A partner is leaving or someone is buying in: value the interest on the basis your agreement sets.

A partner exit valuation values an owner's interest in an agency when a partner or shareholder leaves, a new owner buys in, or a buy-sell agreement is triggered. We read your agreement first, value the whole agency, then value the interest on the basis the agreement sets, pro rata or as a parcel. Where tax also calls for market value, the report states that figure separately. The fee is set by the agency's total annual turnover: $1,495 + GST under $2 million, delivered in 2 business days. Delivery time starts once payment and all required information have been received.

What is being valued when an owner leaves?

A departing owner rarely owns a slice of the clients. They own an interest in the entity that holds them, and the type of interest changes the valuation. Because the interest is valued from the whole agency, the fee band is the agency's total annual turnover.

What does your agreement say about value?

The price between owners is usually set by a clause written years before anyone planned to leave. We read it before choosing a method, and apply it as written. If it is unclear, your lawyer interprets it and we value on the interpretation you instruct, stated in the report.

• ·The basis: market value, fair value, a formula or book value, and whether the term is defined
• ·The valuation date: notice, departure, a financial year end or an agreed date
• ·Pro rata or parcel, and whether discounts for a minority interest or lack of marketability are allowed, required or excluded
• ·How clients, landlords or accounts the departing owner looks after are dealt with, including any restraint
• ·Loans and current accounts owed to or by the departing owner
• ·Payment terms: lump sum, instalments, or payments tied to client retention
• ·Who appoints the valuer, and what happens if an owner rejects the result

Pro rata or parcel: what about minority and control?

A one-third shareholder does not control the agency. On a market value basis, a buyer of that parcel alone, without control and with no ready market for the shares, may pay less than one third of the value of the whole. Some agreements avoid that result by requiring a straight proportion of the whole with no discount. Others allow or require discounts. Neither is wrong; they answer different questions, and the agreement decides which one the owners agreed to ask.

What happens to the clients the departing owner looks after?

In an agency, value often sits with people: a principal with the landlords, a senior broker with insurance clients, an adviser with long-standing families, a recruitment director with key accounts. When that person leaves, some value may leave too.

If the departing owner is bound by a restraint and clients deal with a team, the business may keep most of its value. If clients deal personally with that owner and nothing stops them following, the business the others keep may be worth less. Whether a restraint is enforceable is for your lawyer; we test the position with evidence of who services which clients, and state how it was treated.

Why can the tax value differ from the agreed price?

Owners are often not dealing with each other at arm's length. Under section 116-30 of the Income Tax Assessment Act 1997, the capital proceeds from a CGT event are replaced with the market value of the asset if the proceeds are more or less than market value and the parties did not deal with each other at arm's length in connection with the event. So the price under your agreement and the value used for tax can differ.

For tax, market value has its ordinary meaning unless the law defines it specially, and the ATO says fair value for financial reporting is not always the same concept. Where both a contract figure and a tax figure are needed, the report states each separately. If the buyer of the shares is an employee, see Valuing shares when you give equity to key staff.

Buy-sell agreements: death, disability and retirement

A buy-sell agreement sets how an owner's interest passes to the continuing owners on death, total and permanent disability or retirement, often funded by insurance. The weak point is usually the valuation clause: an agreed figure written years ago, or an untested formula. We can value the interest when the agreement is set up or reviewed, so cover and value move together, and again at the trigger event. A valuation at a past date, such as a date of death, adds $495 per date.

What does an exit or buy-in valuation cost?

An owner's interest is valued from the whole agency, so the band is the agency's total annual turnover even when the interest is a minority parcel. A family trust or company holding the interest, or a separate rent roll entity, may each be an additional entity.

The band is set by the annual revenue, excluding GST, of what is being valued: a rent roll's annual management income when the rent roll is valued on its own, an insurance or mortgage book's annual recurring income when the book is valued on its own, or the agency's total annual turnover when the whole agency, or shares or units in it, are valued. A business on exactly $3 million is Medium, and one on exactly $10 million is Large. Add-ons: +$495 per retrospective (past) valuation date, and +$795 per additional entity. Delivery time starts once payment and all required information have been received.

• ·Income Tax Assessment Act 1997, section 116-30: market value substitution rule, Australian Taxation Office (legal database)
• ·Market valuation for tax purposes (guide), Australian Taxation Office