The CGT & valuationterms that matter.

Capital Gains Tax (CGT) is the tax levied under Part 3-1 of the Income Tax Assessment Act 1997 (ITAA 1997) on the capital gain made when a CGT event happens to a CGT asset. The capital gain is generally the difference between the asset's capital proceeds and its cost base. CGT is not a separate tax — the net capital gain is included in your assessable income for the income year in which the CGT event occurs.

For Australian residents, CGT applies to most assets including real property, shares, units in unit trusts, and certain collectables and personal-use assets above thresholds.

The cost base of a CGT asset has five elements under s110-25 ITAA 1997: (1) acquisition cost or market value substitution amount, (2) incidental costs of acquisition and disposal, (3) costs of ownership (for assets acquired after 20 August 1991 and not used to produce assessable income), (4) capital costs to increase or preserve value, and (5) capital costs to establish, preserve, or defend title.

For retrospective CGT valuations, a defensible cost base often depends on a market-value substitution at a historical date — for example, the date of death, the date a property first produced assessable income, or 20 September 1985 for pre-CGT improvements.

Under Division 115 of ITAA 1997, Australian-resident individuals and trusts that have held a CGT asset for at least 12 months may discount the capital gain by 50%. Complying superannuation funds receive a 33⅓% discount. Companies do not receive a discount.

The 12-month period is calculated from the day after acquisition to the day of the CGT event. Foreign and temporary residents no longer receive the discount for periods after 8 May 2012.

Under s116-20 ITAA 1997, capital proceeds include money received plus the market value of any other property received, worked out as at the time of the CGT event. The market value substitution rule (s116-30) can override the actual proceeds where parties are not dealing at arm's length or where no consideration is given.

Establishing capital proceeds for non-cash or related-party transactions requires an independent valuation at the date of the CGT event.

A CGT event is the trigger that causes a capital gain or loss to be recognised. The most common is CGT event A1 (disposal of a CGT asset) under s104-10 ITAA 1997, but there are more than 50 CGT events, including event E1 (creating a trust), event F1 (granting a lease), and event K6 (pre-CGT shares with post-CGT property).

The date of the CGT event determines the valuation date used to establish market value and the income year in which the gain or loss is reported.

Under Subdivision 118-B of ITAA 1997, a capital gain or loss made on a CGT event involving a dwelling that is your main residence is generally disregarded, provided the dwelling was your main residence for the whole ownership period, was not used to produce assessable income, and sits on land of two hectares or less.

Partial exemption applies where the dwelling was rented out, used for business, or was your main residence for only part of the ownership period — and a market valuation is usually required at the date use changed.

Under s118-145 ITAA 1997, if you stop living in your main residence and rent it out, you can choose to continue treating it as your main residence for CGT purposes for up to six years (or indefinitely if not income-producing). The choice resets each time you re-occupy the dwelling as your main residence.

When the choice is made, a market valuation at the date the dwelling first produced income is typically required to reset the cost base under the 'first used to produce income' rule in s118-192.

Section 118-192 ITAA 1997 applies when a dwelling that was your main residence is first used to produce assessable income (typically by being rented out) after 20 August 1996. You are taken to have acquired the dwelling at its market value on that date for CGT cost-base purposes.

A retrospective valuation by a Certified Practising Valuer at the 'first income' date is the standard evidence the ATO expects to support the cost-base reset.

Assets acquired before 20 September 1985 are pre-CGT assets and are generally not subject to CGT on disposal. However, post-CGT capital improvements to a pre-CGT asset can be treated as a separate CGT asset under s108-70 ITAA 1997 if their cost base exceeds the improvement threshold and 5% of the capital proceeds on sale.

Establishing the value of post-1985 improvements often requires a retrospective valuation as at the date of the improvement and as at the date of sale.

Section 108-70 ITAA 1997 treats a capital improvement to a pre-CGT asset as a separate CGT asset when, on the disposal of the underlying asset, the improvement's cost base exceeds both the improvement threshold for the income year and 5% of the capital proceeds from the underlying asset.

Determining whether the threshold is breached commonly requires apportionment between land value and improvement value at the date of sale — work that needs a Certified Practising Valuer.

