{"id":"F2025L01085","name":"Income Tax Assessment (Methods for Valuing Unlisted Shares for the Employee Share Scheme start-up concession) Legislative Instrument 2025","slug":"income-tax-assessment-methods-for-valuing-unlisted-shares-for-the-employee-share-scheme-start-up-con","collection":"legislative_instrument","jurisdiction":"commonwealth","status":"in_force","isInForce":true,"actNumber":null,"makingDate":null,"administeringDepartment":null,"currentVersion":{"id":442958,"registerId":"F2025L01085-fast-fetch-1775957870835","compilationNumber":null,"startDate":"2026-04-12","status":"InForce","reasons":null,"registeredAt":null},"sections":[{"sectionNumber":"1","sectionType":"section","heading":"Income Tax Assessment (Methods for Valuing Unlisted Shares for the Employee Share Scheme start-up concession) Legislative Instrument 2025","content":"---\nmeta-content-style-type: text/css\nmeta-content-type: application/xhtml+xml; charset=utf-8\n---\n\n\n\n \n\nIncome Tax Assessment (Methods for Valuing Unlisted Shares for the Employee Share Scheme start-up concession) Legislative Instrument 2025\n\nI, Ben Kelly, Deputy Commissioner of Taxation, make the following legislative instrument.\n\nDated 9 September 2025\n\nBen Kelly\n\nDeputy Commissioner of Taxation\n\n \n\n \n\n \n\nContents\n\n1 Name\n\n2 Commencement\n\n3 Authority\n\n4 Definitions\n\n5 Schedules\n\n6 Approved methods\n\n7 Method One\n\n8 Method Two\n\nSchedule 1—Repeals\n\nIncome Tax Assessment (Methods for Valuing Unlisted Shares) Approval 2015\n\n \n\n \n\n1 Name\n\n This instrument is the Income Tax Assessment (Methods for Valuing Unlisted Shares for the Employee Share Scheme start-up concession) Legislative Instrument 2025.\n\n2 Commencement\n\n (1) Each provision of this instrument specified in column 1 of the table commences, or is taken to have commenced, in accordance with column 2 of the table. Any other statement in column 2 has effect according to its terms.\n\n \n\n- Commencement information\n- Column 1 Column 2 Column 3\n- Provisions Commencement Date/Details\n- 1. The whole of this instrument. 1 October 2025 1 October 2025\n\n\nNote: This table relates only to the provisions of this instrument as originally made. It will not be amended to deal with any later amendments of this instrument.\n\n (2) Any information in column 3 of the table is not part of this instrument. Information may be inserted in this column, or information in it may be edited, in any published version of this instrument.\n\n3 Authority\n\n This instrument is made under subsection 960-412(2) of the Act.\n\n4 Definitions\n\nNote: A number of expressions used in this instrument are defined in section 995-1 of the Act, including the following:\n\n(a) Employee Share Scheme;\n\n(b) ESS interest;\n\n(c) market value;\n\n(d) small business entity.\n\n In this instrument:\n\nAct means the Income Tax Assessment Act 1997.\n\nfinancial report has the meaning given by section 9 of the Corporations Act 2001.\n\nraised capital means funds raised by a company through the issue of instruments of debt, equity, or a combination of debt and equity.\n\nsuitable valuer means a person having the skill, knowledge and experience required to determine the market value of unlisted shares in a company.\n\n5 Schedules\n\n Each instrument that is specified in a Schedule to this instrument is amended or repealed as set out in the applicable items in the Schedule concerned, and any other item in a Schedule to this instrument has effect according to its terms.\n\n6 Approved methods\n\n (1) The methods set out in sections 7 and 8 are approved for working out the market value of an unlisted ordinary share in a company, for the purposes of determining if the conditions relating to market value in subsection 83A-33(5) of the Act are satisfied, if:\n\n (a) the company provides an ESS interest to a participant at that time; and\n\n (b) the company’s directors reasonably anticipate that there will not be a change of control of the company within the period ending 6 months after that time.\n\n (2) Where a company chooses to use a method to work out the market value that results in a value not less than the market value worked out using a method it could have otherwise chosen under subsection 6(1), that method is approved.\n\n7 Method One\n\n (1) Under this method, the market value of an unlisted ordinary share in a company is:\n\n (a) worked out by either:\n\n (i) the chief financial officer of the company; or\n\n (ii) a suitable valuer;\n\n (b) worked out taking into account the following matters on a reasonable basis:\n\n (i) the value of tangible and intangible assets of the company;\n\n (ii) the market value of similar businesses (including through the use of earnings multiples);\n\n (iii) uplifts and discounts for control premiums, lack of marketability and key person risk;\n\n (iv) the present value of anticipated future cash flows; and\n\n (c) endorsed, both the methodology and value, in a written resolution by the company’s directors.\n\n8 Method Two\n\n (1) Under this method, the market value of an unlisted ordinary share in a company is worked out by applying the method statement set out in subsection 8(3).\n\n (2) This method is only approved where the company:\n\n (a) has not raised capital of more than $10 million during the period of 12 months immediately before the time of the valuation; and\n\n (b) at the time of valuation, either:\n\n (i) has been incorporated for not more than 7 years; or\n\n (ii) is a small business entity; and\n\n (c) has prepared, or will prepare, a financial report for the year in which the time of valuation occurs.\n\n (3) The method statement for the purposes of subsection 8(1) is as follows:\n\n \n\n| Step 1 – work out the net tangible assets value of the company (disregarding any preference shares on issue).
Step 2 – work out the amount that would be required to discharge the company’s obligation in respect of its preference shares on issue at the time of valuation if those shares were redeemed, cancelled, bought back or otherwise satisfied at that time (disregard any contingencies as to the provision of that return and any return that would not rank before ordinary shareholders upon a winding up).
