Posted on Wednesday, October 25th, 2017 in by Matt Garmony
The licensed property valuers at Garmony Property Consultants undertake numerous Taxation Valuations on real property for taxation purposes including Capital Gains Tax or CGT. Your family home or principal place of residence is generally exempt from tax. But investment properties or if you build or renovate for profit, subdivide land or use property in running a business, then there may be implications for Income Tax, Capital Gains Tax and Goods and Services Tax for your real property assets. You may need a Taxation Valuation.
When a capital asset such as real estate is sold, it generally makes a capital gain or loss. Capital gains and capital losses need to be reported in your income tax return and paying tax on your capital gains is a requirement of the Australian Taxation Office (ATO).This is referred to as Capital Gains Tax (CGT) and forms part of your income tax assessment. Capital Gains Tax started on 22 September 1985 and all assets acquired since this date, unless the Capital Gains Tax is specifically excluded such as your family home, car and personal use assets, is subject to Capital Gains Tax.
Transactions that are subject to Capital Gains Tax are, but not limited to, inheriting property, deceased estates, residential rental properties where it is not your principal place of residence, vacant land and subdividing and amalgamating land, may be subject to Capital Gains Tax depending on the circumstances. If you subdivide a block of land such as the land on which you live and sell the newly created vacant lot, any profit is generally treated as a capital gain and is subject to Capital Gains Tax. A Capital Gains Tax or taxation valuation will be required to determine the portion of capital gain applicable to the portion of the asset which is sold.
Capital Gains Tax on subdivided land.
If you subdivide land, each lot that is created is registered with the separate Certificate of Title. Subdividing the land doesn’t in itself result in Capital Gains Tax event if you retain ownership of the subdivided blocks, meaning you don’t make a capital gain or a capital loss at the time of subdivision. You make a capital gain or capital loss only when you sell the subdivided blocks. For the purpose of working out your capital gain or capital loss, the date you acquire the subdivided lot, is the date you acquire the original parcel of land and the cost base of the original land is divided between the subdivided lots on a proportionate basis. A taxation valuation will determine the cost base.
In circumstances where the original home is retained and the rear lot is subdivided off and sold, then it is important to get a taxation valuation on the land parcel at the date it was acquired (Retrospective Valuation) apportioning the market value between a land component and the added value of the improvements component to determine the capital gain on the portion of land for the rear lot if it is sold.
The licensed valuers at Garmony Property Consultants have extensive knowledge and experience in valuing properties for taxation purpose. Their taxation valuation reports meet the Australian Taxation Office (ATO) and Australian Property Institute (API) guidelines and are undertaken by a Certified Practising and Licensed Valuers. Our taxation valuation reports demonstrate the valuation process in accordance with the valuation industry practices, API and requirements of the ATO. There are generally three methods of valuation that can be utilised in taxation valuations including the direct comparison approach, the summation or depreciated replacement cost approach and if the property is income producing, the income based or capitalisation approach. The valuation reports assess the “market value” of the subject property based on its highest and best use. The concept of “highest and best use” takes into account any potential for the use that is higher than the current use in all valuations including taxation valuations.
So if you’re looking to undertake a subdivision of your residential home, have a residential home that has since become an investment property or vice versa then we recommend you contact the Licensed Valuers at Garmony Property Consultants in Perth along with your accountant to determine the valuation requirements for the taxation purpose applicable to your real estate asset. Please use our contact us or valuation quote page to obtain a quote for your taxation valuation by clicking here.