Income Tax Assessment (Methods for Valuing Unlisted Shares for the Employee Share Scheme start-up concession) Legislative Instrument 2025

The instrument introduces and uses specific concepts; the definitions and operational elements determine eligibility, evidentiary steps, and who may perform valuations. The key concepts are set out in ss 4-8 and Schedule 1.

Definitions and cross-references

• Act (s 4): means the Income Tax Assessment Act 1997, the statute under which the instrument operates (s 4).
• Financial report (s 4): uses the Corporations Act 2001 definition in s 9 of that Act (s 4).
• Raised capital (s 4): defined as funds raised by a company through the issue of instruments of debt, equity, or a combination of debt and equity (s 4). This definition is used to determine eligibility for Method Two (s 8(2)(a)).
• Suitable valuer (s 4): defined as a person having the skill, knowledge and experience required to determine the market value of unlisted shares in a company (s 4). The instrument does not prescribe professional qualifications, registration or approval processes for such valuers beyond that descriptive test.

Valuation function

• Market value context (s 6(1)): The approved methods are expressly tied to working out the market value of an unlisted ordinary share for the purpose of testing the market value conditions in subsection 83A-33(5) of the Act (s 6(1)).
• Choice of approved methods (s 6): The instrument lists two methods (ss 7-8). Both are “approved” for the stated purpose when the statutory conditions are met (s 6(1)). Subsection 6(2) creates an approval pathway for a method chosen by a company that results in a value that is not less than the alternative method it could have used under s 6(1).

Method One (s 7)

• Who can perform the valuation (s 7(1)(a)): either the company’s chief financial officer or a “suitable valuer”.
• Matters to be taken into account (s 7(1)(b)): tangible and intangible assets, market value of similar businesses including earnings multiples, uplifts and discounts (control premium, lack of marketability, key person risk), and the present value of anticipated future cash flows.
• Formal endorsement (s 7(1)(c)): both the methodology and the value must be endorsed in a written resolution by the company’s directors.

Method Two (s 8)

• Conditions for use (s 8(2)): the company must not have raised more than $10 million in the 12 months before valuation (s 8(2)(a)); must be incorporated for not more than seven years or be a small business entity (s 8(2)(b)); and must have prepared, or will prepare, a financial report for the year containing the valuation (s 8(2)(c)).
• Method statement (s 8(3)): a four-step asset-based calculation: (1) net tangible assets value (disregard preference shares on issue); (2) amount required to discharge obligations to preference shares if redeemed/cancelled/bought back or otherwise satisfied at time of valuation (disregarding contingencies and any returns that would not rank before ordinary shareholders on winding up); (3) subtract Step 2 from Step 1; (4) divide Step 3 by the total number of ordinary shares and any participating preference shares on issue at the time of valuation.

Repeal (Schedule 1)

• The instrument expressly repeals the entire 2015 approval instrument (Schedule 1).

The instrument uses those concepts to create two alternative valuation regimes with different evidentiary and eligibility requirements. The definitions are sparse in some respects (for example, “suitable valuer” is a descriptive test rather than a licensing entry), which leaves operational determination of some concepts to companies, their advisers, and, if disputed, the tax administration or courts under the Act’s broader provisions.

Primary parties affected

• Companies offering ESS interests under the start-up concession: The instrument applies when a company provides an ESS interest to a participant and the directors reasonably anticipate there will not be a change of control within six months after that time (s 6(1)(a)-(b)). The instrument directly controls how these companies may determine the market value of their unlisted ordinary shares for the statutory test in subsection 83A-33(5) of the Act (s 6(1)).
• Company directors: Directors have an active compliance role, particularly under Method One which requires that both the valuation methodology and the resultant value be endorsed in a written directors’ resolution (s 7(1)(c)). Directors must also form the “reasonable anticipation” regarding change of control for the s 6(1)(b) condition.
• Chief financial officers: Under Method One, the chief financial officer is an explicitly authorised valuer option (s 7(1)(a)(i)). This gives CFOs a formal role in preparing valuations when companies use Method One.
• Suitable valuers and valuation professionals: The instrument recognises “suitable valuer” as an eligible valuer under Method One (s 7(1)(a)(ii)). The instrument defines “suitable valuer” by capability rather than by professional registration (s 4).

