When do you need a house valuation for property tax?

Becoming a property owner can have its advantages, but it can also mean paying taxes you may never have considered before. Getting a property valuation can help to make sure you’re paying the right amount of tax for your property.

Which taxes require a property valuation? 

The main property taxes that may require a valuation include:

• Stamp Duty: Paid when a property is purchased.
• Capital Gains Tax (CGT): Paid as part of your regular income tax when a property is sold or when other CGT events occur

Property valuations may also be required when a property changes hands after a death, such as part of an inheritance, or when a Self-Managed Super Fund (SMSF) invests in a property.

Ongoing land tax may also apply to some types of properties, such as investment properties, holiday houses or commercial premises.

Who organises a house valuation for property tax? 

Depending on the type of tax involved, different parties may be responsible for organising a valuation.

If you own an investment property, holiday house or commercial premises, the value of your land may already be assessed regularly by the Valuer General in your state or territory, so you shouldn’t have to do anything yourself. Your land tax will then be assessed based on these findings.

Stamp duty may be based on a property’s sale price or its valuation, whichever is higher. Exemptions and concessions may also apply for certain buyers in some situations, such as first home buyers.

A valuation is often organised through the bank or mortgage lender as part of the home loan application process – while the valuer’s fee may be passed on to you, the borrower, you and/or your mortgage broker may be able to negotiate this extra upfront cost.

In cases where you’re paying less than a property is worth (such as in a favourable purchase from a friend or family member), a valuation may be required for tax purposes.

Capital gains tax may apply when you sell a property. If the property’s value has changed since you bought it, the amount of tax charged will be based on this change in value. Similarly to stamp duty, if you sell or give away your property for less than it’s worth, your CGT will be based on the market value of the asset.

Unlike stamp duty, CGT isn’t charged as a separate tax. Rather, your capital gains are assessed along with your salary as part of your income tax assessment.

CGT may not apply when you inherit a property (such as from a deceased estate) but may apply if you later choose to sell that property. Valuations may be required for tax purposes to help ensure your tax is charged at the correct rate.  

Who can I use as a property valuer? 

According to the ATO, “the acceptability of a valuation usually depends on the valuation process undertaken rather than who conducted it.” But this doesn’t mean you can accept a valuation from just anyone for tax purposes – you’ll still likely need to call in a professional valuer.

According to the ATO:

“Except for the most straightforward valuation processes, valuations undertaken by people experienced in their field of valuation would be expected to provide more reliable values than those provided by non-experts.

According to legal precedent, experts who assess market value should have specific knowledge, experience and judgment in that particular field. While professional qualifications may add weight to the valuer's opinion, they should also display personal integrity and competence. To ensure the objectivity of the report, the valuer should be independent of the party commissioning the report.

The valuation process should be adequately documented; if it isn't, we may not accept the resulting value as a market value.”

The ATO also states that property valuers in New South Wales, Queensland and Western Australia are registered with a state board, while in other states valuers may seek membership in professional bodies such as the Australian Property Institute and the Royal Institution of Chartered Surveyors “to set and maintain high standards of professional practice, education, ethics and discipline.”

Because tax law can be complex and updates regularly, it’s important to consider seeking advice from a financial adviser or tax accountant, or to contact the ATO, before making any financial decisions that could affect your taxes.

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