1 July 2027 is going to become an important date for many Australian property owners, even if they have no intention of selling their property for years.
Considering a property valuation for 1 July 2027?
If your accountant has advised that you may need an independent property valuation, Wills Property can provide a quotation and help you plan the appropriate timing.
Australia's capital gains tax rules are changing.
From 1 July 2027, the existing 50% CGT discount will be replaced for relevant gains by inflation-based cost-base indexation, together with a minimum 30% tax rate on real capital gains. Importantly, the changes are prospective: the existing treatment is preserved for gains accruing before the transition date, while the new arrangements apply to relevant gains accruing afterwards.
For property owners, that creates a practical question which may not arise until many years later:
What was the property actually worth around 1 July 2027?
Why the transition value matters
For many affected CGT assets held across the transition, the legislation creates a deemed sale immediately before 1 July 2027 and reacquisition immediately afterwards.
The default capital proceeds for that deemed transaction are the asset's market value immediately before 1 July 2027. The legislation also provides for an available statutory apportioning method to be chosen instead.
Which approach should be used is a matter for the owner's accountant or tax adviser.
But where market value is relevant, there is a separate property question:
How will that value be established?
Property values don't necessarily move in a straight line.
A renovated Bronte semi, an investment apartment in Bondi Junction, a long-held Woollahra terrace and a commercial property in Double Bay may all have experienced very different patterns of growth.
Land size, views, aspect, condition, renovations, planning controls, development potential, tenancy and local market conditions can all influence the value of a particular property at a particular date.
That's why the transition isn't simply an accounting exercise. There can also be a genuine property valuation issue. This is consistent with the approach in our original adviser briefing, which identified property-specific attributes and local market cycles as relevant to the transition value.
The date passes once
This is the part I think property owners need to understand.
A property might not be sold until 2035, 2040 or even later.
A retrospective valuation can still be undertaken at that time.
But by then, the property may have been renovated, extended or redeveloped. Its condition may have changed. Owners or tenants may have moved on. Photographs and records may have disappeared. Planning controls may have changed.
The valuer is then reconstructing history rather than documenting the property as it existed around the transition.
The Australian Property Institute has highlighted this issue. Its current guidance says a valuation prepared close to 1 July 2027 is more reliable, credible and defensible than one reconstructed years afterwards, and recommends that supporting evidence be retained.
A value can be reconstructed later. The original evidence cannot necessarily be recreated.
What should owners do now?
I don't think the answer is simply for every property owner to rush out and order a valuation.
The first conversation should be with the client's accountant or tax adviser.
They can determine whether the reforms affect the property and whether market-value evidence is appropriate.
In the meantime, property owners can start identifying potentially affected assets and locating acquisition records, improvement costs, plans, approvals and other documents relating to the property.
Where market value will be relied upon, the next question is whether a comprehensive inspection valuation should be undertaken close to the transition date.
The API recommends a comprehensive inspection valuation by an API Valuer where accountants and lawyers require defensible market-value evidence for an affected property.
Different professionals have different roles
This distinction is important.
The accountant or tax adviser determines how the legislation applies.
The solicitor deals with relevant ownership, trust, estate and transaction issues.
The valuer independently establishes the property's market value at the specified date.
As a Certified Practising Valuer, that's where my role sits.
The reforms may be about tax, but establishing what a particular property was actually worth at the transition date is fundamentally a valuation question.
And for some owners, the best time to preserve that evidence may be while the date, property and market are still contemporary.
Do you need a property valuation for 1 July 2027?
If you own an investment property and are uncertain whether the CGT changes may affect you, speak with your accountant or tax adviser first.
Wills Property provides independent property valuations prepared by a Certified Practising Valuer (CPV), including valuations for capital gains tax purposes.
REQUEST A PROPERTY VALUATION QUOTATION
John Wills FAPI CPV JP
Principal
Wills Property
[email protected]
+61 467 443 838
This article contains general property valuation information only and does not constitute taxation, legal or financial advice. Property owners should obtain advice from their accountant or tax adviser about how the reforms apply to their circumstances.