Secondary and consequentially affected parties

• Employees/participants in ESS: The valuation outcome affects whether the market value conditions for the start-up concession are met under subsection 83A-33(5) (s 6(1)), which in turn can affect tax outcomes for participants. The instrument itself does not set tax consequences, but it determines the accepted valuation methods used to assess concession eligibility.
• Accountants and auditors preparing financial reports: Method Two requires the company to have prepared, or intend to prepare, a financial report for the year of valuation (s 8(2)(c)), which involves accountants and possibly auditors in preparing figures that feed into Step 1 (net tangible assets).
• Holders of preference shares and corporate financiers: Method Two treats preference shares in specific ways for valuation (s 8(3)), potentially affecting perceived value allocated to ordinary shares and therefore investor expectations.
• Tax advisers and legal advisers: They must advise on method selection, documentation, and ensuring the company meets the instrument’s conditions, including the board’s written resolution and the raised-capital and age/small-entity limits for Method Two (ss 6(1), 7(1), 8(2)).

Who decides and the locus of choice

• The company chooses which approved method to use, subject to the conditions in s 6(1) and s 6(2). Where multiple methods are available, s 6(2) allows the company to choose a method that results in a valuation not less than an alternative method, and have that chosen method treated as approved.

Who bears costs

• Companies: bear direct compliance costs (engagement of valuers, preparation of board resolutions, possible accounting work for financial reports, internal valuation work by the CFO).
• Participants/employees: may face downstream tax compliance implications based on valuation outcomes, though the instrument does not levy fees on them directly.
• Professional advisers: will incur time and possibly reporting obligations to support the valuation and the board endorsement process.

Geographic and temporal scope

• The instrument applies from 1 October 2025 to valuations performed at times within the ESS start-up concession context and where the director anticipations and other conditions (s 6(1)) hold.

The instrument sets out duties and procedural requirements for companies, directors and authorised valuers; it also contains rights-equivalent provisions in the sense of available methods and flexibility to choose valuation approaches.

Duties on companies and directors

• Applicability duty: A company providing an ESS interest under the start-up concession must use a method approved by this instrument to work out the market value of an unlisted ordinary share for the purposes of s 83A-33(5) when the statutory conditions in s 6(1) apply.
• Reasonable anticipation duty: The company’s directors must reasonably anticipate that there will not be a change of control within the period ending six months after the time the ESS interest is provided (s 6(1)(b)). The instrument does not prescribe how that reasonable anticipation is to be documented beyond what is required for Method One’s directors’ resolution, but the requirement exists as a precondition to the approval of the methods.
• Method One board endorsement duty: If using Method One, the company must ensure the valuation and the methodology are endorsed in a written directors’ resolution (s 7(1)(c)). That creates an express board-level documentation obligation.
• Valuation process duty for Method One: Under Method One the valuation must be worked out by either the chief financial officer or a suitable valuer (s 7(1)(a)) and must take into account on a reasonable basis specific matters listed at s 7(1)(b) (tangible and intangible assets, market comparables including earnings multiples, uplifts/discounts for control, marketability and key person risk, and the present value of anticipated future cash flows).

Eligibility duties for Method Two

• Fundraising cap: To use Method Two, the company must not have raised more than $10 million during the 12 months immediately before the time of valuation (s 8(2)(a)). The instrument defines “raised capital” (s 4) to include debt and equity instruments.
• Age or small business entity status: The company must either be incorporated for not more than seven years or be a small business entity at the time of valuation (s 8(2)(b)). The instrument references the Act’s definition framework for “small business entity” through s 995-1 (s 4 note).
• Financial reporting duty: The company must have prepared, or will prepare, a financial report for the year in which the valuation occurs (s 8(2)(c)). This creates an accounting/reporting linkage to the valuation process.

Procedural and methodological duties under Method Two

• Stepwise calculation: Method Two requires adherence to the four steps set out in s 8(3): compute net tangible assets (disregard preference shares on issue); compute amount required to discharge preference share obligations if redeemed etc, disregarding contingencies and non-priority returns on winding up; subtract Step 2 from Step 1; divide by ordinary shares plus participating preference shares on issue (s 8(3)). The instrument requires these precise steps for the valuation to be treated as an approved method.

