New CGT rules make 30 June 2027 asset values important
Changes to the capital gains tax (CGT) rules for individuals and trusts will make 30 June 2027 an important valuation date for assets held at that time.
The Government has passed legislation to replace the 50% CGT discount for individuals and trusts with cost base indexation from 1 July 2027.
For assets acquired before 1 July 2027 and sold after that date, transitional rules will apply. In many cases, taxpayers will need to establish the market value of affected assets just before 1 July 2027.
While there may be no immediate need to obtain a professional valuation, understanding which assets are affected and planning how their values will be established can help you prepare for the new rules.
How will the transitional rules work?
For an asset acquired before 1 July 2027 and disposed of after that date, an individual or trust will generally be deemed to have disposed of the asset at the end of 30 June 2027 and immediately reacquired it at the start of 1 July 2027 for the same amount.
This effectively divides the capital gain or loss into two periods.
The first period covers the time from acquisition to 30 June 2027. A capital gain arising during this period can generally benefit from the existing 50% CGT discount.
The second period runs from 1 July 2027 until the asset is ultimately disposed of. A capital gain arising during this period can generally benefit from indexation of the deemed reacquisition price.
Importantly, the gain or loss arising from the deemed disposal at 30 June 2027 is deferred until the asset is actually disposed of.
The transitional rules are intended to ensure that the part of an overall gain accrued up to 30 June 2027 is treated under the existing CGT discount rules, while the part accrued from 1 July 2027 is treated under the new indexation rules.
This makes the value attributed to an asset at 30 June 2027 a key part of the calculation.
How will you determine an asset’s value?
The default position is that the deemed disposal and reacquisition price will be the asset’s market value just before 1 July 2027.
Under Australia’s self-assessment tax system, taxpayers are responsible for determining the appropriate market value. The Australian Taxation Office may challenge that value if it takes a different view.
A professional valuation is not technically required in every case. However, where an asset is significant or a valuation could have a material impact on the eventual tax outcome, obtaining a valuation from a suitably qualified professional may provide stronger support for the position taken.
Importantly, you do not necessarily need to obtain the valuation around 30 June 2027.
A professional valuer could be engaged at a later date to determine the asset’s market value as at 30 June 2027, provided this is done by the time the relevant income tax return for the year of disposal is lodged.
There may, however, be reasons to establish the value earlier. For example, some taxpayers may need to understand the amount of a deferred capital gain when considering their eligibility for small business CGT concessions.
There can also be practical benefits to considering valuation requirements early, including identifying appropriate records and other information that may support a future valuation.
An alternative valuation method
The legislation also provides an alternative for certain assets that do not have an observable traded market price, such as the price available for listed shares.
Taxpayers may be able to choose to determine the deemed disposal and reacquisition price using a formula prescribed by a ministerial determination.
While the legislation has been passed, a draft ministerial determination has been released for consultation.
Under the draft method, the calculation considers the date the asset was acquired and the capital proceeds ultimately received when it is sold. It then calculates a value as at 30 June 2027 by assuming an equal daily compound growth rate over the period the asset was held.
The proposed method is intended to reduce the compliance burden associated with obtaining historical market valuations.
Depending on the final rules and your circumstances, it may be appropriate to compare the outcome under the prescribed method with a market valuation. This will require careful consideration once the ministerial determination is finalised.
What should you do now?
The changes do not mean every individual or trust needs to obtain valuations immediately. However, 30 June 2027 is now an important reference date for assets that may be sold under the new CGT regime.
Preparing early can help you identify which assets may be affected, what records should be retained and whether obtaining a professional valuation is likely to be appropriate.
The draft ministerial determination may also change before it is finalised, so it will be important to consider the final rules before deciding which valuation approach to use.
If you hold assets that may be affected, contact your Nexia advisor to discuss the new rules and start planning your valuation requirements ahead of 30 June 2027.
