The test: would a new owner face this kind of cost again?
A non-recurring expense is a cost that sits in the historical accounts but is not expected to arise again in the ordinary running of the business. Adding it back lifts earnings to the level the business can be expected to sustain. The difficulty is that almost every unusual cost feels like a one-off to the person who paid it.
A valuer applies a stricter test. The question is not whether this exact invoice will recur, but whether the business, under any competent owner, will keep incurring costs of this type. A particular court case may never be repeated, but if the business ends up in a dispute every couple of years, legal costs are part of how it operates. A particular roof leak may be fixed, but if the building generates a large repair every year, repairs are recurring.
A second test is whether the revenue depended on the cost. If spending money on something produced the revenue in the accounts, removing the cost while keeping the revenue overstates earnings.
An add-back has to pass two tests, and needs a document behind it
Would a new owner face this kind of cost again?
Yes, costs of this type keep arising
Recurring. It stays in earnings, however each year's invoice is described.
No, but the revenue in the accounts depended on it
Not an add-back. Removing the cost while keeping the revenue overstates earnings.
No, the revenue did not depend on it, and it is documented
A non-recurring expense. It can be added back.
What a valuer actually looks at
Several years side by side
The single most useful step is laying out three to five years of expenses by line. Items that the owner describes as one-offs often show up, under slightly different descriptions, in most years. A total for "repairs", "consulting" or "legal" that is high every year is evidence of a recurring cost, regardless of how each year's invoice is described.
Documents behind each item
Each proposed add-back needs a record: an invoice, a contract, a settlement deed, a lease, a bank statement. The ATO's guidance on market valuation for tax purposes lists unsupported inputs and a failure to verify them among the issues it commonly sees on review. That is a sound standard for any valuation, whatever its purpose. A list of add-backs without supporting documents is an assertion.
Both directions
Normalisation also removes income that will not continue. COVID-era support is the clearest example: the ATO notes that JobKeeper finished on 28 March 2021, so any year that included it needs the payment taken out. The same applies to insurance recoveries, profits on selling equipment, and one-off grants.
Decision table
| Item | Usually non-recurring when | Usually recurring, or not an add-back, when | Evidence to gather |
|---|---|---|---|
| Legal costs of a dispute | A single, identifiable dispute that is resolved, with nothing similar in other years | The business has disputes most years, or the dispute is ongoing or could recur (for example, a recurring contract or warranty problem) | Invoices, settlement deed, confirmation the matter is closed, several years of legal costs |
| Relocation or fit-out move costs | A one-time move to premises the business intends to stay in, with a lease term to match | The business moves regularly, or the new lease is short and another move is likely | Lease, removalist and make-good invoices |
| "One-off" repairs | A clearly unusual event, such as storm damage, not covered by insurance | Similar repairs appear in most years, or the asset is old and failing (the real issue is replacement capital expenditure) | Repairs and maintenance by year, asset age, any insurance claim |
| COVID-era costs and support | Specific costs tied to lockdown rules that no longer apply, and support payments (removed as income) | The cost became permanent, such as a shift to delivery platforms or higher cleaning standards that remain | Year-by-year accounts, records of the support received |
| Owner personal expenses through the business | Clearly private costs, such as a family car or personal travel, that a new owner would not incur | Costs that actually benefit the business, such as a vehicle used for site visits | Logbooks, card statements, a schedule apportioning business and private use |
| Related-party rent, fees or loans | Payments above or below market to an entity the owner controls (adjusted to market, in either direction) | Already at a documented market rate | Lease, agreement, market rent or fee evidence |
| Recruitment or redundancy costs | A one-time restructure that is complete | Staff turnover is constant and recruitment costs appear every year | Payroll records, restructure documents |
| Professional fees for a sale or valuation | Fees that relate only to a transaction or restructure | Ordinary annual accounting and advisory fees | Engagement letters, invoices |
Two items in that table need extra care.
Owner personal expenses. The ATO says that when an asset is used for private purposes, expenses need to be apportioned accordingly. If private costs have been run through the business, adding them back for valuation purposes may also raise a tax question about past returns. That question is for the business's accountant or tax adviser, and it should be dealt with before the valuation relies on the add-back.
Related-party items. Rent paid to the owner's own property trust, management fees between related companies and interest on owner loans are not one-offs at all. They are recurring costs set at a non-commercial level. The adjustment is to market rate, which can raise or lower earnings. See market rent adjustments for owner-owned premises for the rent case.
Worked example
This example is hypothetical, with round numbers chosen to show the reasoning.