Right to choose an approved method

• Method choice right: Subject to the statutory preconditions, a company may choose to use either Method One or Method Two when those methods are available (s 6(1)).
• Right to choose a higher valuation method outcome: Where the company chooses a method that yields a value not less than the value that would have resulted from an alternative method it could have used under s 6(1), that method is approved (s 6(2)). That gives companies the explicit right to select the method outcome favouring the higher value among applicable options and treat that as approved for the Act’s purposes.

Documentation and evidentiary duties

• The instrument imposes explicit documentation duties: Method One requires a written directors’ resolution endorsing methodology and value (s 7(1)(c)); Method Two implicitly requires sufficient accounting records and a financial report to underpin the net tangible assets figure (s 8(2)(c)-(3)).

Omitted duties and limits

• The instrument does not specify penalties, offences, or civil sanctions for incorrect valuations or false statements in endorsements; it also does not specify requirements for auditor concurrence, external sign-off, or mandatory professional qualifications for suitable valuers beyond the descriptive definition (s 4). Consequences for non-compliance would therefore be those arising elsewhere in the Act or other laws, not in the instrument itself (s 3).

The instrument does not create its own bespoke penalty or enforcement regime. It is an approval instrument made under subsection 960-412(2) of the Act (s 3), specifying approved methods for valuation in the context of the Act’s ESS start-up concession rules. Consequently, enforcement and penalty mechanisms are not set out in this instrument; any compliance consequences for incorrect valuations, false board endorsements, or misuse of approved methods would arise under the substantive and procedural provisions of the Act and potentially under other laws (for example, directors’ duties under the Corporations Act), but those enforcement mechanisms are not contained within or described by this instrument.

Direct references in the instrument

• Authority: The instrument’s authority is stated as subsection 960-412(2) of the Act (s 3). That situates the instrument within the Act’s scheme of delegated legislative instruments rather than within an independent enforcement schedule in the instrument itself.
• No penalty clauses: There are no sections in the instrument establishing offences, civil penalties, or administrative penalty regimes, nor any specified audit or review processes mandated by the instrument.

Practical enforcement implications to consider (grounded in the instrument)

• Evidence trail: The instrument creates formal documentary hooks that would be relevant to any tax administration review or dispute: a Method One valuation requires a directors’ written resolution endorsing methodology and value (s 7(1)(c)); Method Two requires the use of a financial report or the intention to prepare one and a step-by-step calculation (s 8(2)(c)-(3)). Those records are likely to be central to any compliance inquiry because the instrument defines the approved methods and the procedural steps that must have been followed.
• Delegation and responsibility: The instrument authorises the company’s CFO to perform a Method One valuation (s 7(1)(a)(i)), which assigns technical responsibility to an internal officer; it also authorises “suitable valuers” (s 7(1)(a)(ii)). Where those persons certify or produce valuations that are relied upon for ESS concession purposes, the instrument’s record-keeping requirements (notably the board resolution) will form the evidentiary basis for the company’s position.
• External compliance procedures: Because the instrument does not itself provide an enforcement mechanism, tax administration enforcement would rely on the Act’s broader compliance, assessment, and objection mechanisms. The instrument’s explicit documentation requirements will be relevant in such procedures (ss 6-8).

Limits on remedies in the instrument

• No private rights created: The instrument does not state that it creates private rights or causes of action; it functions as an approval instrument specifying acceptable valuation methods for tax purposes under the Act (s 6(1)).

In short, the instrument places the onus on companies and their officers to follow the approved valuation methods and to maintain the documentary record required by those methods, but it leaves enforcement, penalties and remedies to the general statutory framework in which this instrument sits.

This instrument operates within the Income Tax Assessment Act 1997 (the Act) and interacts explicitly with definitions and provisions in that Act and implicitly with corporate law and accounting standards through cross-references. The instrument itself cites the relevant authority and cross-references other legislation.

