[Tax] Taxpayers are not required to have their valuations in place on 1 July 2027 for their investment properties
The CGT reforms to replace the 50% discount for individuals and trustees with CGT indexation from 1 July 2027 may require market valuations of CGT assets immediately before 1 July 2027. However, the ATO has clarified that taxpayers are not required to have these valuations in place on 1 July 2027.
The ATO has stated that taxpayers are not required to have this valuation in place on 1 July 2027, and should not obtain one beforehand, as a valuation cannot be forward-looking.
Some taxpayers may also choose not to obtain a market valuation immediately before 1 July 2027 but use the alternative "apportionment method" to calculate capital gains for such assets. The government has released an exposure draft legislative instrument prescribing this "apportionment method", and related ATO guidance is expected in due course.
In addition to the ATO's existing guidance on market valuations, it is considering additional guidance, tools, and calculators for valuing particular types of assets, the appropriate experts to use, and the required documentation and supporting records.
Understanding the market valuation requirements
Under the new rules:
Taxpayers may need to determine what the market value of their CGT asset was immediately before 1 July 2027 when calculating their capital gain or loss. This doesn't require your clients to have a valuation in place on this date, and they shouldn't obtain one before this date, as a valuation can't be forward-looking.
Taxpayers may have the choice to determine the value of their CGT asset using an alternative method, known as the apportionment method. The Government is currently developing this method, and the d ATO will provide further guidance once it has been enacted.
Taxpayers holding CGT assets before 1 July 2027 may have these assets treated as having been disposed of immediately before 1 July 2027 and re-acquired on 1 July 2027. They will then need to calculate their capital gains and losses for each period as though they are separate ownership periods.
To calculate the capital gains or losses for each period, taxpayers may need to work out the asset's market value immediately before 1 July 2027. This is because the market value will be used as the capital proceeds for the deemed disposal of the asset and as the first element of the cost base to calculate the gain accrued after 1 July 2027.
Any capital gain or loss relating to the deemed disposal of the asset immediately before 1 July 2027 is deferred and only needs to be reported when the asset is disposed of, or another CGT event occurs.
Guidance on market valuations
ATO's existing guidance on market valuations for tax purposes outlines:
ATO's expectations regarding market valuations
the evidence needed to support a valuation
what the ATO will take into account when considering the accuracy of a valuation.
Further guidance and support
ATO recognise taxpayers and their accountants are seeking certainty about how the reforms will operate in practice. ATO is considering:
what advice and guidance products may be required
tools and calculators ATO can develop or update
systems changes required to support compliance and administration.
ATO will issue a range of tools and guidance to help taxpayers and their accountants understand the new law and how it applies, including:
how to determine the market value for certain types of assets
the types of professionals to consider when seeking a valuation
the documentation and records required to determine market value.
Disclaimer: This article is intended to provide general information only and does not constitute professional advice for specific circumstances. It should not be relied upon as a substitute for tailored advice.
Comments