Where Australian law actually asks for a valuation, the two methods the ATO approves for start-up share schemes, and what we could not find a rule for.
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Founders are often told there is a standard way to value a startup. In the ATO and ASIC pages we reviewed, we found no single method prescribed for valuing a private company’s shares in general. Where the rules do prescribe methods for unlisted startup shares, it is for one purpose: the employee share scheme start-up concession.
This guide covers where Australian tax law asks for a market value, the two methods the ATO approves for that concession, and what we could not find a rule for. It does not value any company, and it does not tell you what yours is worth.
This is general information, not advice. CatenaHQ is software. Nothing on this page is legal, financial, tax or investment advice, and it does not take account of your circumstances. Speak to a lawyer, accountant or other qualified adviser about your own position.
The ATO describes market value as the amount a willing buyer and a willing seller would agree to in an arm’s-length transaction. Tax law asks for it in several places, and the ATO says you must obtain a market valuation when the tax law requires one.
The discount on shares must be no more than 15% of their market value when provided, and the exercise price of an option must be at least the market value of the underlying share (ATO). The employee share schemes guide covers the concession itself.
The ATO’s CGT guide says market value can replace the actual cost where no expenditure was incurred or the parties did not deal at arm’s length, and that you are taken to receive the market value of an asset as the capital proceeds in the same circumstances.
For an investor in an early stage innovation company, the ATO says that after the shares have been held continuously for ten years the first element of the cost base becomes their market value. The company-side tests are in the ESIC guide. The ATO’s page on those tests does not mention valuation.
The methods are in a legislative instrument, LI 2025/19, registered on 11 September 2025 and commencing on 1 October 2025. The ATO says it substantially replicates the earlier instrument, ESS 2015/1, which it replaced. The instrument approves two methods for working out the market value of an unlisted ordinary share for the start-up concession, and the ATO says they bind the Commissioner when applied in accordance with the instrument’s conditions.
Both methods apply only if the directors reasonably anticipate that there will not be a change of control of the company within six months after the interest is provided.
The market value is worked out by the company’s chief financial officer or a suitable valuer, meaning a person with the skill, knowledge and experience to determine the market value of unlisted shares. They consider, on a reasonable basis, the value of tangible and intangible assets, the market value of similar businesses including through earnings multiples, uplifts and discounts for control premium, lack of marketability and key person risk, and the present value of anticipated future cash flows. The directors must endorse both the methodology and the value in a written resolution.
A formula from the company’s net tangible assets, available if the company has not raised more than $10 million in the 12 months before the valuation, was incorporated no more than seven years ago or is a small business entity, and has prepared or will prepare a financial report for the year of the valuation. Take net tangible assets, disregarding preference shares, deduct the amount needed to satisfy the preference shares, and divide by the number of ordinary shares plus any participating preference shares.
Using another method. Under section 6(2) of the instrument, a company that uses a different method is still protected if the value it arrives at is not less than the value from an approved method it could have used.
Scope. The safe harbour covers the start-up concession only. It is not a general rule for valuing a private company’s shares, and the instrument does not require an independent valuer.
The instrument itself names four ideas: asset values, the market value of similar businesses through earnings multiples, the present value of future cash flows, and net tangible assets.
ASIC’s Regulatory Guide 111 covers experts’ reports under the takeovers, schemes and related-party parts of the Corporations Act, not private share issues. It says ASIC will not prescribe the valuation methodologies an expert should use, and that an expert should use more than one methodology when possible. It lists discounted cash flow, earnings multiples, orderly realisation of assets, quoted prices and recent genuine offers for the business as methodologies it is generally appropriate to consider.
We found no ATO or ASIC statement either way on whether one method is required for share issues in general. The ATO approves two methods for the start-up concession and that is the only place we found prescribed methods for unlisted startup shares.
The ATO pages we reviewed on the safe harbour do not say that the price of your most recent funding round sets market value. We found no ATO or ASIC statement on the point either way.
You may see the scorecard method, the Berkus method, the venture capital method and cost to rebuild described elsewhere. None of the ATO or ASIC pages we reviewed names them, so this guide does not describe them as rules.
The safe harbour methods do not require an independent valuer. More generally, the ATO says valuations undertaken by professional valuers are more credible. It also says you will not be liable for penalties if it finds a professional valuation deficient, provided you gave the valuer clear instructions and accurate information.
CatenaHQ’s free valuation estimator shows where your company sits against market benchmarks at your stage, from inputs such as revenue, growth, stage, sector and team size. It returns a range, not a price. It is not a valuation for tax purposes and it does not apply either ATO method. CatenaHQ is software and nothing here is financial or tax advice.
The ATO, ASIC and legislation.gov.au pages are primary sources and were read on 22 October 2026. Quotations are limited to what each page states.
In the ATO and ASIC pages we reviewed, we found no single method prescribed for valuing a private company's shares in general. The ATO does approve two methods for one purpose, the employee share scheme start-up concession.
LI 2025/19, commencing on 1 October 2025, approves two methods for the start-up concession. Method One has the company's chief financial officer or a suitable valuer work out the value, with the directors endorsing the methodology and value in a written resolution. Method Two is a net tangible assets formula for companies that raised no more than $10 million in the previous 12 months and were incorporated no more than seven years ago or are small business entities.
Not under the safe harbour instrument. Method One can be applied by the company's chief financial officer or a suitable valuer, with the directors endorsing the result, and Method Two is a formula. The ATO also says valuations by professional valuers are more credible.
They apply if the directors reasonably anticipate that there will not be a change of control of the company within six months after the interest is provided. They cover the start-up concession only.
The ATO pages we reviewed on the safe harbour do not say that a funding round price sets market value, and we found no ATO or ASIC statement on the point either way. If you use a method other than the two approved ones, the instrument still protects you if the value is not less than the value from an approved method you could have used.
Valuation is one input to the tax and share rules covered in these guides.
The two regimes an ESOP must satisfy and the confusion between them, including the Division 83A start-up concession.
The early stage tests, and how the investor offset and CGT exemption work.
Both are offers of securities needing a s708 exception, and Division 974 decides debt or equity on substance.