The Basics of Capital Gains Tax and Property in Australia:
If you own a capital asset, such as real estate or shares and sell it, the you will either make a usually make a capital gain or a capital loss.
All capital gains and losses must be declared in your annual income tax return and you are required to a Capital Gains Tax.
For Australian residents, capital gains tax will apply to assets that are kept anywhere in the world.
What are Capital Gains and Losses?
You make a capital gain when the proceeds you receive when disposing of the asset is greater than what it cost to acquire. A capital loss is the opposite, when the final value of the asset is less than its original cost base.
Real Estate and Capital Gains Tax:
Most real estate, such as vacant land, commercial premises, rental properties, holiday houses and hobby farms, is subject to capital gains tax.
However, personal assets such as your principal place of residence (home), car and furniture are exempt from capital gains tax. It also does not apply to depreciating assets, such as business equipment or fittings in a rental property. The most common situation when capital gains tax is calculated is when real estate is sold.
If you’re a co-owner of the property, you’ll make a capital gain or loss proportionate to your ownership in the property.
How are Capital Gains and Losses Calculated?
Correct record keeping is important when it comes to calculating capital gains or losses. Make sure you retain a copy of the purchase contract and all receipts for expenses relating to the purchase. These include stamp duty, legal fees, and property valuation fees.
You will also need to keep a record of all relevant expenses relating to the capital gains tax event (CGT event), for example the sale contract and records of legal fees and stamp duty.
This information forms the basis of the capital gain or loss calculation.
When Do I Need an Independent Property Valuation in a CGT Event?
If you own real estate that was previously exempt from capital gains tax but then becomes subject to capital gains tax, you should seek a valuation at the time of the CGT event.
For example, if you decide to move out of your principal place of residence and turn it into an investment property, you should engage a valuer as soon as it goes on the rental market.
It is possible to do a retrospective valuation, however, it can be inaccurate, time consuming and costly.
Australian Valuers suggests combining a capital gains tax valuation with a Tax Depreciation Schedule, to increase accuracy in calculating the capital gain while minimising your tax obligations on an investment property.
Deceased estates are part of life and it is important that the property(s) involved are assessed correctly as at the correct point in time. This value sets any future Capital gains Tax implications for the beneficiaries/owners;
Assessments for Deceased Estates need to cover all types of real estate from residential to commercial, specialised property to going concern’s and are provided for the benefit of Executors and Beneficiaries singularly or jointly;
These types of valuations can also be used for ownership transfers between Beneficiaries of the estate.
How a Valuation Will Simplify the Dispute Resolution Process:
There is no question that when it comes to disputes, the best result is an outcome that is fair for all parties involved.
However, dispute resolution can be a daunting process. More often than not, emotions are heightened making it difficult for the parties involved to work together to reach a fair and just outcome.
Although it may seem easier to dive straight into litigious legal proceedings than to cooperate with one another, under Australian law there must be attempts to resolve a dispute prior to seeking any assistance of the courts.
The Legislation Relating to Civil Disputes
The relevant piece of Australian legislation is the Civil Dispute Resolution Act 2011. Essentially the objective of the Act is to resolve civil disputes before commencing any legal court proceedings.
It does this by encouraging all parties to take genuine steps to resolve a dispute. Simply put, a genuine step is a sincere attempt to resolve the dispute.
Actions such as entering into discussions or negotiations, mediation and sharing information and documents can all be considered genuine steps.
What Happens if the Dispute Goes to Court?
Should all attempts at dispute resolution fail, an application can be made for the the case to be heard before a court.
The applicant who starts the proceedings must file a “genuine steps statement”. This statement details all the actions that have been taken in an attempt to resolve the dispute. If no steps were taken, the statement must outline the reasons why.
The respondent must then file a “genuine steps statement in reply”, in which he or she agrees or disagrees with the applicant’s genuine steps statement.
How Can A Property Valuation Assist in Dispute Resolution?
If the dispute involves property, then one of the first genuine steps to take is to seek the expertise of an independent valuer. He or she will provide a valuation assessment on the property under dispute, that is an accurate estimate of its current market value without bias toward either party.
It is also not uncommon in a dispute for each party to seek their own valuation assessment. In this case, the two valuers will meet without prejudice, meaning that they will work together to find an agreed market value.
Examples of Disputes Involving Property:
1. Disagreement over a deceased estate or will;
Mary left her house to her four children in her will. Three of the beneficiaries want to keep the house and the fourth wants to sell it. They engaged the services of a property valuer and use the valuation assessment to buy the 25% share back.
2. Falling out between business partners who co-own property;
David and Matt owned a property development company together, but due to a personal disagreement, they decided to part ways.