Primary statutory interactions

• Income Tax Assessment Act 1997: The instrument is made under subsection 960-412(2) of the Act (s 3) and is expressly designed to furnish approved valuation methods “for the purposes of determining if the conditions relating to market value in subsection 83A-33(5) of the Act are satisfied” (s 6(1)). That ties the instrument directly to the ESS start-up concession rules contained in the Act. The instrument also notes that multiple expressions used are defined in s 995-1 of the Act (s 4 note), indicating reliance on the Act’s definitional framework.
• Corporations Act 2001: The instrument uses the Corporations Act definition of “financial report” as supplied by s 9 of the Corporations Act (s 4). Method Two requires that the company has prepared, or will prepare, a financial report for the year in which the valuation occurs (s 8(2)(c)). That links the valuation method to accounting/reporting obligations under the Corporations Act and Australian accounting standards that govern company financial reports.

Valuation practice and accounting interaction

• Financial reports as inputs (s 8(2)(c), (3)): Method Two specifically relies on net tangible assets and information that would ordinarily appear in a financial report. That means the valuation will typically depend on accounting judgments and measurement conventions (for example, asset recognition and measurement, treatment of intangible assets, classification of preference shares), which are governed by accounting standards and company law.
• Preference share treatment (s 8(3) Step 2): Method Two directs companies to disregard contingencies as to provision of preference share returns and any return that would not rank before ordinary shareholders on winding up when calculating the amount required to discharge preference share obligations. This interacts with the legal rank and contractual rights attached to preference shares under corporations and equity documentation; legal characterisation of preference rights under corporate law will feed into that calculation.

Director duties and corporate law

• Directors’ written resolution (s 7(1)(c)): Method One’s requirement that directors endorse both the methodology and value in a written resolution creates an interaction with directors’ duties under the Corporations Act (for example, duties to act with care and diligence, and to act in the best interests of the company). The instrument does not spell out these duties, but the endorsement obligation sits alongside those statutory duties and may be material in any corporate law or regulatory review concerning the directors’ exercise of judgement.

Tax administration and administrative law

• Effect on tax assessments: Valuations prepared under the approved methods will be used in determining entitlement to concessions under s 83A-33(5) of the Act. Disputes about valuations are therefore likely to be resolved via the Act’s audit, objection, and review processes. The instrument does not provide independent administrative appeal or review mechanisms; the usual administrative and judicial review routes under the Act and administrative law apply for any disputes concerning the tax consequences of the valuation.

Repeal of prior instrument

• Repeal interaction (Schedule 1): The instrument repeals the earlier 2015 approval instrument in full (Schedule 1). That change requires transition for companies previously relying on the 2015 instrument; after the commencement date (1 October 2025, s 2), companies must comply with the new methods where applicable.

Limits of interaction set by this instrument

• No override of substantive law: The instrument prescribes methods for working out market value for a specific tax purpose; it does not alter substantive rights under corporate law, nor does it create or extinguish legal interests in shares. It operates within the Act’s framework and relies on other laws (notably the Corporations Act and accounting standards) to supply inputs and legal context.

In summary, this instrument is a tax-administration tool that prescribes specific valuation methods and documentary steps, and therefore necessarily interacts with accounting practice, corporate governance and the broader provisions of the Act governing ESS concessions. It does not, however, displace or restate the wider body of corporate, accounting or tax substantive law that will determine outcomes and enforcement.

This instrument is self-contained and short; its amendment history as provided in the text is minimal and explicit.

Origin and enactment

• Made date and signatory: The instrument is made by Ben Kelly, Deputy Commissioner of Taxation, and dated 9 September 2025 (front matter). The instrument states its commencement date as 1 October 2025 for the whole instrument (s 2).
• Authority for making: The instrument is made under subsection 960-412(2) of the Income Tax Assessment Act 1997 (s 3).

Commencement

• The whole instrument commences on 1 October 2025 (s 2(1)). The instrument’s commencement table is explicit that the table relates only to the provisions as originally made and will not be amended to reflect later amendments (s 2(2) note).

Repeal of prior instrument

• The instrument repeals the Income Tax Assessment (Methods for Valuing Unlisted Shares) Approval 2015 in its entirety (Schedule 1). The Schedule states: “1 The whole of the instrument , Repeal the instrument” (Schedule 1). This is a full repeal rather than a partial amendment, so post-1 October 2025 the 2015 instrument no longer stands.

