Retrospective valuations for capital gains tax, explained

The short answer

A retrospective valuation estimates what a property was worth on a date in the past, using the sales and market evidence available at that time. It is often needed for capital gains tax (CGT) when the tax rules look to a property's market value at a particular date rather than what was paid for it. Whether you need one, and at what date, is a tax question. Your accountant or the ATO should confirm that before you order a valuation.

What is a retrospective valuation?

Most valuations answer the question "what is this property worth today?" A retrospective valuation answers "what was it worth on a specific date?", which could be months or decades ago.

The valuer puts themselves in the position of a buyer and seller on that date. They look at:

• sales of comparable properties around that date
• the state of the market at the time
• the property as it was then, including its size, condition and improvements
• the planning controls and zoning that applied at the time

Anything that happened later, such as a renovation, a rezoning or a rise in the market, is set aside. The goal is a value that could have been reasonably supported on the date itself.

Common situations where one is needed

The CGT rules are detailed and change over time. The situations below are described in general terms only. They are examples of when a retrospective value often comes up, not a guide to how the rules apply to you.

A former home first used to produce income

People often live in a property and later rent it out. In some cases, the tax rules may look at the market value of the property at the time it was first used to produce income. If so, a valuation at that date may be needed, even if that date was years ago.

Property inherited from a deceased estate

When a property passes through a deceased estate, the CGT position of the beneficiary or the estate can depend on a number of things, including when the deceased acquired it and how it was used. In some cases the market value at the date of death becomes relevant. A retrospective valuation at the date of death can help. See deceased estate valuations for more.

Property bought before CGT started

CGT started on 20 September 1985. Property acquired before then is generally treated differently. However, major improvements made after that date can in some cases be treated separately for CGT purposes. Where that applies, a valuer may be asked to value the property, or the improvements, at particular dates. This can be complex, so get tax advice first.

Other situations

Retrospective values can also come up when property moves between entities, on a change of use, in family law matters, or in disputes about past transactions. Again, your accountant or lawyer will know whether a valuation is needed and at which date.

Why the date matters so much

The whole valuation hangs on the date. Before you book, make sure you know:

• the exact date your accountant or lawyer wants the value at
• why that date is relevant
• whether more than one date is needed

A valuation at the wrong date may be of no use at all. It is worth a quick check with your adviser.

How a valuer works back in time

Finding evidence from the time

The valuer searches for sales of comparable properties around the valuation date. For older dates, there may be fewer records, and the valuer may need to widen the search or rely more on general market trends.

Establishing what the property was like

The property may have changed a lot since the valuation date. You can help by providing:

• old photos, plans or building permits
• the contract of sale from when it was bought
• dates and details of renovations or extensions
• any older valuations, council rate notices or appraisals

The more the valuer knows about the property as it was, the better supported the value will be.

Inspecting today

Often the valuer will still inspect the property as it stands now, from the street or inside. This helps with land size, location and outlook, and with working out what has changed since.

Will the ATO accept it?

The ATO expects market valuations to be done by someone with appropriate qualifications and to be based on sound, objective evidence. A report from a qualified, independent valuer that clearly explains its evidence and reasoning is the best way to support the value you use.

Tom Nagy is a Certified Practising Valuer (CPV) with current registration with the Australian Property Institute. His reports are accepted by the ATO, the State Revenue Office and the courts. With more than 30 years in real estate and valuation, starting in Melbourne real estate in the 1980s, he has seen many market cycles first-hand, which helps when valuing at a past date.

What it costs

For residential CGT reporting, a kerbside valuation is often suitable, from $500 + GST. A full inspection is also from $500 + GST. Commercial and industrial property is valued with a long-form report from $975 + GST. Complex or older dates may take more work. Ask for a quote when you call. More detail is on the capital gains tax valuations page.

Talk to Tom

If your accountant has said you need a value at a past date, call Tom on 0407 835 388 or send an enquiry with the address, the date and the reason.

This guide is general information, not legal, tax or financial advice.