Chartered Accountant Timothy Quinn leads Tax & Accounting at Lawpath. 16+ years in tax advisory, specialising in startup growth and expansion. Passionate about supporting entrepreneurial clients with early-stage investment incentives, restructuring, international exit strategy planning, and more.
The straight-line method is the government’s default way of splitting your capital gain around the 1 July 2027 tax change. It assumes your business grew at a steady, even rate every year you owned it, which means it needs no valuation at all. It’s simple. For most growing businesses, it’s also expensive.
If you do nothing before 30 June 2027, the straight-line method is what you get by default. It doesn’t ask how your business actually grew. It just draws a straight line from the day you bought it to the day you sell, and for a business that grew fast in recent years, that line puts too little of your gain where the tax is cheapest.
- The straight-line method assumes steady growth. It splits your capital gain evenly across every year you owned the business, regardless of how the value actually moved.
- It’s the default if you do nothing. Without a supported valuation dated 30 June 2027, the straight-line formula is what the tax split falls back on.
- Fast growth makes it costly. If your business gained most of its value in recent years, the straight line understates how much gain sits before the cut-off, where the 50% discount still applies.
- A valuation can beat it, legitimately. A defensible valuation at 30 June 2027 can attribute more of your gain to the discounted period. In the illustrative example below, the gap is about $350,000 in tax.
- It’s a choice you have to make before the date. You can’t get a valuation dated 30 June 2027 in 2031. The evidence has to exist at the time.
What is the straight-line method in a business valuation?
A straight-line apportionment is purely time-based. It takes your total capital gain, divides it by the number of days you owned the business, and allocates the gain evenly across that whole period. No valuer, no evidence, no argument about what the business was worth at any point in between.
Put numbers on it. Say you owned the business for eight years and made a $6 million gain, with the 30 June 2027 cut-off falling four years in. The straight line hands half the gain, $3 million, to the pre-2027 side and the other $3 million to the post-2027 side. Clean arithmetic, but it treats a flat first year and a booming fourth year as if they added the same value. They almost never did.
That simplicity is the appeal. You don’t pay for a valuation, and there’s nothing for the ATO to dispute because you haven’t made a claim about value. You’ve just accepted the formula. For a business whose value really did climb in a steady line, that’s a fair result and the cheapest path to it.
The catch is that almost no business grows in a straight line. Most are worth very little for the first few years, then climb steeply once they find their market. That shape gets ignored entirely by the formula, and the mismatch is where it starts to cost you.
Why the 1 July 2027 change makes the straight-line method matter
This method suddenly matters because of the capital gains tax change landing on 1 July 2027. Your business value on 30 June 2027 splits your eventual gain into two parts: the gain built up before that date, which keeps the current 50% CGT discount treatment, and the gain after it, which is treated less generously. The detail sits in the 2027 capital gains tax reform, and the practical upshot is simple. The more of your gain you can evidence as sitting before 30 June 2027, the less tax you pay.
So the question becomes: how do you prove how much your business was worth on that date? You have two options. Accept the straight-line formula, or get a supported valuation. One is free and assumes steady growth. The other costs money and reflects what your business was actually worth.
This is why the valuation is now a tax deadline rather than a sale event. We cover the full picture in our guide on why your business valuation is now a 2027 tax deadline. The straight-line method is simply the default you land on if you skip it.
Straight-line formula versus a supported valuation
These two methods can produce very different splits for the same business. Take an illustrative example: a business bought for $2 million on 1 July 2023 and sold for $8 million on 30 June 2031, so a $6 million gain. Four of the eight years fall before the cut-off, so the straight line puts half the gain ($3 million) before 30 June 2027 and implies the business was worth $5 million on that date ($2 million cost plus $3 million of gain).
| Method | Implied value at 30 June 2027 | Effect on tax |
|---|---|---|
| Straight-line formula | $5 million | Assumes steady growth, so less gain sits in the discounted period |
| Supported valuation | $6.5 million | Reflects real, recent growth, so more gain keeps the 50% discount |
| Difference | $1.5 million of gain | About $350,000 less tax with the valuation (individual at the 47% top rate, illustrative) |
That straight line assumes the business crept up evenly from $2 million to $8 million. A proper valuation shows what really happened: slow early years, then a steep climb, so the business was already worth $6.5 million by 30 June 2027. That puts $4.5 million of the gain before the cut-off ($6.5 million less the $2 million cost), which is $1.5 million more than the straight line allows. That extra gain sitting before the cut-off is what the discount applies to. For an individual on the 47% top rate, and leaving indexation aside, each dollar of gain that keeps the 50% discount is taxed at 23.5 cents instead of 47 cents. So the extra $1.5 million saves about $352,500 in tax ($1.5 million × 23.5 cents), or roughly $350,000.
These numbers are illustrative and your business will differ. What matters is the direction. For a business that grew fast in recent years, the straight-line default consistently understates the pre-2027 value, and the gap is tax you didn’t need to pay.