No further amendments recorded in the text

• The provided instrument text does not record any prior amendments to itself (it is presented as originally made). There are no schedules of amendment to other instruments other than the single repeal in Schedule 1.

Consequences for transitional arrangements

• The instrument does not include express transitional or savings provisions concerning actions taken under the 2015 instrument. The absence of transitional wording in the text supplied means that companies relying on the 2015 approval instrument should treat the repeal as replacing the prior approval from the commencement date, and treat the new ss 6-8 as the governing approval from that date forward. The instrument’s commencement note (s 2(2)) states that the commencement table relates only to the provisions as originally made, which is a standard drafting note rather than a transitional provision.

Record-keeping and future amendment potential

• The instrument follows standard legislative-instrument practice: the table structure in s 2 indicates that any later amendments would appear in published versions, but no later amendments are recorded in this instrument as supplied. Future amendments, if any, would be made by further legislative instruments under the same statutory power.

In short, the immediate amendment history relevant to users is the repeal of the 2015 instrument and the making and commencement of this 2025 instrument on 1 October 2025. No other amendments or historical layers are embedded in the text provided.

The instrument itself contains no litigation history: it is a statutory legislative instrument rather than a case law document (there are no cases referred to in the text). The text does not mention any judicial interpretation, litigation or disputes arising from either this instrument or the instrument it repeals. Because the instrument was made on 9 September 2025 and commences on 1 October 2025 (s 2), and because the provided text includes no annotations or notes of judicial response, there is no litigation history recorded in the instrument itself.

Implications for practitioners

• Absent case law within the instrument, uncertainties about the interpretation of concepts such as “reasonable anticipation” of a change of control (s 6(1)(b)), what constitutes a “suitable valuer” (s 4), or the application of the Step 2 preference share treatment in Method Two (s 8(3) Step 2) will be matters for future administrative review and potential litigation under the Act’s broader dispute resolution processes. That litigation history, if it arises, will be external to this instrument.
• Both tax administration decisions and potentially corporate disputes over board endorsements or valuation methodologies could spawn litigation once the instrument has been in effect and contested in practice. The instrument itself provides the framework but not adjudicative interpretations.

Due diligence recommendation

• Given the absence of existing litigation, practitioners should plan for potential interpretive disputes and document decisions and the basis for judgments (board resolutions, valuer qualifications, financial-report inputs and preference-share contractual terms). The record created under ss 7-8 will form the factual substrate for any future administrative or judicial review.

The instrument is concise but contains several features that can cause practical pitfalls if not addressed deliberately. The following are concrete operational and legal issues to watch, grounded in the instrument text.

1. “Reasonably anticipate” change of control condition (s 6(1)(b))

• The instrument conditions the availability of the approved methods on the directors reasonably anticipating no change of control within the six months after the time the ESS interest is provided (s 6(1)(b)). The instrument does not define “reasonably anticipate” or set out required documentary standards. Practitioners should not assume verbal or informal board confidence suffices; absence of contemporaneous documentation may make it difficult to defend the position in an audit.

2. Board endorsement requirement is specific and binding in form (s 7(1)(c))

• Method One requires a written directors’ resolution endorsing both the methodology and the valuation (s 7(1)(c)). A board minute that does not explicitly endorse the methodology and value, or an endorsement in an email without proper formality, could be treated as non-compliant with the instrument’s stated requirement.

3. “Suitable valuer” is descriptive and open (s 4; s 7(1)(a)(ii))

• The instrument defines “suitable valuer” by capability only (s 4). There is no requirement for registration, professional membership, or specific qualifications. This creates risk: an engagement with a valuer who later fails to meet an administrative or judicial standard could weaken the company’s position. The instrument does not prescribe an evidentiary threshold, so practitioners should document valuer credentials and basis of expertise.

4. CFO as valuer: conflicts and professionalism (s 7(1)(a)(i))

• Method One permits the company’s chief financial officer to do the valuation (s 7(1)(a)(i)). That is efficient but raises potential conflicts of interest and corporate governance issues if the CFO is not independent. Directors’ written endorsement (s 7(1)(c)) will be scrutinised in such cases.

