Property investors could be at risk of being overtaxed if they fail to get their real estate holdings valued by next year, tax specialists have warned.
A looming federal budget tax reform is set to split capital gains tax on investment properties into two distinct eras on 1 July 2027.
The move will directly impact more than 3.3 million residential investment properties across Australia.
But industry groups have warned the government’s default formula for calculating capital gains could inadvertently overtax some investors.
Under the new system, residential investment properties held before July next year will have their capital gains split.
Pre-July 2027 gains will retain access to current settings, including the established 50 per cent CGT discount.
Gains after July 2027 will transition to an inflation-adjusted indexation model paired with a 30 per cent minimum capital gains tax floor.
![JIM CHALMERS PResser](data:image/svg+xml,%3Csvg xmlns="http://www.w3.org/2000/svg" viewBox="0 0 1280 720"%3E%3C/svg%3E)
Treasurer Jim Chalmers announced the CGT changes with the May federal budget. Picture: Tertius Pickard
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To calculate the split across these two eras, the Australian Taxation Office will apply a default “straight-line apportionment” method.
This method divides total capital gains evenly over the entire period of ownership. This will not account for when the actual capital growth actually took place.
Mark Chapman, director of Tax Communications at H&R Block, said relying on the default formula could heavily inflate tax bills for property owners who saw rapid price growth before the cut-off date.
“The ATO’s formula assumes growth happens smoothly in a straight line, but property markets rarely work that way,” he said.
“If your property surged in value five years ago and plateaus after 2027, the formula will mathematically shift historical gains into the new, higher-tax regime.
“Getting a professional market valuation as of 1 July 2027 isn’t just about record-keeping, for many mum-and-dad investors, it will mean the difference between thousands of dollars in extra tax.”
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Herron Todd White CEO Peter Maloney suggested investors get a valuation.
Mr Chapman said taxpayers have the right to get an independent market valuation before the system changeover.
Property owners can then choose whichever method yields the lower overall tax liability, but only if they have a formal valuation report to back up their numbers.
Peter Maloney, CEO of Herron Todd White, said having this baseline valuation would be a critical legal shield.
“When a tax law draws a hard line in the sand like 1 July 2027, the burden of proof falls entirely on the taxpayer to prove what their asset was worth on that exact date,” Mr Maloney said.
“A formal market valuation is required the moment an investor wants to opt out of or challenge the ATO’s default mathematical formula.”
The danger for investors is that previous gains during boom periods get counted in measurements of future growth. Picture: Julian Andrews
Mr Maloney cautioned against relying on automated real estate algorithms or median price trends, declaring them legally indefensible for tax compliance.
“When tax dollars and ATO audits are involved, you need an independent valuation that is fully defensible under legal and regulatory scrutiny.”
Sue Williamson, Tax Partner at Dentons and specialist in tax disputes, noted that “the ATO’s standard of evidence during an audit is exceptionally high” and having a valuation would help.