Part 8 of Nexia’s series on the new capital gains tax (CGT) reforms and the proposed 30% minimum tax on trustees of discretionary trusts explains why the CGT changes make 1 July 2027 an important date for investment property portfolios for investors and family groups.
For many individuals and family groups, property is a significant part of their wealth. With significant changes to the capital gains tax (CGT) rules taking effect from 1 July 2027 for individuals, trusts or partners in partnerships, we are increasingly hearing some very practical questions:
Do I need to value my properties? When should I do it? And what do I need to have in place before 1 July 2027?
These are important questions, particularly for investors with multiple properties and no immediate intention to sell.
Why does 1 July 2027 matter?
Under the new CGT rules, gains accruing up to 30 June 2027 by an individual, trust or partner in a partnership will generally retain their existing treatment, including access to the 50% CGT discount where eligible. (Company taxpayers currently do not get any reduction in CGT payable by the 50% discount and are not impacted by the above rule)
Gains accruing from 1 July 2027 will be subject to the new regime, including an inflation-adjusted cost base and a 30% minimum income tax rate, subject to relevant exceptions.
For assets already held at 1 July 2027, the rules may effectively split the capital gain between the period before and after that date. Establishing the property’s market value at 1 July 2027 may therefore be important in determining how much of a future gain falls under the existing rules and how much falls under the new rules.
This makes establishing appropriate evidence of an investment property’s value at 1 July 2027 potentially important, even if you plan to hold the property for another 10 or 20 years.
The issue is not necessarily about selling before the rules change. It is about preserving the information and evidence that may give you greater flexibility when the property is ultimately sold, transferred or restructured.
What about pre-CGT assets?
Assets purchased before 20 September 1985 will continue to be exempt from capital gains tax accrued before 1 July 2027. Gains accruing after 1 July 2027 in relation to pre-CGT assets are now subject to the new regime, including inflation-adjusted cost base and a 30% minimum income tax rate.
Are there any exceptions?
Investors in new residential dwellings can choose between the new arrangements (inflation-based cost base and minimum tax) or the existing 50% CGT discount. Affordable housing concessions, such as the 60% discount, are retained.
The main residence exemption remains unchanged, so an eligible main residence will continue to benefit from the existing CGT exemption.
Do I need a property valuation before 1 July 2027?
For most property investors, the answer is no. A valuation cannot determine a future market value. This doesn’t require a taxpayer to have a valuation in place on 1 July 2027, and a taxpayer shouldn’t obtain a valuation before 1 July 2027, as a valuation can’t be forward-looking.
Therefore, you do not need to have a formal valuation completed on 1 July 2027.
However, you may ultimately need to establish the property’s market value at that date when calculating a future capital gain or loss.
The ATO has also indicated that an alternative apportionment method may be available instead of establishing market value at 1 July 2027. Further details are still being developed, so the appropriate approach should be considered once the final guidance is available.
However, waiting many years to reconstruct what a property was worth at 1 July 2027 could create unnecessary difficulty. The ATO’s market valuation guidance requires a valuation to be based on the most relevant and reliable information known, or reasonably foreseeable, at the valuation date. As time passes, assembling that evidence retrospectively may become more difficult and potentially more expensive.
This creates an opportunity to plan rather than rush.
Consider the properties across your portfolio, how long you expect to retain them and whether you anticipate any sale, transfer, restructuring or succession event. Where a valuation is appropriate, consider what level of supporting documentation is required and whether an independent property valuation would strengthen your position.
A valuation is only part of the picture
For high net-worth families the reform also provides an opportunity to look beyond individual properties.
How are your properties held? Are they personally owned, held through trusts, companies or other structures? Do those structures still support your investment, asset protection, succession and intergenerational wealth objectives?
The tax reform agenda extends beyond CGT. Nexia’s current tax reform series also highlights proposed changes affecting discretionary trusts and investment structures, making a broader review particularly relevant for family groups with substantial investment portfolios.
For some families, the more important question may therefore be not simply ‘what is my property worth at 1 July 2027?’, but ‘is my existing ownership structure still appropriate under the new tax settings?’
How Nexia can help
If you have a property portfolio now is an ideal time to identify the assets potentially affected, review ownership structures and determine where 1 July 2027 valuation evidence may be important.
The objective is not to make rushed decisions because tax rules are changing. It is to ensure that when the time comes to sell, transfer or restructure a property, you have preserved your options.
Early planning gives you time to understand the impact of the reforms, preserve the necessary evidence and consider any ownership or succession changes in the context of your broader family wealth strategy.
Speak with your local Nexia Advisor to review your current arrangements and determine whether your investment portfolio remains fit for purpose under the new CGT rulings.
Important: This article is based on legislation and draft rules as proposed at the time of writing. Future government policy, legislation and the outcome of the next Federal Election may result in changes. The information provided is general in nature and should not be relied upon as a substitute for professional advice. Please seek advice tailored to your individual circumstances.