5. Method Two eligibility thresholds require careful measurement (s 8(2)(a)-(b))

• Method Two is conditional on the company not having raised more than $10 million in the prior 12 months (s 8(2)(a)), and being incorporated for seven years or less or being a small business entity (s 8(2)(b)). “Raised capital” is defined to include both debt and equity instruments (s 4). Companies must compile a clear record of all instruments issued in the 12 months to prove eligibility.

6. Treatment of preference shares is technical (s 8(3) Step 2)

• Step 2 instructs ignoring contingencies and returns that would not rank before ordinary shareholders on winding up when calculating the amount required to discharge obligations to preference shares (s 8(3) Step 2). Determining which preference-share returns rank before ordinary shareholders requires reference to contractual terms and insolvency law; it is not an accounting-only exercise.

7. Financial-report requirement is permissive but consequential (s 8(2)(c))

• Method Two permits use where the company “has prepared, or will prepare, a financial report” for the year of valuation (s 8(2)(c)). The “will prepare” formulation allows valuations prior to finalisation of the report, but the company must be able to produce or explain the financial report soon after. Valuations that anticipate figures ultimately altered in the final report may be subject to challenge.

8. Choice of the higher-value method (s 6(2))

• Subsection 6(2) approves a method chosen by the company so long as it results in a value not less than the market value that would have resulted from an alternative method the company could have otherwise chosen under s 6(1). Practically, this can create an incentive to select the method that yields the higher valuation; companies must document comparisons between methods to support that selection.

9. No penalties specified in the instrument (s 3)

• The instrument does not set out consequences for non-compliance with its own requirements; enforcement will come through the Act’s mechanisms (s 3). That does not eliminate risk: poor records or non-compliance with procedural steps (e.g., lack of written resolution) will weaken a company’s position in any audit or dispute, but the instrument does not itself specify sanctions.

10. Repeal of the 2015 instrument (Schedule 1)

• The prior approval instrument is repealed in full (Schedule 1). Companies who previously relied on the 2015 framework must ensure transition to the new requirements and must not assume continuity of prior practices that are inconsistent with the 2025 methods.

These are concrete operational pitfalls that flow directly from the instrument’s language. Addressing them requires attention to documentation, clear qualifications of valuers, tracking of capital-raising history, and explicit board-level endorsements where Method One is used.

Below is a practical, section-referenced compliance roadmap that implements the instrument’s requirements and manages the identified gotchas. The checklist assumes a company intends to provide an ESS interest under the start-up concession and wants to rely on an approved method to work out market value.

Step 0 , Confirm the instrument applies (s 6(1))

• Confirm the ESS interest is being provided at the relevant time and that the valuation is required for the purpose of determining whether the market value conditions in subsection 83A-33(5) of the Act are satisfied (s 6(1)(a)).
• Confirm directors reasonably anticipate there will not be a change of control within six months after the time of the ESS interest (s 6(1)(b)). Document the board’s factual basis: contemporaneous minutes, external financing/offer timelines, shareholder communications, and any material contracts establishing change-of-control risk.

Step 1 , Decide which method is available and appropriate (s 6(1), s 8(2))

• Evaluate whether Method Two eligibility is met:
  • Confirm total “raised capital” in the relevant 12-month period does not exceed $10 million (s 8(2)(a); s 4 definition).
  • Confirm the company has been incorporated for not more than seven years or qualifies as a “small business entity” under the Act’s definitions (s 8(2)(b); s 4 note). Compile incorporation records and, if relevant, evidence of small business entity status.
  • Ensure that the company has prepared or intends to prepare a financial report for the year in which valuation occurs (s 8(2)(c)).
• If Method Two is unavailable, use Method One (s 7). If both are available, you may compare outputs: per s 6(2), a company may choose the method that results in a value not less than alternative method outcomes and have that chosen method treated as approved. Document the comparison.

