Capital Gains Tax Valuations

 

Most real estate is subject to Capital Gains Tax (CGT). This includes vacant land, business premises, rental properties, holiday houses and hobby farms. Properties acquired before 20 September 1985 and your ‘main residence’ (family home) are generally exempt from CGT unless you rented it out for a time or it is on more than two hectares of land.

Why do you need a market valuation?

Selling or gifting real estate that is not exempt from CGT is a capital gains tax event (CGT event). Your liability for capital gains tax arises when a CGT event happens to your property.

For most CGT events, your capital gain is the difference between your capital proceeds (what you receive when you dispose of the property) and the cost base (your costs of ownership of the property).

However, if you receive nothing in exchange for your property (for example, if you give it away as a gift) you are assumed to have received the market value of the property at the time of the CGT event.

You may also be taken to have received market value if:

  • what you actually received (your capital proceeds) is more or less than the market value of the property
  • you and the new owner were not dealing with each other at arm’s length in connection with the event, such as where property is transferred between family members.

In these cases, the market value of the property on the day of the transfer replaces what the vendor actually received. The market value is most prudently determined by a valuation from a Registered Valuer.

Possible scenarios when an investor or property owner would obtain a valuation are:-

  • the owner moves out of their primary place of residence and the property becomes an investment property. A valuation is required at this date to calculate a base for any future capital gain or loss.
  • an investment property becomes the owners principal place of residence.
  • when properties, or interests in property, are transferred between parties and the sale was not at arms length or on the open market, eg family members.
  • when a property is gifted to another person.
  • Non-Residents and expatriates were negatively impacted by Government amendments to Capital Gains Tax rules (effective from 8 May 2012) that affect the Capital Gains Tax payable on their investment property. Prudent investors in this situation, often obtain a market valuation of their investment property as at 8 May 2012.

Valuations for Capital Gains Tax can sometimes require a retrospective valuation (a valuation at an earlier date). Retrospective valuations can also be undertaken by NR Valuations if required.

If your accountant, financial planner or tax advisor recommends that you require a valuation for Capital Gains Tax purposes, or to comply with Australian Taxation Office (ATO) auditing requirements, Northern Rivers Valuations can assist in this process.

The aforementioned information is only general in nature and it is not intended to constitute professional or legal advice. Please contact your accountant, solicitor, financial advisor, ATO, or relevant government authority for specific advice relating to your situation. See Disclaimer

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Innovative Thinking… Traditional Ethics
25 years local valuation experience

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