Under s116-30 ITAA 1997, the capital proceeds from a CGT event are replaced with the market value of the asset where there is no consideration, where parties are not dealing at arm's length, or where the consideration cannot be valued. A parallel rule in s112-20 applies the same substitution to the cost base on acquisition.

This is why an independent, ATO-compliant valuation by a Certified Practising Valuer is required for inter-family transfers, related-party transactions, in-specie superannuation contributions, and deceased estate distributions.

Taxation Ruling TR 2017/D7 — 'Market valuation for tax purposes' — sets out the ATO's view on the principles, processes, and evidence required for a defensible market valuation. It emphasises an independent, suitably qualified valuer; the use of market value as defined by the International Valuation Standards; transparent methodology; and full documentation of comparable evidence and assumptions.

All Capital Gains Valuations reports are prepared in accordance with TR 2017/D7 and IVS, and are signed by a Certified Practising Valuer who is a full member of the Australian Property Institute.

Under Part IVC of the Taxation Administration Act 1953, a taxpayer may object to an assessment, including an amended assessment that changes the cost base, market value, or capital gain calculated for a CGT event. Objections must be lodged within the relevant time limit (generally 2 or 4 years).

A defensible market valuation prepared by a Certified Practising Valuer is often the central piece of evidence supporting a CGT objection, private ruling request, or AAT review.

A retrospective valuation (also called a historical or backdated valuation) determines what a property was worth on a specific past date — for example, the date of death, the date a former home first produced rental income, or 20 September 1985.

It is prepared using comparable sales evidence and market conditions that existed at the historical date, not today's market. Reports must follow the International Valuation Standards (IVS) and ATO market valuation guidelines (TR 2017/D7) to be defensible in audit, objection, or AAT proceedings.

A Certified Practising Valuer (CPV) holds the API's CPV designation, requiring a tertiary qualification in property, structured professional experience, and ongoing CPD. CPVs are bound by the API Code of Professional Conduct and the International Valuation Standards.

The ATO, courts, and the AAT routinely accept valuations signed by a CPV. Valuations signed by real estate agents, accountants, or unaccredited 'appraisers' do not meet the same evidentiary standard.

The Australian Property Institute (API) is the peak national body representing property professionals, including valuers, property analysts, fund managers, and consultants. The API administers the Certified Practising Valuer (CPV) accreditation, publishes professional practice standards, and enforces a Code of Professional Conduct.

API membership is the qualification the ATO, courts, and lenders look for when assessing whether a valuation is independent and defensible.

When a property passes to a beneficiary or executor under s128-15 ITAA 1997, the cost base depends on whether the deceased acquired the asset before or after 20 September 1985. For post-CGT assets, the beneficiary inherits the deceased's cost base; for pre-CGT assets, the cost base is the market value at the date of death.

Date-of-death valuations are also commonly required for probate, family-provision claims, equitable distribution between beneficiaries, and the two-year main-residence concession in s118-195.

Regulation 8.02B of the Superannuation Industry (Supervision) Regulations 1994 requires SMSF trustees to value fund assets at market value each financial year. ATO guidance for SMSFs and valuations of real property recommends an independent valuation by a qualified valuer where the property represents a significant proportion of fund assets, on acquisition, on in-specie contributions, and when commencing or commuting a pension.

Reports must be defensible to the SMSF auditor and prepared by a Certified Practising Valuer.

Market value is defined by the International Valuation Standards (IVS) as 'the estimated amount for which an asset or liability should exchange on the valuation date between a willing buyer and a willing seller in an arm's-length transaction, after proper marketing and where the parties had each acted knowledgeably, prudently and without compulsion.'

The ATO accepts the IVS market value definition for tax purposes. It is the standard applied by Capital Gains Valuations in every report.

Apportionment valuations are required where a CGT calculation depends on dividing a property's total value between components — for example, splitting land from improvements for pre-CGT main residences with post-CGT renovations, or apportioning between income-producing and main-residence use for partial exemption under s118-185.

The methodology and evidence must be transparent, defensible, and aligned with TR 2017/D7.