A business reports EBITDA of $180,000. The owner proposes five add-backs totalling $90,000. The year also included a $20,000 insurance recovery recorded as other income, for a loss expensed in an earlier year.
| Proposed item | Amount claimed | Review finding | Accepted add-back |
|---|---|---|---|
| Legal costs, supplier dispute | $25,000 | One dispute, settled, no legal costs above $3,000 in the four prior years | $25,000 |
| Equipment repairs | $30,000 | Repairs of $26,000 to $32,000 in each of the last four years | $0 |
| Owner's personal vehicle | $15,000 | Logbook shows 60% private use; private portion is $9,000 | $9,000 |
| Marketing campaign | $16,000 | Campaign ran for a new contract that produced revenue in the same year; similar campaigns in two of four prior years | $0 |
| Owner's private travel | $4,000 | Card statements confirm personal holiday costs paid by the business | $4,000 |
| Total | $90,000 | $38,000 |
Of $90,000 claimed as one-offs, $38,000 is accepted
Claimed by the owner
- Legal costs, supplier dispute$25,000
- Equipment repairs$30,000
- Owner's personal vehicle$15,000
- Marketing campaign$16,000
- Owner's private travel$4,000
Total claimed$90,000
Accepted on review
- Legal costs, supplier dispute$25,000
- Equipment repairs$0
- Owner's personal vehicle (private portion)$9,000
- Marketing campaign$0
- Owner's private travel$4,000
Total accepted$38,000
Reported EBITDA of $180,000 becomes normalised EBITDA of $198,000
- Reported EBITDA$180,000
- Legal costs+$25,000
- Private portion of vehicle+$9,000
- Private travel+$4,000
- Insurance recovery (one-off income)−$20,000
- Normalised EBITDA$198,000
Scale starts above zero so the changes are visible. Totals are cut short.
Accepted add-backs are $25,000 + $9,000 + $4,000 = $38,000, compared with $90,000 claimed. After removing the $20,000 recovery, the net adjustment is $38,000 - $20,000 = +$18,000, and $180,000 + $18,000 = $198,000.
The rejected items are not wrong in the accounts. They are simply part of what it costs to run this business.
Limitations
- Judgement is unavoidable. Two careful reviewers can reach different conclusions on a borderline item; what matters is that the reasoning and evidence are stated.
- Some costs are lumpy rather than non-recurring. A major refit every eight years is not an annual expense, but it is not a one-off either; it is usually dealt with as future capital expenditure.
- Events after the valuation date generally cannot be used to prove that a cost was or was not recurring, unless they were reasonably foreseeable at that date.
- This page does not cover owner salary adjustments, which have their own method. See normalising a working owner's salary.
For a broader treatment of add-backs and how they flow into a capitalised value, the Oliver Group guide to EBITDA add-backs and normalisation is a useful companion.
Next steps
- Ask your accountant for profit and loss statements for at least three, and ideally five, years, with expense lines broken down consistently.
- List each proposed add-back with its amount, the year, and the document that supports it.
- For each item, check the same expense line in the other years. If it keeps appearing, drop it from the list.
- List any one-off income, including insurance recoveries and government support, so it can be removed.
- Record the results in the earnings normalisation worksheet, then read which year's profit a valuation should use.
Questions
Can I add back depreciation as non-recurring?
Depreciation is a non-cash charge, not a non-recurring one. Whether it is excluded depends on the earnings measure used (it is excluded from EBITDA), but the assets it reflects still need replacing, so it cannot simply be ignored.
What if the accounts do not separate private expenses?
Then the add-back is hard to support. Go back to the invoices, card statements or vehicle logbooks and build a schedule. An add-back with no records behind it is usually rejected.
Do one-off gains get removed as well as one-off costs?
Yes. Normalisation works in both directions. Insurance recoveries, asset sale profits, government support payments and similar income that will not continue are taken out of earnings.
Sources
- Market valuation for tax purposes, Australian Taxation Office. Inputs should be supported by evidence and verified; reliance on information that could not reasonably be foreseen at the valuation date is a common review issue.
- Using assets for private purposes, Australian Taxation Office. If an asset is used for private purposes, expenses need to be apportioned, and the ATO lists claiming deductions for private assets and incorrect apportionment as common mistakes.
- JobKeeper Payment, Australian Taxation Office. JobKeeper was a COVID support measure that finished on 28 March 2021.
Cite or reuse this page
Valuo Insights team (2026). What counts as a non-recurring expense in a business valuation. Valuo. https://valuo.com.au/insights/what-counts-as-a-non-recurring-expense/ (updated 14 November 2026).
Quote short passages with attribution and a link to this page. Charts and tables created by Valuo may be republished unchanged with the credit "Source: Valuo (valuo.com.au)" and a link. Third-party sources keep their own terms. See the reuse terms.
General educational information, not financial, tax or legal advice. Worked examples are hypothetical and do not value a real business. A valuation depends on its purpose, the evidence and the agreed scope.