Step 3 – subtract the Step 2 result from the Step 1 result.
Step 4 – divide the Step 3 result by the total number of:
(i) ordinary shares; and
(ii) any preference shares that may participate together with any ordinary shares in the residual assets of the company upon a winding up;
on issue in the company at the time of valuation. |\n| --- |\n\n\n \n\n\n\n\nSchedule 1—Repeals\n\nIncome Tax Assessment (Methods for Valuing Unlisted Shares) Approval 2015\n\n1 The whole of the instrument\n\nRepeal the instrument\n","sortOrder":0}],"analysis":{"flash_summary":{"complexity_score":4,"scope_assessment":{"changed":true,"description":"Yes. The instrument repeals the 2015 approval (Schedule 1) and replaces it with two specified valuation methods targeted at ESS start‑up concession cases (ss.6–8). It adds concrete eligibility limits and procedural requirements — including a $10 million raised‑capital cap and a 7‑year/incorporation or small business test for Method Two (s.8(2)) and a directors’ written endorsement for Method One (s.7(1)(c)) — thereby refocusing and specifying the approved valuation scope (see Schedule 1; ss.6–8)."},"complexity_factors":["Cross-references to the Income Tax Assessment Act definitions and the ESS market-value condition (see s.6(1) referencing s.83A-33(5) and s.4; reliance on Act definitions increases interpretive complexity).","Two alternative valuation routes with different eligibility rules (compare s.7 Method One and s.8 Method Two).","Quantitative and temporal thresholds that determine Method Two eligibility (raised capital ≤ $10m in prior 12 months; incorporated ≤ 7 years; see s.8(2)(a)–(b)).","Director endorsement requirement for Method One (s.7(1)(c)) creates an internal corporate approval step and potential governance record-keeping obligations.","Discretion in who qualifies as a 'suitable valuer' (definition at s.4) leaves room for judgment about expertise and may affect compliance risk and fee markets.","Procedural compliance requirements: Method Two requires a financial report for the year (s.8(2)(c)) and a multi-step arithmetic approach (s.8(3)), imposing preparatory accounting tasks.","Interaction with change-of-control timing (no expected change of control within 6 months) adds a forward-looking factual test (s.6(1)(b)).","Repeal of the 2015 instrument (Schedule 1) may create transitional or precedent issues for prior valuations and practice."],"plain_english_summary":"This instrument sets two approved methods for valuing unlisted ordinary shares when a company grants Employee Share Scheme (ESS) start‑up concession interests, and repeals the 2015 approval. It affects companies that offer ESS interests, their directors, CFOs or external valuers, and employees claiming the concession.\n\nMechanically, Method One permits valuation by the CFO or a suitable valuer with directors’ written endorsement; Method Two is a simplified net‑asset based formula limited to companies that raised ≤$10 million in the prior 12 months and are young or small, and requires a financial report."},"kimi_summary":{"content_quality":"ok","complexity_score":4,"scope_assessment":{"changed":false,"description":"The instrument maintains the same scope as its predecessor (the 2015 Approval). It continues to address the specific narrow purpose of providing approved valuation methodologies for unlisted shares under the ESS start-up concession. The 2025 instrument updates and replaces the 2015 version but does not expand beyond the original purpose of prescribing valuation methods for this specific tax concession."},"complexity_factors":["Two distinct valuation methods with different eligibility criteria and calculation steps","Cross-references to Income Tax Assessment Act 1997 (subsection 960-412(2), section 995-1, subsection 83A-33(5))","Cross-reference to Corporations Act 2001 (section 9 for 'financial report' definition)","Conditional logic in section 6(2) allowing alternative methods if they produce higher values","Specific eligibility thresholds in Method Two ($10m capital raised, 7-year incorporation limit, small business entity test)","Technical accounting concepts (net tangible assets, preference share obligations, control premiums, marketability discounts)","Defined terms section with 4 specific definitions plus incorporated definitions from primary legislation"],"plain_english_summary":"This instrument updates approved valuation rules for Australian start-ups issuing unlisted shares under the ESS start‑up concession, replacing the 2015 approval. It establishes two ways to show shares meet market‑value tests—one principles‑based and one simple formula for smaller/younger firms—so companies can access tax deferral and CGT benefits.\n\nIt affects start‑up companies, their employee recipients and the ATO by providing certainty on valuing non‑public shares."},"flash_summary_failed":{"failed":true,"reason":"A positive credit balance is required for all requests, including BYOK, so fallback providers remain available. Add credits at https://vercel.com/d?to=%2F%5Bteam%5D%2F%7E%2Fai%3Fmodal%3Dtop-up to continue.","source":"analysis-cron"}},"importantCases":[],"_links":{"self":"/api/acts/income-tax-assessment-methods-for-valuing-unlisted-shares-for-the-employee-share-scheme-start-up-con","history":"/api/acts/income-tax-assessment-methods-for-valuing-unlisted-shares-for-the-employee-share-scheme-start-up-con/history","analysis":"/api/acts/income-tax-assessment-methods-for-valuing-unlisted-shares-for-the-employee-share-scheme-start-up-con/analysis","conflicts":"/api/acts/income-tax-assessment-methods-for-valuing-unlisted-shares-for-the-employee-share-scheme-start-up-con/conflicts","importantCases":"/api/acts/income-tax-assessment-methods-for-valuing-unlisted-shares-for-the-employee-share-scheme-start-up-con/important-cases","documents":"/api/acts/income-tax-assessment-methods-for-valuing-unlisted-shares-for-the-employee-share-scheme-start-up-con/documents"}}