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When the straight-line method actually works fine
In a few situations the straight-line method is the right call, and paying for a valuation you don’t need is its own waste.
It works when your business grew steadily, when the gain is too small to cover a valuer’s fee, or when you bought recently, so there’s little ownership period to split.
Where it goes wrong is the opposite case: a business you’ve held for years that only recently became valuable. That’s the profile most likely to lose real money to the default, and the one most worth a conversation with your accountant before 30 June 2027. Our team can walk you through it on a legal and accounting advice plan.
What other business valuation methods are there?
A supported valuation doesn’t use the straight line. It uses one of the recognised business valuation methods to work out what the business was genuinely worth on a date. The three you’ll hear about most:
- Capitalisation of future maintainable earnings. The most common method for a profitable small business. It takes a normalised earnings figure and applies a multiple based on risk and industry. If a business earns a steady profit, this is usually the starting point.
- Discounted cash flow. Projects the future cash the business will generate and discounts it back to today’s value. It suits businesses with strong, forecastable growth, but it’s sensitive to the assumptions you feed it.
- Net asset or asset-based. Values the business on what it owns minus what it owes. It’s the floor for asset-heavy businesses and the fallback where earnings are thin or erratic.
The straight-line method is missing from this list on purpose. It’s an apportionment shortcut that skips valuation entirely. It answers “how do we split the gain without anyone working out the value” rather than “what was this business actually worth”.
A proper valuation usually tests more than one of these and lands on a defensible range. That range, documented and dated, is what stands up if the ATO ever asks. The straight-line formula skips all of it, which is exactly why it can’t reflect a business that grew in anything other than a straight line.
Does the straight-line method change the small business CGT concessions?
Owners often mix these two up. The straight-line method only decides how your gain is split across time around 30 June 2027. It sits completely separate from the small business CGT concessions, which can reduce or even wipe the tax on a qualifying gain.
Those concessions still apply after the reform. If you meet the tests, such as the turnover or net asset threshold and the active asset rules, you may be able to reach for the 15-year exemption, the 50% active asset reduction, the retirement exemption, or a rollover, on top of whatever split you land on. A strong result often stacks both: get the gain split working in your favour, then apply every concession you’re entitled to. We walk through the detail in our guide to the small business CGT concessions.
What ties the two together is evidence. A valuation split and the concessions both turn on numbers you can support, so the same discipline covers both: know your figures, document them, and have them checked before you rely on them. If capital gains tax itself is still fuzzy, start with the basics in our explainer on how capital gains tax works.
One last point on timing. A straight-line split requires no action, which is exactly why it’s so easy to end up with by accident. A valuation is the opposite: it only exists if you commission it, dated and documented, before the window closes. Doing nothing is a decision here, and for a fast-growing business it’s usually the most expensive one on the table.
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Frequently asked questions
What is the straight-line method for the 2027 CGT change?
It’s a time-based formula that splits a capital gain evenly across the whole period you owned the business. It assumes steady growth and needs no valuation. For the 1 July 2027 CGT change, it’s the default way your gain is split if you don’t get a supported valuation.
Is the straight-line method better than getting a valuation?
Only if your business grew steadily or the gain is small. For a business that became valuable recently, the straight line understates the gain sitting before 30 June 2027, so a supported valuation usually produces a better tax result. Match the method to how your value actually moved.
Does the straight-line method cost anything?
No. It’s a formula, so it’s free and needs no valuer. That’s its one real advantage. The cost is indirect: if it understates your pre-2027 value, you pay more capital gains tax than you needed to.
Can I get a valuation later instead of using the straight-line method?
Not for a past date. A valuation dated 30 June 2027 has to be prepared on evidence that existed then. You can’t recreate it in 2031 when you sell. If you think a valuation will help, it needs to be done around the date, which is why this has a deadline.
What valuation methods does a real business valuation use?
Usually capitalisation of future maintainable earnings, discounted cash flow, or a net asset method, often more than one together. A valuer picks the approach that fits your business and lands on a defensible range rather than a single figure.
Do I need an accountant to work out which method to use?
For anything with real money at stake, yes. The choice between the straight-line default and a valuation depends on your ownership period, growth curve, and the size of the likely gain. An accountant can model both before you commit, so the decision is made on real numbers.
Will the ATO accept the straight-line method?
Yes. It’s the default the rules provide, so you have no value claim to defend. A supported valuation is also accepted, but only if it’s genuinely defensible and dated to the time. Both are valid paths. The question is which one leaves you paying less.
Work out your number before it’s locked in
If your business grew faster than a straight line, the default is working against you, and you’ve got until 30 June 2027 to do something about it. That’s plenty of time, as long as you don’t leave it until you’re selling.
One thing worth doing now is finding out whether the straight-line method helps you or hurts you. Talk it through with Lawpath’s tax and accounting team on a legal and accounting advice plan, and get your number sorted while the date is still ahead of you.
This article is general information, not tax advice. Your position depends on your own circumstances, so check it with a qualified adviser before acting.