David decided to sell his shares of the company and the office building that the company owned to Matt. They used a property valuation to determine the value of the building to ensure a fair transaction.
3. Dispute between local council and a property owner;
Helen and James received their rates notices for the large parcel of land that they own. They felt that the valuation was inaccurate and that their land had been over valued. As a result they would have to pay more each quarter for rates.
They decided to dispute the council’s valuation amount and so engaged a valuer to do an independent market assessment to validate their claims.
Property Settlement after Separation – Divorce, De faco Relationships – House Valuation:
Division of Matrimonial Property
A breakdown of a relationship is a very traumatic time in a couple’s life. Often, conflict surrounding the division of property, assets and custody of children can be the the cause of a great deal of stress and grief.
If you and your partner decide to separate and jointly own property, Australian Valuers is able to assist you with sound, professional advice, in consultation with you and your legal representatives, in regards to the division of matrimonial property.
Family Law Act
Depending on the total value of assets and complexity of matters that are involved, the decisions surrounding settlement may be heard before the Family Court of Australia, the Federal Circuit Court of Australia or a Local Court.
The Court will refer to the Family Law Act 1975 when deciding the outcome of financial disputes after the breakdown of a marriage or a de facto relationship.
What is the Property Settlement Process?
Property settlement for divorcing and separating couples is calculated using a four-step process, which means that the division of assets will be unique according to the personal circumstances of your family.
Step 1. Identification and Valuation of Assets, Liabilities and Financial Resources;
The first step is to identify all assets, liabilities and financial resources of each party, regardless of when and how they were acquired. Then a monetary value is placed on each.
Each party is free to engage an independent property valuer, however, some choose to instruct one valuer to act on behalf of both parties. This is called using a “single expert witness”. Using one valuer means that there will be no disparity in the outcome of the valuation.
When engaging a property valuer in a matrimonial settlement, it is important that he or she has real court experience and has a proper understanding of the court process.
Australia Valuers has the expertise necessary in ensuring that your needs and expectations are met and will provide comprehensive documentation supporting the final valuation.
Step 2. Assessment of Financial and Non-Financial Contributions;
The Court will take any financial and non-financial contributions made to the property and to the welfare of the family into account.
Non-financial contributions include labour that has resulted in an increased value of the property as well as unpaid home duties.
Step 3. Consideration of Future Needs;
Once the share of property has been allocated, the court is required to make an adjustment to account for the future needs of each party. These include age and health, employment prospects and financial resources, future earning capacity, who will care for any children, and the length of the relationship.
Step 4. Decision of Equitability in Court
After examining the outcomes of steps one through three, the Court will then decide whether the proposed division of matrimonial property and assets is fair and equitable.
This type of Valuation covers many real estate and market value requirements. Some examples are:
Market valuations for First Mortgage Security:
We are also often required to give our advice assuming either a 3 or 6 month selling period, depending on the asset.
Litigation Dispute Valuation – Evidence of a Property’s Value:
Legal Property Disputes
Litigation is the process of taking any kind of legal action. Property dispute claims can arise in all courts and jurisdictions throughout Australia.
The reasons for litigation can include:
the division of matrimonial property
dispute resolution and estate settlements.
The experienced team at Australian Valuers regularly provides valuation advice to legal practitioners and their clients.
The Importance of Impartial and Professional Valuations in Litigation
When a property dispute is taken to court, it is important to note that information that is not provided by a suitably qualified and certified valuer will not be considered.
For example, when submitting evidence of a property’s value, you cannot use a real estate agent’s appraisal.
Seeking the advice of a property value will not only give you more credibility but also a stronger position in court.
The valuation report is a thoroughly researched and impartial analysis of the property in question.
Australian Valuers also Provide Expert Witness Testimony in Court
An expert witness is someone with a high level of specialised knowledge or skill in a particular area who is asked to present their opinion during legal proceedings.
Our valuers have experience as appearing as expert witnesses in court cases and have been integral in the resolution of many legal disputes.
5 Reasons Why You Should Seek Pre-Sale Advice Before Engaging a Real Estate Agent to Sell Your Property:
Much of Australian Valuers’ private work is made up of pre-purchase and pre-sale valuations.
As the name suggests, a pre-sale valuation is one that is undertaken prior to putting your property on the market.
When you engage an independent valuer from Australian Valuers to conduct a pre-sale valuation, he or she will carry out an inspection of the property and then compile a comprehensive report with an estimated value of a property.
Reasons why a pre-sale valuation is invaluable to vendors
1. The result is unbiased
This valuer will take into account all market factors that contribute to the value of the property. These include the current conditions of the property market in the area, the demand and supply of similar and comparable properties and the overall economic climate.
This means that the estimated value s a true and accurate reflection of the value of the property in the current market and is not unduly influenced in any way.
