PPOR to IP - do I need a valuation?

Hi all,

I'm converting a PPOR to IP and I'm comfortable with structure of loan etc. What I'd like to know is whether or not I need a valuation for the purposes of calculating the capital gains tax later on if/when I sell.

As I understand it, the capital gains will be assessed based on the increase between the time I convert the property to an IP, but can I use real estate appraisals for this purpose? OR do I need one from a licensed valuer?

Thanks in advance, Richard
 
I'm not an accountant but I assume it's best to get a full val carried out. You might be able to arrange a free one with your lender.

Cheers

Jamie
 
I take it you will not be intending to move back into the IP and turning it back into a PPOR, invoking the 6 year CGT exemption rule?

If that is the case, I would maybe try and kill 2 birds with the one stone then.......

1. Phone your bank and ask for their panel list of valuers, then contact one of those valuers and ask to get a fair open market valuation conducted. Then keep it on file for CGT purposes when you sell.

2. Depending upon CG identified with the valuation, use it and approach the bank for a loan equity top up.

I hope this helps,
 
Thanks for the responses guys. Looks like I will need to go down the valuation route. Anyone got one they can recommend for north east suburbs?

@Jamie - it was NAB. But I've had the same response from UBank (maybe because they're a subsidiary and have to play by the same rules). I thought that was pretty tight :rolleyes:
 
Thanks for the responses guys. Looks like I will need to go down the valuation route. Anyone got one they can recommend for north east suburbs?

And what should I expect to pay?

@Jamie - it was NAB. But I've had the same response from UBank (maybe because they're a subsidiary and have to play by the same rules). I thought that was pretty tight :rolleyes:
 
A formal valuation is NOT needed for tax purposes. Its an unnecessary cost. The taxpayer can use agent opinion or own research etc. Its wise to retain this information in writing and your view on the magic number with your tax records as in time you will forget.

Common question : If I get three agent opinions do I chose the highest or average ?? A : You can choose the highest if you wish if you consider if represents a reasonable market value at the time it ceases to be your PPOR.

Of course all CGT costs prior to that date are then ignored.
 
A formal valuation is NOT needed for tax purposes. Its an unnecessary cost. The taxpayer can use agent opinion or own research etc. Its wise to retain this information in writing and your view on the magic number with your tax records as in time you will forget.

Thanks Paul. Is there anything documented in black & white from the ATO one could use in defence should the ATO at some time ever dispute this or is this another of the ATO's grey areas?
 
Thanks for the responses guys. Looks like I will need to go down the valuation route. Anyone got one they can recommend for north east suburbs?

And what should I expect to pay?

@Jamie - it was NAB. But I've had the same response from UBank (maybe because they're a subsidiary and have to play by the same rules). I thought that was pretty tight :rolleyes:

So what you are saying is that its tight for the lender to pay for the valuation for your own personal use but not tight for you to pay for the valuation yourself since it has nothing to do with the lender and finance
 
So what you are saying is that its tight for the lender to pay for the valuation for your own personal use but not tight for you to pay for the valuation yourself since it has nothing to do with the lender and finance

What I'm saying is that they've already done the valuation. Sharing it with me costs them nothing and benefits me.

If I had already got a valuation done and the lender was happy to use it, I'd happily share it with them.

:confused:
 
Thanks Paul. Is there anything documented in black & white from the ATO one could use in defence should the ATO at some time ever dispute this or is this another of the ATO's grey areas?

Sometimes a formal valuation is needed (eg a May12 non-resident property valuation). However in general CGT matters tax law doesn't say that a qualified valuation is needed. The taxpayer may be obliged by tax law to determine what the market value is and can reasonably use whatever means they feel is reasonable. There is a link to a guide below that explains how to approach this problem.

Of course you want to be able to support this opinion with facts. Keep the RP data, agent opinion etc. Just plucking the number from thin air wont be acceptable. Written evidence would be expected. Bear in mind that a DIY valuation is less reliable than one from a qualified opinion and prone to be rejected (See the link below for that gem from the ATO !). So if you undertake this approach keep diligent and detailed records where a single page from an agent may suffice.

The ATO has a very good view on this approach hidden in their employee share scheme pages...It considers all the issues with different valuation methodologies and discusses that concepts noted above. It comes down to objective evidence by an unqualified person.
https://www.ato.gov.au/General/Empl...rket-value/Market-valuation-for-tax-purposes/

Read Part A.
 
Sometimes a formal valuation is needed (eg a May12 non-resident property valuation). However in general CGT matters tax law doesn't say that a qualified valuation is needed. The taxpayer may be obliged by tax law to determine what the market value is and can reasonably use whatever means they feel is reasonable. There is a link to a guide below that explains how to approach this problem.

Of course you want to be able to support this opinion with facts. Keep the RP data, agent opinion etc. Just plucking the number from thin air wont be acceptable. Written evidence would be expected. Bear in mind that a DIY valuation is less reliable than one from a qualified opinion and prone to be rejected (See the link below for that gem from the ATO !). So if you undertake this approach keep diligent and detailed records where a single page from an agent may suffice.

The ATO has a very good view on this approach hidden in their employee share scheme pages...It considers all the issues with different valuation methodologies and discusses that concepts noted above. It comes down to objective evidence by an unqualified person.
https://www.ato.gov.au/General/Empl...rket-value/Market-valuation-for-tax-purposes/

Read Part A.

Thanks Paul. That explains it well.
 
I thought you didn't need a valuation on changeover, and that CGT would be calculated on sale vs buy price, and apportioned pro rata to the periods it was an IP vs PPOR.

Is this not correct?
 
There are 2 different treatments depending whether the property was a main residence first or a rental first.

If main residence then valuation at date it first becomes income producing is important.

If rented first then no valuation is needed as it will be worked out on a time basis.
 
There are 2 different treatments depending whether the property was a main residence first or a rental first.

If main residence then valuation at date it first becomes income producing is important.

If rented first then no valuation is needed as it will be worked out on a time basis.

So what happens in the event you didn't organise a valuation? How do they assess this? For example purchased in 1970 as PPR and lived in it until 2012 and then becomes IP.
So firstly how would they assess the valuation at that point if you had not?
Secondly what happens if when you turned it IP you completed a bunch of renovations to add to the cost base? Again if no quantity surveyor was brought in, how do the ATO assess this?
 
So what happens in the event you didn't organise a valuation? How do they assess this? For example purchased in 1970 as PPR and lived in it until 2012 and then becomes IP.
So firstly how would they assess the valuation at that point if you had not?
Secondly what happens if when you turned it IP you completed a bunch of renovations to add to the cost base? Again if no quantity surveyor was brought in, how do the ATO assess this?

1. You would need to seek expert valuation opinion to comply with tax law obligations to determine the value. This is explained in the ATO document I uploaded. The taxpayer who doesn't self-assess may need to then seek expert opinion. That cost would be deductible. BTW The 1970 property example is pre-CGT so its a no-brainer. No valuation is needed. :D
2. Remember its self assessment. If they disagreed with you they might choose another value and amend. You then have to prove they were wrong. So lets return to point 1.
3. Cost applies if you are the owner. A QS wont increase any deduction in this example other than maximising the deduction claim. All CGT costs after (its an IP) add to that value as the first element of the cost base.

All these issues are taxpayers self-assessment problems and would likely affect final CGT being overpaid perhaps. Good reason to keep diligent CGT records for all properties. Its the tax deduction that is often overlooked.
 
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