The sting in the tax tail of property CGT changes

Investors can establish that position in different ways: a property-specific valuation or the ATO’s apportionment method. Importantly, those approaches may not produce the same result.

The ATO method applies a standard formula across the period an investor has owned the property. But property markets do not move in straight lines. Values can rise sharply for several years, flatten, decline and then recover. Renovations, redevelopment and changes in the surrounding market can also materially affect an individual property.

If most of a property’s growth occurred before July 2027 and conditions subsequently flatten, a standardised calculation may not reflect that history. A valuation provides evidence of the property’s actual market value at that point in time, rather than relying on an assumed pattern of growth.

The standardised calculation could result in a significantly different tax outcome than using a property-specific valuation. For some investors, the financial consequence could be substantial.

In one scenario modelled by Opteon, the owner of a Hawthorn investment property was estimated to be more than $22,000 better off on their CGT bill by using an independent valuation rather than relying solely on the proposed apportionment method.

That does not mean a valuation will always produce a lower tax outcome. It does show why investors should not assume that the simplest calculation will necessarily be the most appropriate for their property.

Property values don’t grow evenly year to year, which is particularly important in a volatile market, with significant differences by property type and location. Since the announcement of these CGT changes, we have seen real variation in valuation movements.

Over the past year, Melbourne has been among the softer capital-city markets; Sydney has also weakened, while Perth has remained one of the country's strongest markets, and regional markets have generally been more resilient than the capitals.

These are not minor differences. They show why broad market averages can only tell part of the story. Investors need to understand movements in a particular suburb or an individual property.

To consider the CGT implications, the question should not simply be ‘what happened to Australian property prices over the period I owned the asset?’ It should be ‘what precisely has happened to my property?’

Investors are already beginning to ask that question. We’ve seen valuation enquiries jump by a third in July, well before the changes take effect. Investors are recognising that July 2027 is not simply a future tax date they can ignore until they eventually sell.

Smart investors have realised it is worth gathering information now, particularly where a property has undergone major renovations, experienced substantial growth or sits in a market that has behaved very differently from the national average.

At the same time, this is not a reason to panic or make rushed decisions.

Property is a long-term and relatively illiquid asset. Transaction costs are high, leases and notice periods take time, and selling because of a headline or assumption can create consequences of its own.

Investors should consider three practical things now to use the preparation time over the next 10 months before the changes take effect.

First, understand the property's history. When did it experience its strongest growth? Have renovations or improvements materially changed its value? How has its local market performed compared with the broader market?

Second, understand the different methods available before choosing one. Investors should not assume that one approach will deliver the same outcome for every property.

Third, make sure you can establish the relevant evidence when needed. The further back you have to reconstruct the condition and value of a property, the more difficult that exercise can become.

As we get closer to July 2027, there will inevitably be more discussion about valuation demand and whether the industry can handle it. As the ATO advises, valuations must be objective, evidence-backed and “valuations undertaken by professional valuers are more credible”.

Investors should prioritise understanding what their property is worth, how the rules may apply to their circumstances, and what information they may need before deciding.

The biggest mistake would be assuming that because the ATO provides a standard calculation, the outcome will be standard too.

Every property has its own history. Investors should make sure the approach they ultimately use reflects it.

Scott Chapman is Opteon's Australia and New Zealand managing director.