2. You can be confident during the selling process
When you are armed with the knowledge of what your property is really worth, you are able to confidently go into the selling process. You will know when it is right to sell and when it is right to hold off.
A pre-sale valuation can help you to avoid being taken advantage off by unscrupulous agents or buyers.
Which brings us to our next point –
3. You can use the pre-sale valuation to choose the right agent (or forgo the agent altogether)
Use the outcome of your pre-sale report to “interview” your shortlist of selling agents and make the right choice. Ask each agent to give you their opinion as to what your property is worth. You will find that some will over-inflate their estimates and others may go the other way, just to make that sale.
The best agents will be close to the mark and be able to set realistic expectations in the selling process.
If you choose not to use an agent at all, then the pre-sale valuation can be used as the basis to set an agreeable sale price that is fair to both parties.
4. It can minimise the selling period
As a rule of thumb, a property should not be on the market for over a month. Often, if a property does not sell in this time frame, it is incorrectly priced.
By setting the price at the right point from the beginning, you will attract more serious buyers.
5. It can ensure that close the sale quickly
In many cases, people looking to buy property have already sought finance pre-approval from their lender. This means they have a set limit on their borrowing capacity. If your property is priced accurately, when potential buyer submit an offer that is close to where you are happy to sell, then the negotiation process can flow quickly until the sale is finalised.
Why Engaging a Property Valuer to Provide Pre-Purchase Advice Can Save You Thousands of Dollars!
The majority of our private clients engage Australian Valuers to conduct pre-sale or pre-purchase valuations.
A pre-purchase valuation is one that gives you, as a potential buyer, an unbiased estimate of the value of a property before you commit to buy.
This type of valuation is crucial if you are planning to make a cash offer for a property, or to buy at auction.
Within a property contract, one of the most common clauses is the finance clause. Simply put, this clause states that the buyer will proceed to purchase the property subject to securing finance, normally in the form of a bank mortgage.
When an offer is made on a property subject to finance, the bank will get an independent valuation done to support the amount being borrowed. If the valuation does not match the amount of finance sought, the bank may refuse finance and the contract can be voided.
However, when a purchaser does not seek finance, such as in the case of a cash offer, this clause is omitted and the sale becomes unconditional and must proceed as soon as the vendor accepts the offer and the contracts are signed.
In addition, there is no cooling-off period when buying a property under an auctioneer’s hammer. If you are the successful bidder at an auction, you are obligated to settle the contract and proceed with the purchase even if you have bid more than you can afford, the house fails building and pest inspections, or you simply change your mind.
A pre-purchase valuation will provide you with the information needed to make an informed decision to proceed with a cash offer or bid at auction.
Be Prepared, Plan Ahead
If you, as the purchaser, are certain of the true value of the property as well as being aware of any inherent risks associated with the purchase, you will be able to enter into a purchase contract with complete peace of mind and it can potentially save you a significant amount of money.
A rent review and or market assessment can be done on all manner of residential, commercial, industrial and retail property. These are market based exercises where the Valuer obtains the most recent, reliable and relevant market evidence upon which to base his judgment.
Some of the more important factors included within a rent assessment are:
This type of Valuation covers many real estate and market value requirements. Here are a few examples;
What is Stamp Duty?
Stamp duty is a tax charged by the government. Taxable transactions include:
Stamp duty is imposed by each individual state or territory government. It is also referred to as transfer duty or general duty. It is designed to cover the legal costs incurred by the transaction.
How is Stamp Duty Calculated?
Each state has its own way of calculating stamp duty. To get the most accurate and up-to-date information relevant to your situation click on your state or territory’s Revenue Office below.
Why Do I Have to Pay Stamp Duty on Property?
Stamp Duty must be paid whenever you buy or sell property. Both the seller and the purchaser are liable to pay, however, in most cases it is the purchaser that actually pays the duty.
Dutiable Value of a Property
Before your accountant can calculate how much duty you will need pay, the dutiable value of the property must be calculated.
The dutiable value is the higher value of either the unencumbered value of the property or the amount you agree to pay.
This means that even if no money is exchanged – for example if someone transfers property to a family member as a gift – the property being transferred still has a dutiable value.
In the case of property transfer between family members, there are certain exemptions that you can apply for:
An asset valuation is a key component in preparing meaningful SMSF financial reports. It has an impact on the returns for members and ultimately, SMSF sector performance as a whole.
A valuation of assets is required (minimum of every 3 years) to confirm your SMSF has complied with relevant super law for:
The super laws require a valuation by a qualified independent valuer in the following circumstances:
An approved SMSF auditor can seek an independent valuation of the fund’s investments, as part of their audit and assurance engagement.
You should also consider the use of a qualified independent valuer if either the: