Do I need a property valuation for CGT? What the ATO actually requires

If you are selling an investment property, inheriting a property, or converting your home to a rental, you will likely need a property valuation for capital gains tax (CGT) purposes. But many property owners are unsure what the ATO actually requires, and many are paying more than they need to for valuations that do not meet the standard.

What the ATO requires

The ATO does not require a registered valuer for CGT purposes. What it requires is that the market value of the property be determined on an arm's length basis, using a method that is consistent with the principles set out in the Income Tax Assessment Act 1997.

In practice, this means the valuation must be prepared by a person with the appropriate knowledge and experience, using comparable sales evidence from the relevant period, and documented in a way that can be produced if the ATO asks for it.

When do you need a CGT valuation?

There are several common situations where a CGT valuation is required:

• You are selling an investment property and need to establish the original cost base
• You inherited a property and need to establish market value at the date of death
• You converted your principal place of residence to a rental property and need a valuation at the date of first rental
• You acquired a property before 20 September 1985 (pre-CGT) and need to establish market value at that date
• You are applying the 50% CGT discount and need to establish the date of acquisition

What makes a valuation ATO-compliant?

An ATO-compliant CGT valuation should include:

• A clear statement of the property address and the valuation date
• A stated market value at the relevant date
• Comparable sales evidence from the relevant period (typically three to five comparable sales)
• A documented methodology explaining how the comparable sales were selected and how the market value was determined
• The qualifications and experience of the person who prepared the valuation
• A signature and date

What about a real estate agent's appraisal?

A real estate agent's appraisal letter is generally not sufficient for CGT purposes. Appraisal letters are typically prepared for the purpose of listing a property for sale, not for establishing market value at a date in the past. They rarely include comparable sales evidence or a documented methodology, and they are not prepared by a person with the relevant qualifications.

If you use an appraisal letter to support a CGT calculation and the ATO reviews your return, you may be required to obtain a proper valuation. It is better to get it right the first time.

How far back can a retrospective valuation go?

For most NSW residential properties, a retrospective valuation can be prepared dating back to the 1980s. The further back the date, the more limited the available comparable sales data, but a suitably qualified person with access to historical sales records can generally prepare a defensible valuation for most properties.

If you are unsure whether a retrospective valuation is possible for your property and the relevant date, contact us and we will advise you before you commit to an engagement.