top of page

Capital Gains Tax and Property Valuations

Updated: Jun 10

A Crucial Consideration for Investment Properties

Capital Gains Tax (CGT) is a financial consideration that property investors need to grapple with when selling their assets. CGT is a tax levied on the profit made through the sale of an investment property, with the capital gain calculated as the difference between the purchase and sale prices. This increase in capital must be reported to the tax authorities and is taxed accordingly.


However, navigating CGT obligations isn't just about crunching numbers – it's about understanding the strategic importance of property valuations and tax depreciation schedules.


Changing Use of Properties


In a dynamic property market like Australia’s with a shortage of housing and strong demand for rental properties, the use of properties often undergoes transitions, from owner-occupied to investment properties and vice versa. This shift underscores the importance of obtaining property valuations and tax depreciation schedules, especially when the property use changes.


Unlocking Financial Strategies


Property valuations play a pivotal role in several key aspects:

  • Setting the Cost Base: For CGT purposes, a valuation is used to set the cost base - essentially the property’s original value – which is crucial. A higher cost base translates to a reduced capital gain and potentially lower tax liabilities. The cost base is generally set by the sale price of the asset, however when there is no transaction when the property converts to an investment property a valuation is required to set this base. Further, if the property has sold in a “non-arm’s length” transaction (i.e., a sale between family) it is important to obtain a CGT valuation.

  • Tax Liability Calculation: Accurate valuations ensure the correct amount of tax liability. This helps in avoiding any potential penalties or disputes with the tax authorities.


Navigating Property Conversion


When a property is converted from owner-occupied to a leased investment, a transaction has not set the base price for calculating your capital gains. In such cases, obtaining a property valuation becomes even more important. The valuation helps determine the property’s value at the time of conversion, enabling the calculation of the capital gain.


Tax Depreciation Schedule


In addition to property valuations, tax depreciation schedules are integral in maximising your return-on-investment properties. These schedules provide a breakdown of the depreciation deductions you can claim for an investment property and eligible plant and equipment assets. It includes the original value, the estimated effective life, and the depreciation rate for both the structural components and the plant and equipment assets. This schedule can help maximise your deductions and is an essential part of the health check of your investment property.


Strategic Investments


In conclusion, obtaining a professional property valuation for CGT purposes is not just a regulatory compliance requirement – it’s about strategic investment planning. It ensures accurate tax liability calculations, potentially reducing the amount of capital gains to be declared. Therefore, investors are strongly advised to obtain a professional property valuation when a property is sold or converted to a leased investment. Additionally, having a tax depreciation schedule can help maximise deductions, making it an essential part of the investment property health check.

This article was brought to you by Acumentis Property Valuers


bottom of page