If you own an investment property, 1 July 2027 could become a very important valuation date. This article explains why a 1 July 2027 CGT valuation may matter, and why market value is easier to establish now than to reconstruct years later.
Under the Federal Government’s CGT reforms, owners of assets held before 1 July 2027 may be able to use a market valuation at that date when determining the portion of a future capital gain attributable to the periods before and after the new rules commence. In other words, if you still own the property in 2030, 2035 or beyond, you may find yourself needing to answer a deceptively simple question: what was my property worth on 1 July 2027?
There are two ways of approaching that question. One is to establish and document the property’s market value at the relevant time. The other is to wait several years and ask someone to reconstruct it retrospectively. Both are possible, but only one of them involves a time machine, and unfortunately, valuers don’t have those.
Why would I need a 1 July 2027 CGT valuation?
The Government’s transitional arrangements recognise that assets may be held across the commencement of the new CGT regime. For assets already held at 1 July 2027, taxpayers will have methods available to determine the gains attributable to the periods before and after the reforms commence, and one of those methods is to seek a valuation of the asset at 1 July 2027. That makes market value at this date potentially significant for investment property owners.
Your accountant or tax adviser should determine whether the valuation method is appropriate for your circumstances. But if market value is the method being used, the next question is straightforward: what was the property actually worth? That is where an independent property valuation comes in.
A simple example
Suppose an investor purchases a residential investment property in 2016 for $520,000. By 1 July 2027, assume the property has increased in value to $900,000. The owner retains it and eventually sells in 2035 for $1,250,000. The property has therefore increased substantially in value both before and after 1 July 2027, so suddenly the important numbers aren’t simply $520,000 and $1.25 million. The $900,000 in the middle may matter as well.
The accountant determines the CGT treatment. The valuer provides the independent assessment of what the property was worth at the relevant date. Two different jobs, both important.
Can I get a retrospective 1 July 2027 CGT valuation later?
You can obtain retrospective property valuations, and we undertake them. But imagine it’s now 2035 and you need to establish the market value of your property eight years earlier. What condition was it in on 1 July 2027? Was the kitchen renovated before or after that date? Had the extension been completed? Was the secondary dwelling there? What improvements had been undertaken, and which comparable properties were selling around the relevant date?
There may be sufficient historical evidence available to establish a retrospective market value, but time rarely improves the evidence. If you know a valuation date may become important, there is an obvious advantage in documenting the property and its market value while that date is still current.
“Can’t the ATO just use a formula?”
The Government has also proposed an apportionment method, supported by ATO tools, as an alternative to obtaining a valuation. So no, we are not suggesting every investment property owner is automatically required to order a valuation. What we are suggesting is much simpler: ask your accountant which method is appropriate before deciding you don’t need one.
A formula applies a prescribed methodology. A property valuation assesses the actual property, and actual properties have an inconvenient habit of being different from one another. Two four-bedroom houses on similar-sized blocks in the same suburb can have materially different values: one may have been extensively renovated, have superior garaging or additional accommodation, or have development potential, while the other backs onto a major arterial road instead of a reserve. Same suburb, similar statistics, not necessarily the same value.
Long-held properties deserve particular attention
The issue may be especially relevant for owners who have held property for a considerable period and accumulated substantial capital growth. It’s particularly relevant if you purchased before September 1985: properties bought before that date have never had a cost base at all, and under the new arrangements, they get one for the first time, set at market value on 1 July 2027. Everything gained before that date stays outside the CGT net. Everything after doesn’t.
If you bought an investment property years or decades ago and intend to continue holding it beyond 1 July 2027, it is worth speaking with your accountant or tax adviser about the transitional CGT arrangements. Don’t wait until the eventual sale to discover that a historical market value would have been useful.
What should I do before the 1 July 2027 CGT valuation date?
If you own property that may be subject to CGT, speak with your accountant or tax adviser and ask:
1. Will the 1 July 2027 market value of my property be relevant to my future CGT position?
2. Should I obtain an independent valuation or use the alternative apportionment method?
3. What property and taxation records should I retain?
If a valuation is appropriate, Vanguard Valuations can provide an independent assessment of market value at the required date, supported by relevant property and market evidence.
Don’t leave a 2027 question until 2037
CGT may not become payable until an asset is eventually sold, but the evidence used to determine it can relate to a date many years earlier. That distinction matters.
If 1 July 2027 is going to be an important date for your property, consider establishing its market value while 1 July 2027 is still 1 July 2027. Don’t try to recreate it years later.
Speak with your accountant or tax adviser about whether a valuation is appropriate for your circumstances. If the answer is yes, Vanguard Valuations can assist with an independent 1 July 2027 CGT valuation. You can read more about our capital gains tax valuation services.
This article contains general information only and does not constitute taxation, legal or financial advice. The CGT reforms and transitional arrangements should be considered in conjunction with the legislation and current ATO guidance. Property owners should obtain advice from an appropriately qualified tax adviser regarding their individual circumstances.
