ATO warns property investors against inflated valuations before CGT changes

Property investors preparing for the July 2027 capital gains tax changes have been warned that an optimistic appraisal will not necessarily withstand scrutiny from the Australian Taxation Office.

Property Buzz reported on Thursday that the ATO is alert to the incentive for taxpayers to inflate asset values at the transition date. A higher starting value could shift more of a future capital gain into the period covered by the existing 50 per cent discount and reduce the amount falling under the new arrangements.

The regulator said deliberately inflating a valuation was not acceptable and could attract compliance attention. It expects taxpayers to establish market value in accordance with tax law and retain evidence supporting the result.

The warning is relevant to investment properties and other taxable assets held across the transition. An owner-occupied main residence that remains fully exempt from CGT is generally in a different position, although mixed-use homes, former main residences and properties partly used to produce income can involve more complicated rules.

Why the 2027 value matters

Under the federal tax changes, the existing 50 per cent CGT discount will be replaced from 1 July 2027 by inflation-based cost-base indexation and a minimum tax rate on capital gains.

The new treatment applies to gains accruing from that date when they are eventually realised. The value assigned at the transition therefore helps divide a future gain between the old and new systems.

Treasury’s published guidance says investors holding affected assets will be able to seek a valuation as at 1 July 2027. The tax treatment can vary according to when an asset was acquired and whether an investment property is an eligible new build, so investors should not assume every dwelling is treated identically.

The Australian Property Institute has advised owners that the valuation may not be used until a property is sold, potentially many years after the transition. That makes the underlying evidence important: comparable sales, the condition of the property and the assumptions used may be much harder to reconstruct later.

An appraisal and a valuation are different

The ATO’s comments, as reported by Property Buzz, indicate that not every taxpayer will necessarily need a professional valuation. However, any figure used must be objective, replicable and supported by appropriate evidence.

Professional valuations will generally carry more credibility than informal estimates. For real property, the ATO said valuations should be conducted by professionals licensed under the relevant state, territory or Commonwealth requirements.

A selling agent’s appraisal is designed to estimate a likely marketing range and help secure a listing. It is not automatically equivalent to an independent valuation prepared for a tax purpose.

Automated online estimates can also produce a broad guide, but they may not adequately capture renovations, defects, views, unusual land characteristics or differences between nearby sales. Owners relying on any valuation method should be able to explain the evidence and methodology behind the result.

What investors can do now

There is no need to guess a July 2027 value months in advance. Investors can instead start organising records that may affect the valuation and future CGT calculation.

Useful material can include:

• the original purchase contract and settlement documents
• records of stamp duty and eligible acquisition expenses
• invoices and approvals for capital improvements
• floor plans, photographs and condition reports
• records showing periods of private use or use as a main residence
• details of ownership changes and associated legal costs.

The ATO has said further guidance will be provided before 1 July 2027, including information about market-value obligations, suitable professionals and documentation.

Investors should confirm the final rules and obtain individual tax advice before commissioning a report or making decisions about a sale. The relevant CGT event for property will also usually be tied to the contract date rather than settlement, making timing important.

What it means for you

• Do not treat the July 2027 value as a number that can be chosen to minimise tax.
• Keep purchase, improvement and property-condition records before they become difficult to recover.
• Check whether a formal independent valuation is suitable for your circumstances.
• Seek tax advice before selling across the transition period.