Step 2 , Prepare the valuation per the chosen method

If using Method One (s 7)

• Determine the authorised valuer:
  • Elect the company’s chief financial officer to undertake the valuation (s 7(1)(a)(i)), or engage a “suitable valuer” (s 7(1)(a)(ii)). For a suitable valuer, document credentials, experience, and relevant prior work to meet the instrument’s descriptive standard (s 4).
• Apply the required matters on a reasonable basis (s 7(1)(b)):
  • Value tangible and intangible assets; obtain supporting schedules and valuations for any significant intangibles.
  • Compare market value of similar businesses; document the sources, the comparables chosen, and the earnings multiples used.
  • Consider and quantify uplifts and discounts for control premiums, lack of marketability and key person risk; document rationale and calculations.
  • Prepare a discounted cash flow or present-value analysis of anticipated future cash flows, with assumptions and sensitivity analysis.
• Document methodology and calculations thoroughly and produce a valuation report describing the approach and conclusions.
• Directors’ endorsement: obtain a written directors’ resolution that expressly endorses both the valuation methodology and the valuation figure (s 7(1)(c)). The resolution should identify the valuer, state the methodology used and the value reached, and record the directors’ reasons for accepting the valuation.

If using Method Two (s 8(3))

• Prepare or assemble the financial report figures necessary to compute net tangible assets (Step 1).
• Step 1: Work out the net tangible assets value of the company (disregard preference shares on issue) (s 8(3) Step 1). Document the accounting basis for each figure.
• Step 2: Work out the amount required to discharge the company’s obligation in respect of its preference shares if those shares were redeemed, cancelled, bought back or otherwise satisfied at that time, disregarding contingencies and any return that would not rank before ordinary shareholders on winding up (s 8(3) Step 2). Produce legal analysis of preference-share contractual terms to identify ranking and contingencies.
• Step 3: Subtract Step 2 from Step 1 (s 8(3) Step 3).
• Step 4: Divide the Step 3 result by the total number of ordinary shares, plus any preference shares that may participate with ordinary shareholders in residual assets on winding up, on issue at the time of valuation (s 8(3) Step 4). Maintain a certified share register extract confirming share counts and participation rights.

Step 3 , Record-keeping and supporting documents

• Retain the valuation report, supporting schedules, comparables, working papers, and any legal opinions on preference shares.
• Retain the written directors’ resolution required for Method One (s 7(1)(c)). If Method Two is used, retain documentation evidencing eligibility (capital raised calculation, incorporation date, small business status) and the financial report or preparatory work (s 8(2)(a)-(c)).
• If the company compares both methods under s 6(2) and chooses the higher-valued outcome, retain the comparative analysis demonstrating the alternative valuation(s) and the chosen higher outcome.

Step 4 , Governance and conflict-management

• If the CFO performs the valuation under Method One (s 7(1)(a)(i)), consider whether independence safeguards or external review are appropriate. Document any conflict-management steps taken and the board’s reasons for accepting a CFO-prepared valuation.
• For externally-engaged valuers, document engagement letters, scope, fees, and conflict-of-interest disclosures.

Step 5 , Anticipate audit and review

• Be prepared to present the documentation in an audit or review in which the Australian Taxation Office or another authority examines whether the valuation followed the instrument’s approved method and whether the directors’ reasonable anticipation condition was met (s 6(1)(b)).
• Where Method Two uses future or draft financial-report figures, ensure any subsequent changes to the financial report are documented and consider whether a post-finalisation reconciliation is necessary.

Step 6 , Transition from the 2015 instrument

• For companies that previously used the 2015 approval, replace prior methodology and documentation with the approach required by this instrument from 1 October 2025 (s 2; Schedule 1). Do not assume prior forms of documentation or procedural steps remain valid after repeal.

Practical templates to prepare

• Directors’ written resolution template (s 7(1)(c)) that explicitly endorses methodology and valuation.
• Valuation engagement checklist for “suitable valuer” selection and credential retention (s 4; s 7(1)(a)(ii)).
• Capital-raised ledger and analysis for the 12-month lookback to support Method Two eligibility (s 4; s 8(2)(a)).
• Preference-share legal analysis template to support Step 2 under Method Two (s 8(3) Step 2).
• Comparative-method analysis template to document the exercise under s 6(2) where multiple methods are available.

By following the steps above and keeping a careful documentary trail, companies can align their practices with the instrument’s requirements (ss 6-8). The key control points are the directors’ written endorsement (Method One), the eligibility tests for Method Two, and retention of working papers that substantiate the valuation logic and inputs.