Glenn Waldock | Director
Why you should start planning now
Over the next 6-12 months, we expect many business owners and investors to undertake a review of their existing asset holdings to determine whether valuations should be obtained before 1 July 2027.
The Federal Government's capital gains tax (CGT) reforms are now scheduled to commence from 1 July 2027 and represent the most significant change to Australia's CGT system since its introduction in 1985. The first stage of the reforms are now law. We will continue to monitor ATO guidance and future amendments that may affect this new regime.
While there is no need for panic or rushed restructuring, business owners, investors, farmers and property owners should begin preparing well before 30 June 2027.
What is Changing?
For individuals, trusts and partnerships, the current 50% CGT discount will generally be replaced with:
· Cost base indexation for gains accruing after 1 July 2027; and
· A new minimum 30% tax framework on certain capital gains.
Importantly, the changes are not intended to retrospectively tax historical capital growth.
For assets owned before 1 July 2027 and sold after that date:
· Gains accrued up to 30 June 2027 will generally continue to receive the existing CGT treatment (eg the 50% discount if eligible).
· Gains accrued from 1 July 2027 onwards will be taxed under the new rules.
This means a future sale may require the gain to be split into two separate periods.
Why Asset Valuations Will Become Important
Under the transitional rules, the market value of many assets at 1 July 2027 will become a critical reference point for future CGT calculations.
Assets potentially affected include:
· Commercial properties
· Investment properties
· Farms and rural land
· Business premises
· Goodwill
· Private company shares
· Other investment assets
For many taxpayers, obtaining a defensible market valuation at 1 July 2027 may provide the most accurate method of determining how much gain relates to the pre-2027 period and how much relates to the post-2027 period.
The Prescribed Formula Method
Instead of obtaining a formal market valuation at 1 July 2027, an eligible taxpayer may be able to use the prescribed formula to divide a later capital gain between the periods before and after that date. The method uses the asset’s original cost base, sale proceeds and ownership period, and effectively assumes growth occurred progressively over time rather than measuring the asset’s actual value at 1 July 2027.
This can be a disadvantage where most of the asset’s growth occurred before 1 July 2027. In that case, the formula may allocate too much of the gain to the post-1 July 2027 period, where the new CGT rules apply.
The better method will depend on the asset’s actual growth pattern and available records. A valuation prepared close to 1 July 2027 may provide stronger evidence and preserve the ability to compare outcomes when the asset is eventually sold.
When Should Valuations Be Obtained?
Although the valuation date is 1 July 2027, waiting several years before attempting to reconstruct that value could create difficulties.
Industry bodies and property valuation professionals have noted that values established close to the valuation date are generally more reliable and easier to substantiate than retrospective valuations prepared many years later.
Accordingly, clients should consider:
· Identifying affected assets during 2026 and early 2027.
· Discussing valuation requirements with their adviser before 30 June 2027.
· Obtaining valuations as close as practical to 1 July 2027 where appropriate.
What Does the ATO Expect?
The ATO has consistently stated that valuations should be based on objective market evidence and supported by appropriate documentation.
Where a valuation is required, the ATO generally expects that the person undertaking the valuation:
· Has appropriate expertise regarding the asset being valued.
· Uses recognised valuation methodologies.
· Maintains documentation supporting the assumptions and calculations adopted.
· Can demonstrate how the market value was determined.
Who Should Value Property?
For investment and business properties, the safest approach will often be to engage an appropriately qualified property valuer, particularly where the asset has significant value or where the future tax consequences may be substantial.
A comprehensive valuation report prepared by Certified Practising Valuers (CPVs) or Registered Valuers provide the strongest evidentiary support for tax purposes.
Desktop estimates, online property reports and informal appraisals are certainly an option, but may not provide the same level of protection should the valuation later be reviewed by the ATO.
What About Business Assets?
Business owners should not overlook assets that can be more difficult to value, including:
· Goodwill
· Private company shares
· Units in Unit trusts
· Farming enterprises
· Professional practices
Our experience is that the earlier the process begins, the easier it is to gather the supporting evidence required to defend a valuation many years into the future.
Exemptions
There are certain exemptions to the minimum 30% rate. Eg new residential dwellings, age pension/jobseeker recipients.
How We Can Help
Over the next 6-12 months, we expect many business owners and investors to undertake a review of their existing asset holdings to determine whether valuations should be obtained before 1 July 2027.
We can assist by:
· Identifying assets potentially affected by the new CGT rules.
· Reviewing alternative valuation and apportionment methods.
· Assisting with business, goodwill and private company share valuations.
· Modelling the potential tax outcomes under the current and proposed rules.
· Reviewing ownership structures to potentially better cater for the new regime.
If you own investment property, business assets, farms, or interests in private entities, now is an appropriate time to begin planning.
Please contact us to discuss further.