Understand why the transition value matters
From 1 July 2027, the 50% CGT discount for individuals and trusts will generally be replaced by cost-base indexation for gains accruing after the transition. Eligible gains accumulated before then retain their existing treatment.
For eligible assets, the rules provide for a deemed sale and reacquisition at the transition. This does not mean you pay tax immediately: the relevant gain or loss is generally deferred until you eventually sell the asset or another CGT event occurs. The market value immediately before the transition can therefore influence a later calculation.
That long gap matters. A valuation relating to June 2027 might be reviewed when you sell years or even decades later, when evidence of the property’s condition and improvements is harder to find. This may be especially relevant if you hold a long-established family farm, including land acquired before CGT began in 1985.
For more on the wider reform, read our 17 October update on the CGT overhaul rules for trusts and funds.
See what a $1 million valuation difference could mean
Hamilton Locke tax lawyer Mark Payne’s modelling suggests a $1 million difference in a family farm’s June 2027 valuation could change its eventual CGT bill by $376,000. A $500,000 difference could change the calculated amount by $188,000.
In one illustration, a farmer buys land for $2 million and sells it for $15 million in 2037. The result depends on whether its transition value is $9 million or $10 million. Assuming 30% cumulative inflation and a 47% marginal tax rate, the higher value reduces the illustrative liability from $3.196 million to $2.82 million.
These are examples of how valuation affects a calculation, not predictions for an actual sale. They exclude capital losses, transaction costs and small-business CGT concessions. The figures are reported in Farm Online’s coverage of the ATO warning.
Do not rush out for a valuation
You generally do not need a market valuation by 30 June 2027. The ATO has clarified that the transition value will generally be required when you eventually dispose of the asset or another CGT event occurs and you need to use the value in that year’s return. For most individuals and trustees, the earliest relevant return is the 2027–28 income tax return, lodged on or after 1 July 2028.
There is an important timing rule: a prospective valuation, prepared before the specified valuation date, is not considered reasonable or acceptable for that date. A retrospective valuation may be prepared later, provided you have retained enough evidence to support it.
You may also have an alternative to establishing market value. A statutory apportionment method may be available for certain assets. Treasury’s proposed formula assumes steady compound growth across the holding period, which may not match when value actually arose. A formal valuation will not necessarily be the best option in every case.
Build a valuation file you can explain
The ATO expects a valuation to be supported by evidence, including its methodology, assumptions, relevant comparable transactions and records that allow the assessment to be explained and reproduced. For agricultural land, relevant factors may include soil quality, water entitlements, irrigation infrastructure, buildings, improvements and commercial arrangements such as renewable energy or carbon projects.
Two qualified valuers may reasonably reach different conclusions. As Payne notes, a genuine professional difference does not, by itself, prove that a valuation is wrong. But where a method produces a range, you should be able to explain why you adopted a particular figure.
The ATO recognises that properly instructing a professional and relying on their work in good faith may show reasonable care. Even so, a professional valuation is not binding on the ATO. You remain responsible for the tax position; outsourcing the valuation does not outsource your liability. A successful challenge may mean additional tax and interest, with penalties possible depending on the circumstances.
Start preserving evidence now:
- Record when you acquired the asset, what you paid and its value at acquisition.
- Document changes to the asset’s condition, character or ownership, including improvements.
- Keep relevant market information, comparable sales, photographs and records of entitlements or infrastructure.
- Retain your valuer’s instructions and supporting documents, and review your options before acting on a valuation strategy.
Good records will make a later retrospective valuation easier to support.
Compare your options before choosing
A higher transition value may reduce the gain exposed to post-transition rules, but it is not automatically better. The outcome depends on how the existing discount compares with indexation. In a higher-inflation environment, a lower transition value and a larger indexed cost base may produce a better result.
If the formula method is available for your asset, compare it with a defensible market valuation when the relevant CGT event occurs. Keep your choices open by preserving the evidence needed to make that comparison.
Do Australian farmers need a valuation before 1 July 2027?
Generally, no. A prospective valuation prepared before the specified date is not acceptable for that date. You may need a retrospective valuation later, so preserve relevant records now.
How much can a $1 million valuation difference change the CGT bill?
In Hamilton Locke’s modelling, it changed the illustrative amount by $376,000. A $500,000 difference changed it by $188,000. These examples are not forecasts of your tax bill.
Can the ATO challenge a professionally prepared valuation?
Yes. A professional valuation is not binding on the ATO. You remain responsible for supporting your tax position, even when you engage a valuer.
Is a higher transition-date valuation always better?
No. The result depends on the applicable discount and indexation rules. In a higher-inflation environment, a lower valuation may produce a better outcome.
This article provides general information only and is not tax advice. Australian taxpayers should check the final law and current ATO guidance before acting.
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