Independent Property Valuations are market value assessments prepared by a qualified valuer. Investors most commonly need one for three purposes: capital gains tax, self-managed super fund reporting, and certain stamp duty matters. In each case the figure may need to be supported with objective evidence, whether for the Australian Taxation Office, a state or territory revenue office, or your fund’s auditor. A bank valuation or an online estimate is not prepared for those purposes. Which situation applies to you depends on your circumstances, so it is worth confirming with your accountant before you order a report.
What is an independent Property Valuation?
An independent Property Valuation is an assessment of the amount a property should exchange for between a willing buyer and a willing seller in an arm’s length transaction, after proper marketing, with both parties acting knowledgeably, prudently and without compulsion. That is an accepted definition in the valuation profession. The valuer analyses comparable sales and considers aspects such as location, size and current market conditions, then sets out a considered figure and the reasoning behind it in a valuation report. Depending on the purpose and the information available, a valuation may be undertaken as an assessment prepared by a valuer, drawing on property data and supplied information, or may involve an inspection.
The word independent matters here. It means the person producing the figure is not the buyer, not the seller and not the lender, and that the figure is the product of a valuer’s judgement rather than an automated calculation.
In Australia, Property Valuations are prepared by qualified valuers. Certified Practising Valuer (CPV) is the professional designation held by valuers accredited through the Australian Property Institute (API), and separate registration or licensing requirements apply in some states and territories. When you engage a property valuation company, it is reasonable to ask who will prepare the report and what they are qualified to do.
How is an independent valuation different from your bank’s figure?
This is where many investors become confused, so it is worth being clear about it.
When you borrow against a property, your lender will usually order its own valuation, though at lower loan to value ratios it may not need one. That report is prepared for the lender’s mortgage security purposes rather than for tax, superannuation or duty requirements. Duty here means transfer duty, still widely called stamp duty, which a state or territory revenue office assesses when property changes hands. The lender’s figure is not wrong, it is simply answering a different question.
An online estimate answers a different question again. It is generated automatically from property data, with no valuer’s judgement applied to the particular property, and that is what separates it from an assessment prepared by a valuer. It is useful as a broad indication of market conditions, but not as evidence of market value.
Neither the lender’s valuation nor an online estimate will usually provide the objective evidence a TDA valuation is prepared to give, the kind of evidence the ATO, a revenue office or an SMSF auditor expects to see for tax, super or duty purposes.
It works the other way too. A valuation prepared for tax, super or duty purposes is prepared for that stated purpose, and is not intended to be relied on for mortgage or lending purposes. If you refinanced last year and think you already have a valuation you can use for this year’s capital gains calculation or your fund’s accounts, it is worth checking with your accountant first.
When do you need a valuation for Capital Gains Tax?
Capital gains tax applies to the profit you make when you sell or otherwise dispose of an investment property. That profit is the difference between what you received and the property’s cost base. In most cases both figures are actual amounts, so no valuation is involved. A valuation is needed where a market value has to be used in place of an actual price.
A CGT valuation establishes that market value. TDA prepares the valuation. Your accountant applies it to your capital gains calculation and advises you on your tax position.
The most common example is a property that was once your home and later became a rental. Where the home first used to produce income rule applies, you are treated as having acquired the property at its market value on the date it first started producing income, and the ATO’s guidance is that you need a market valuation as at that date. Several conditions have to be met, and the rule does not apply where a property produced income from the time you bought it, so whether it applies to you is a question for your accountant. Where it does apply, you need a retrospective valuation, because the relevant date has already passed.
The ATO sets out the rule and its conditions in its guidance on using your home for rental or business.
Does an SMSF need an independent Property Valuation?
If your self-managed super fund holds property, then when the fund’s accounts and statements are prepared each income year, its assets must be reported at market value. That requirement sits in regulation 8.02B of the Superannuation Industry (Supervision) Regulations 1994.
Reporting at market value every year does not automatically mean commissioning a formal external valuation every year. The ATO’s guidelines confirm that regulation 8.02B does not require trustees to obtain an independent valuation annually, so long as they hold objective and supportable evidence for the value reported and can explain how they arrived at it.
