PPOR to IP with 6 year rule - valuation

Hoping for some help to decipher at what point I should get my property valuation done.

The story is I bought my house in 2018 and it was my PPOR until last year when I moved for work and began renting it out. Since moving I have been renting myself, so I understand it’s currently under the 6 year rule for CGT exemption. I never got it valued at the time as I expected to move back.

Circumstances have changed and I’m now looking at buying where I live and continuing to rent out my other house. My question is, do I need to get a valuation backdated to when it was first income producing last year? Or would the cost base apply from when I settle on my new property and the old one stops being my PPOR, and therefore I should get it valued as of that time?

Thanks!

 

Yes you would need a valuation as of the date first rented - but only if you don't use the 6 year rule to keep it fully exempt.

 

Thanks! What a shame, it’s gone up in value another 50k since then! Haha .

 

The s118.192 "First used to produce income"rule requires valuation at that first date. However, in some cases that valuation may not even be needed because for example you use the 6 year rule as so the whole period is exempt anyway.

IF you can access a agent valuation at the correct time (not just a simple one pager) then the earlier date is possible and it may often be free. However if it needs to be done later you can expect to need a professional valuer to do this in arrears and it could involve a higher cost.

 

Thanks Paul.
Yeah with buying at the top of the market down here it might be more worthwhile keeping that one the PPOR, but getting into the realm now of what I’ll have to get some professional advice for. Hypothetically if I kept it for 7 years, I’d still need that valuation wouldn’t I?

I’ll need to engage a valuer as unfortunately I’ve got nothing from the time. With a professional valuation do you know if it’s better to get that done sooner rather than later?

 

Yes, unless you moved back in before the 6 years was up.

 

With pro valuers they use recent sales data so it wont probably matter much. Sometimes with time they can be a bit more ahem...flexible.... in range. Remember a valuation is a range not a specific number. After 4 years its a bit easier for a valuer to pick a low or hide side range as the case suits. For s118.192 purposes higher valuation is better if the duration of the exempt period is short and low side is better if the duration of the exemption is long. (Terry I think this is a new specific tax tip)

The ATO policy on valuations is equally as broad and a taxpayer is entitled to choose the valuation methodogy that best suits them. eg Can the site be valued based on its potential sale as adev site ? Or perhaps you DONT want that. Its wise to tell a valuer what sort of value you seek - eg High side, low side etc. They can see what they can find in the data. But I would never ask a valuer to do something dodgy. Each +/- $10K of value can save a few grand in tax. So paying for their knowledge can be self funding.

 

If I were to move out of my PPOR in a few months and turn it into an IP, at what date should I get an agent to do the valuation (from a practical stand point)? Is a couple of days before the new tenants move in okay, or can I get a valuation done while it's listed for rent/actively trying to rent it out (and interest on the loan is deductible)? Or does it have to be exactly on the first day the tenants move in?

 

It is unlikely to fluctuate much in a short period. The valuation should be on the date it first produces income

 

So practically speaking, you should ask a few agents to come in around the time the tenant is about to move in, and ask them to date it for the first day it starts producing income?

 

I wouldn't be using an agent

 

www.duotax.com.au provide valuations and fees are reasonable

 

Some real estate agents have inhouse valuation services if one of the REAs is also reg valuer. The valuation should be recent sales based and not a simple one pager. Wise to also brief the valuer that you want it to be a high end best case valuation. They can then consider how a higher valuatiojn can be supported.

Each $10K difference in valuation has potential to save up to $2300 in tax later on.

 

just remember if for GST purposes a professional valuer is required

 

Is it best to employ these guys to do valuations and calculate a future CGT bill, or better to use your own accountant? Can any QS do these valuations, or is this something Duotax are good at. It seems they specialise in this type of thing:

Capital Gains Valuation | Duo Tax Quantity Surveyors

What Is a Capital Gains Tax Valuation?
Capital Gains Tax, or CGT, is a tax levied on any profit you make from selling your property.

Most main residences or family homes (principal place of residence) are exempt from paying CGT; however, other properties such as investment properties, business premises and holiday homes are subject to capital gains tax.

You’ll need to report any gain you’ve made from the sale on your annual income tax return.

To do this, the Australian Taxation Office (ATO) requires you to submit a capital gains tax property valuation report.

A CGT property valuation report is used to determine the increase or decrease in the property’s value and calculate the taxable gain or capital loss.

You may choose to have a capital gains tax property valuation performed when you first purchase your investment property, or you may choose to have a retrospective CGT valuation conducted when you decide to sell the property.

In each of the circumstances mentioned above, capital gains tax valuations need to be completed by an experienced Certified Practising Valuer.
What Is a Retrospective Valuation?
Retrospective property valuations, for capital gains tax purposes, are used to calculate a property’s value at a specific time in the past.

As your CGT liabilities depend on the investment property’s increase in value from the time it was purchased to the time it is being sold, it will be necessary to conduct a retrospective capital gains tax property valuation - especially if you’re unsure whether the price in the original sale agreement was an accurate valuation.

Another example of where a retrospective capital gains tax property valuation would be used is if the investment property had extensive renovations completed and no record of those costs.

Because the renovation expenses can affect the current valuation figures compared to the original date, these changes must be taken into account.
How Do We Perform CGT Valuations?
To provide accurate capital gains tax valuations, our Duo Tax Property Valuers need to consider the investment property attributes to establish the current (or retrospective) fair market value, such as:

• property type
• size and build of the property
• location; and
• surrounding amenities such as nearby schools, public transport and shopping

Once the property attributes are considered, our Property Valuers will calculate the difference between how much you originally paid for the property and the fair market value you’ve sold your property for, for capital gains tax purposes.

We’ll then produce a valuation report that you can submit directly to the Australian Tax Office.

Why Choose Duo Tax Property Valuers?
Our mission at Duo Tax has always been to help property investors save money where they can.

We offer both existing and retrospective capital gains tax property valuations to help calculate the tax you pay on your property’s capital gain.

We offer:

• Affordable prices
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accountants cant do property valuations

any professional valuer can do them i just find them reasonably priced and easy to deal with

 

What I don't understand is how do you get a RE agent inhouse valuation service to date the valuation right on the date it is rented out, which Terry is saying is the requirement?

If I'm living in the property and about to move out and lease it out, won't an agent have to come over and look at the property before it's leased, practically speaking?

How can the report be dated to the exact date the property first starts generating income if it isn't a retrospective report?

 

QS can't value property either. I believe Duo are both QS and Valuers.

 

As above previous post by Paul

Not even the ATO really care....
So long as the valuation is around the reasonable time of ......
You can obtain a valuation before or after the actual date/period of renting, so long as it is around that time (aka not months later!), you can (I hear) even obtain a retrospective valuation (though I've never done this).