For property investors, 1 July 2027 is shaping up to be one of the most important tax dates in decades.
That is when Australia's capital gains tax (CGT) system undergoes a fundamental change. The familiar 50% CGT discount will largely disappear for gains accruing from that date, replaced by indexation of the cost base for inflation and a minimum 30% tax rate on real capital gains.
See also: Understanding CGT and the 50% discount for property investors
Importantly, the government has designed the reforms so that gains accumulated before 1 July 2027 retain the benefit of the existing rules. That sounds reassuring, but it creates a very practical problem.
If you bought an investment property years ago and sold it sometime after 1 July 2027, how do you determine how much of your profit arose before the change and how much arose afterwards?
The answer could come down to what your property was worth on 1 July 2027.
And that is why I believe property investors should be putting valuations on their 2027 tax planning checklist now.
Why 1 July 2027 matters
Under the transitional rules, an affected asset held across 1 July 2027 is effectively divided into two periods.
The gain accumulated before the change remains within the old CGT regime, including the existing 50% discount where the requirements are satisfied. Growth after that date falls into the new regime, under which inflation is recognised through indexation and a minimum 30% tax rate can apply.
The legislation achieves this through a deemed disposal and reacquisition around the transition date, with the tax consequences effectively deferred until the property is eventually sold.
For a property bought for $500,000 several years ago and worth $800,000 at 1 July 2027, for example, that $800,000 value could become extremely important when the property is ultimately sold.
If it is later sold for $1 million, the tax system needs a mechanism for distinguishing the gain accumulated before July 2027 from the gain accumulated afterwards.
That makes the transition-date value potentially worth thousands, or even tens of thousands, of dollars in future tax.
See also: How to reduce CGT when selling an investment property
Does everybody actually need a valuation?
Strictly speaking, no.
This is an important point because I expect there will be claims over the next year that every investor must rush out and obtain a valuation on 30 June 2027. That isn't what the rules say.
Under the transitional arrangements, taxpayers will be able to determine the 1 July 2027 value by obtaining a market valuation or by using a prescribed apportionment method which estimates the transition value based on growth over the asset's holding period.
The choice generally does not have to be made until the asset is eventually realised.
So there isn't a legal requirement for every landlord in Australia to have a valuer standing on the doorstep on 1 July 2027. But there is a big difference between saying a valuation isn't compulsory and saying it isn't worth getting.
For many investors, I think obtaining one will be sensible.
The danger of relying on a formula
Property prices rarely rise in a smooth, straight line.
An investor might have owned a property for 15 years during which prices barely moved for the first five years, surged over the next five and then flattened again. Another property could have experienced the reverse.
An apportionment formula based on growth over the holding period may not perfectly reflect what actually happened to a particular property. That matters because the 1 July 2027 figure determines where value is allocated between the old and new tax regimes.
A professional valuation gives an investor evidence of what their actual property was worth at the transition point, taking account of the property itself and the market conditions at that time.
Whether that produces a better tax outcome than the prescribed formula will depend on the individual property.
Investors shouldn't assume that a valuation will automatically reduce their tax liability.
But having the valuation means you preserve the option. That, to me, is the key point.
You might not sell the property until 2035 or 2045. By then, trying to reconstruct precisely what it was worth on 1 July 2027 could be considerably harder.
You don't need the report on 1 July
When do you really need to have a valuation carried out?
There is another misconception worth clearing up. The valuation does not necessarily have to be physically carried out on 1 July 2027.
A valuation can be prepared later on a retrospective basis, provided it establishes the property's market value at the relevant transition date. But the further away you get from 2027, the greater the potential difficulty in assembling good contemporaneous evidence.
The Australian Property Institute has already encouraged affected property owners to consider obtaining professional valuation evidence close to the transition date, pointing out that a contemporaneous valuation is likely to be more reliable and defensible than one reconstructed years later.
Think about what might change in the meantime. The property could be renovated, extended or redeveloped. The neighbourhood could change. Comparable properties used as valuation evidence may themselves be substantially altered. Records and photographs can disappear.
Trying to establish a property's condition and value in 2027 when you are sitting in an accountant's office in 2042 is not an attractive prospect.
Don't confuse an appraisal with a valuation
Investors should also be careful about what they obtain. The estimated value displayed on a property website is not the same thing as an independent valuation prepared for tax purposes. Nor would I want to rely solely on an informal real estate agent's appraisal where a substantial future tax liability is at stake.
The Australian Property Institute distinguishes professional valuation reports from desktop estimates and automated valuation models.
If you are going to spend money documenting the 1 July 2027 value, get advice on the appropriate form of valuation and make sure the supporting report is retained with your permanent CGT records.
This isn't paperwork you want disappearing after five years. You may need it decades later.
What about the family home?
For most homeowners, there is no reason to panic.
The existing main residence exemption continues, so a home that remains fully covered by that exemption isn't suddenly going to become taxable simply because the CGT rules change in 2027. But the position becomes more interesting where a property has mixed or changing uses.
A former home that has become a rental property, a property that is only partly covered by the main residence exemption, a holiday home, or premises with both private and income-producing use can all warrant closer attention.
In those situations, investors should talk to their tax adviser before 1 July 2027 about whether additional valuation evidence should be retained.
New properties get special treatment
There is also an important concession designed to encourage new housing supply.
Investors in qualifying new builds will be able to choose between retaining the existing 50% CGT discount and moving into the new indexation and minimum-tax arrangements when they sell. Qualifying affordable housing also retains its existing enhanced CGT discount.
That means the tax consequences of buying a new property could be materially different from buying an established one – particularly when considered alongside the separate changes restricting negative gearing on certain established residential properties.
Tax should never be the only reason for choosing one investment over another, but from 2027 it will become an increasingly important part of the numbers.
What investors should do now
There is no need to rush out and order a valuation today. Indeed, a valuation obtained now isn't the figure the transitional CGT rules are looking for. The important value is the property's market value at the transition date.
What investors should do now is make sure their records are in order.
- Locate the original purchase contract and settlement statement.
- Keep records of stamp duty, legal costs, and eligible acquisition expenses.
- Make sure you have invoices for renovations, extensions and capital improvements.
- Retain photographs and records showing the condition of the property.
Then, as 1 July 2027 approaches, speak to your accountant or tax adviser about whether obtaining an independent valuation is appropriate.
For an investor with one property, the cost and administration may be relatively modest. For somebody with a portfolio of five, 10 or 20 properties, planning ahead becomes much more important.
The biggest mistake would be to ignore the issue because you aren't planning to sell.
CGT is often a very long-term tax. The decisions and records that determine the eventual liability can date back decades.
The irony of the 2027 reforms is that investors won't necessarily have to determine their transition value until they eventually sell. But by then, the best evidence may have disappeared.
So while not every property investor will technically be required to obtain a valuation in 2027, many should seriously consider doing so.
A valuation prepared around 1 July 2027 might sit untouched in your records for years. But when the day finally comes to sell, it could turn out to be one of the most valuable pieces of paper in the file.
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