability to monetise the interest.

These adjustments matter because beneficiaries often compare the headline business value to the actual cash they can realise. A one-third share in a private business is not automatically one-third of total enterprise value. The rights attaching to the interest must be analysed before value is assigned.

Australian market considerations that change the answer

The Australian private business market is diverse, and valuation outcomes vary accordingly. Professional services and advisory firms often trade on earnings multiples that reflect partner dependence and client stickiness. Stable niche manufacturing businesses may attract mid-range EBITDA multiples if they have defensible margins and repeat customers. Recurring revenue businesses, particularly software and subscription models, can command higher multiples when growth is durable, churn is low, and NRR is strong. By contrast, businesses exposed to one or two major customers, volatile input costs or key person reliance typically attract more conservative valuation outcomes.

In estate work, industry evidence must also be tested against the business’s actual scale. A small owner-operated enterprise may not support the same multiple as a larger institutional-quality asset, even if they operate in the same sector. Normalisation adjustments for owner wages, rent, vehicle expenses and related-party dealings can change maintainable earnings substantially. Working capital expectations also matter, because a buyer of the business interest may expect the business to carry a normal level of stock, receivables and payables at completion.

Australian deal activity provides useful context, but precedent transaction data should never be used mechanically. A transaction that involved strategic synergies, a distressed seller or a competitive auction may not reflect fair market value for an estate interest. The task of the valuer is to separate market signal from transaction noise.

Common mistakes in deceased estate valuations

One common mistake is relying on the latest management accounts without adjusting for seasonality, abnormal items or owner benefits. Another is using a rule-of-thumb multiple with no explanation of why that multiple suits the business’s size, profitability and risk. Executors sometimes also assume that the book value recorded in financial statements is close enough to market value, when in reality the two can be very different, especially for goodwill, licences, customer relationships and internally generated intangibles.

A second mistake is ignoring the legal structure. A trust deed, shareholders’ agreement or company constitution can materially restrict transfer rights or distribution rights. Those restrictions directly affect marketability and therefore value. Likewise, an estate valuation prepared without considering tax implications may create problems later when a beneficiary sells the interest and discovers that the cost base, CGT outcome or concession eligibility was not properly documented.

A third risk is choosing the wrong scope of work. Under APES 225 Valuation Services, there is a distinction between a full Valuation Engagement, a Limited Scope Valuation Engagement and a Calculation Engagement. For deceased estates, the required scope should match the purpose, the available evidence and the level of risk. A formal estate matter with tax or dispute sensitivity will usually justify a full valuation engagement rather than a narrower calculation.

What a robust valuation report should contain

A suitable deceased estate valuation report should identify the subject interest, valuation date, standard of value, purpose of the valuation, methodology used, key assumptions, normalisation adjustments, and any discounts or premiums applied. It should also explain why particular methods were accepted or rejected. If discounted cash flow is used, the report should show the forecast logic, discount rate build-up, terminal value rationale and sensitivity analysis. If earnings multiples are used, the report should justify the selected multiple using market evidence and risk factors.

Just as importantly, the report should be understandable to an executor who may not be a financial specialist. It should be precise enough for accountants and lawyers to rely on, while still being clear enough to support estate administration and any later tax review. A well prepared valuation report reduces the risk of contested distributions and helps all parties understand how the number was derived.

Conclusion

Business interests in deceased estates require careful valuation because they sit at the intersection of market value, estate administration and Australian tax law. The right figure depends on the business structure, the rights attached to the interest, the maintainable earnings of the enterprise, and the level of marketability and control inherent in the holding. A credible valuation engagement gives executors and advisers a defensible basis for CGT, beneficiary outcomes and compliance with ATO market value expectations.

If you are administering an estate that includes a private business interest, or you need a date-of-death business valuation for tax and succession purposes, InteleK Business Valuations & Advisory can provide a confidential, independent valuation engagement tailored to the circumstances of the estate.