The Full Federal Court’s decision in Kilgour v Commissioner of Taxation reinforces that CGT market value must reflect the commercial reality of a transaction, particularly where minority interests are sold as part of a coordinated business exit—an issue with real consequences for CGT concessions.
What Happened?
In 2016, three family trusts sold all shares in Punters Paradise Pty Ltd, an online wagering business, to News Corp for around $31 million. The ownership breakdown was:
- Pettett Trust – 60%
- Kilgour Family Trust – 20%
- Reuhl Family Trust – 20%
The sale was conducted at arm’s length, involved thorough due diligence, and included a post-completion working-capital adjustment.
The minority beneficiaries (holding 20% each) sought to apply the small business CGT concessions, which required the seller’s net assets to be under $6 million. They argued that their 20% interests should be significantly discounted, claiming that small holdings are typically worth less on a standalone basis.
The ATO rejected this view, stating that each 20% interest was part of a coordinated 100% sale and should simply be valued as 20% of the $31 million sale price.
The Court ultimately sided with the ATO.
How the Court Approached Market Value
The Court applied the long-established “willing buyer/willing seller” approach from Spencer v Commonwealth, but with a modern commercial perspective. Two key lessons emerge:
1. Real-world expectations outweigh strict valuation dates
Although tax rules require assessing value “just before” the contract is signed, the Court emphasised that foreseeable factors at that time cannot be ignored. In this case, negotiations had effectively locked in the sale, so the final agreed price provided the most reliable indication of market value.
Takeaway: If a buyer is clearly prepared to pay a premium—for control, synergies, strategic advantages, or growth potential—these factors will likely influence the tax valuation.
2. Actual deal terms take priority over theoretical discounts
The taxpayers argued for a standard “minority discount,” but the Court stressed that the commercial context is decisive:
- All shareholders intended to sell together.
- The buyer sought 100% of the shares, not separate parcels.
- Coordinated full-stake sales generally increase the value of each portion.
As a result, a hypothetical buyer would not insist on a minority discount, meaning the 20% interests effectively reflected their share of the total sale price.
Takeaway: When shareholders sell collectively, the tax valuation of each interest can rise—sometimes substantially.
What This Means for Business Owners
Don’t undervalue your stake – If a buyer is motivated by control, synergies, or strategic benefits, your share could be worth more than a standard minority discount suggests. Ensure your advisers take the full commercial context into account.
Keep strong evidence – Maintain detailed records of negotiations, emails, valuations, and buyer intentions. This documentation can be crucial in supporting your tax position and qualifying for concessions.
Plan CGT concession eligibility early – If you intend to use small business CGT concessions, model different deal scenarios before signing contracts or heads of agreement. In some cases, restructuring ownership or staging the sale can have a significant impact, though tax integrity and anti-avoidance rules must always be considered.
Align shareholder expectations – In family-owned and private companies, minority owners may assume their shares will be valued in isolation. Kilgour demonstrates that courts often evaluate the transaction as a whole rather than focusing on individual parcels.
The Bottom Line
Overall, Kilgour highlights that tax valuations are most reliable when they reflect actual commercial conditions rather than theoretical models. Engage your accountant early before selling, restructuring, or negotiating with a buyer—a well-supported valuation can be the key to accessing valuable CGT concessions.
Planning to sell or restructure your business? Speak with your tax advisor early to ensure your valuation aligns with both commercial realities and CGT concession requirements.