Many trustees still choose an independent valuation for property, because it is usually the fund’s largest asset and the hardest to value from data alone. The ATO’s guidance is that an external valuation may be prudent where a previous valuation may now be materially inaccurate, or where a significant event has occurred since the property was last valued. The ATO also lists commencing a retirement phase pension among the events where fund assets need to be valued, because that value counts towards the member’s transfer balance cap.
Our guide to SMSF property valuations covers what an auditor will typically ask to see. Your accountant or SMSF adviser can confirm what your fund needs this year.
Do you need a valuation to pay stamp duty?
For a standard purchase through a real estate agent, stamp duty is usually assessed on the contract price. Where the stated price may not reflect what the property is worth, duty may instead be assessed on the higher of the price paid or the market value.
A stamp duty valuation establishes that market value. It may be needed where a transfer is not at arm’s length, which includes transfers between related parties, transfers made without payment, transfers into a trust or super fund, and private sales without an agent.
Duty is administered separately by each state and territory, and the rules, rates, concessions and evidence requirements differ. We can prepare the market value report. Your solicitor or accountant can confirm the duty treatment and lodgement requirements for your transfer.
Current or retrospective: which valuation date do you need?
Every valuation is prepared as at a particular date, and choosing the right one matters as much as choosing the right report.
A current market assessment gives the property’s value as at today, based on recent comparable sales and prevailing market conditions. It is also the more common report, used whenever you need to know what a property is worth now. SMSF reporting generally calls for a current figure, commonly as at 30 June of the relevant financial year. A stamp duty valuation follows the same current-date logic when the transfer is happening now, because the valuation date needs to match the date the transfer takes place.
A retrospective valuation gives the property’s value as of a specified date in time that has already passed, such as the date a former home first became income-producing, or the date of an earlier transfer. Our valuers assess the property against the sales evidence and market conditions that applied as of that date. The valuations we prepare are as at a current or a past date, not a future one.
If you are unsure which date applies, ask your accountant before ordering.
What does a valuation report contain?
A valuation report is prepared to be read and tested by someone other than you, so it sets out more than a number. Alongside the assessed market value it records the property and the interest valued, the date of valuation, the purpose it was prepared for, the comparable sales relied on, the methodology applied, and the assumptions attached to it. That is what allows an accountant, auditor or revenue office to follow the reasoning rather than simply accept the figure.
If you would like to see how one is set out, you can view a sample valuation report.
Which valuation do you need?
| Your situation | Valuation type | Which date matters |
|---|---|---|
| A CGT calculation where a market value is required | CGT valuation | Depends on which date the rule points to |
| A former home that became a rental | CGT valuation, retrospective | The date it first produced income, if that rule applies |
| Reporting fund property in an SMSF | SMSF valuation | Current market value, commonly as at 30 June |
| Transferring property between related parties | Stamp duty valuation | Date of transfer |
| Transferring property without payment, or into a trust | Stamp duty valuation | Date of transfer |
| You need a value as of an earlier date | Retrospective valuation | The specified past date |
The right report depends on why you need the valuation and which date applies. Both are questions worth putting to your accountant, adviser or solicitor before you order.
Valuations and depreciation often come up together
Investors frequently need both, and often at the same points in the property cycle. A property purchase can call for a depreciation schedule to establish what is claimable, and a sale can call for a valuation to establish market value for a capital gains calculation. Because TDA prepares both, the two can be handled together rather than chased separately.
Our guide to Division 40 and Division 43 deductions sets out what each covers.
Talk to TDA Valuations
TDA prepares independent Property Valuations for capital gains tax, self-managed super funds and stamp duty, on residential and commercial property, Australia-wide. Our reports are prepared by Certified Practising Valuers who are members of the Australian Property Institute, registered or licensed where required. If you are unsure which valuation is appropriate, we can explain the different report types. Your accountant, adviser or solicitor should confirm which one your circumstances require.
For a complimentary valuation quote, visit tdaqs.com.au/tda-valuations or call 1300 417 317.
This article is general information only and does not take your personal circumstances into account. It is not tax, financial or legal advice. For advice specific to your situation, speak with your accountant, adviser or solicitor.
