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Property Valuations

The Country Fire Authority Chief Officer Steve Warrington has posted online that the Bureau of Meteorology and the CSIRO weather modelling a predicting an earlier start and a longer fire season. It is a timely reminder that the correct level of home insurance must be in place at all times to ensure any loss is able to be reinstated by the insurance policy.

We have been providing a low cost replacement insurance assessment for over 10 years underpinned by Cordell and Rawlinsons construction data which is updated annually. We assess all the improvements on the property such as the dwelling, outbuildings, water tanks, pools, stables even the fencing and driveway. In addition a cost escalation and legal/council fees is also accounted for to ensure you have adequate coverage in the event of a total loss.

With the wild weather and summer approaching now is the time to arrange an Insurance Replacement assessment using a qualified professional valuer. Phone Yarra Valley Valuations on 5961 9176.

Capital Gains Tax on Rural Lifestyle Properties

An often ignored issue and an almost Taboo subject in Real Estate circles is the issue of Capital Gains Tax (CGT) associated with the ownership of a property larger than 2 hectares. Since the mid 1980s the Australian Tax Office (ATO) has had a ruling that land in excess of 2 hectares and the improvements and is your principal place of residence is subject to Capital Gains Tax calculations.

Whilst this may seem alarming to most lifestyle property owners who automatically assume the CGT is applied to the growth in value from the purchase price to the sale price the reality is somewhat different provided the valuation approach is adopted.

Typically once a property is sold the vendors accountant will instruct a valuer to derive the value of the 2 hectares and improvements and deduct this value from the sale price to determine the value of the land outside of the 2 hectares – the residual land. The following example takes you through the accountants approach.

Property – 20 hectares

Purchased for $300,000 in 2001

Recently sold for $1,000,000

Valuation determines that 2 hectares of the property, dwelling and ancillary improvements is valued at $800,000. This results in the residual 18 hectares having a value of $200,000 or 20% of the sale price. Using the ratio approach the accountant will apply the 20% to the purchase price of the property to determine the value of the residual land, known as the Cost Base in order for CGT to be calculated. This results in the following equation:

20% x $300,000 = $60,000 – Cost Base

Value of 18 hectares at time of sale is $200,000.

CGT= $200,000 – $60,000 = $140,000.

As valuers, we apply the logic of determining the value of the 2 hectares at the time of sale to the purchase period. This then picks up the movement in value of the 2 hectares and improvements more accurately and takes into account extensions, renovations or additions carried out during the term of ownership within the 2 hectares excluded from CGT calculations.

Comparable sales data of 2 hectare properties is analysed retrospectively as at 2001. In this example it is determined that the 2 hectares and improvements was valued at $120,000. Deducting this value from the purchase price results in:

Purchase

$300,000 – $120,000 = $180,000 Cost base of 18 hectares

Sale

$1,000,000 – $800,000 = $200,000 – Gain value of residual land

$200,000 – $180,000 = $20,000 Capital Gain

Using the example above the valuation approach results in a Capital Gain of $20,000 as opposed to the accountants ratio approach of $140,000. This is the correct way to approach the subject as it reflects the changes in value over time of the smaller property element which tends to change at a more profound rate than a larger property and takes into account capital improvements within the 2 hectares.

For a video explanation please refer to our services tab at the top of the web page and click on the Capital Gains Tax explained link.

If you would like to discuss your individual situation please contact Steve Noonan on 0408 989567.

Yarra Valley Valuations offer a cost effective floor plan sketching service for Real Estate Agents which is complimented by a comprehensive sales database. Using the simplicity of a web based ordering and delivery service we can delivery high quality floor plans in jpeg format straight to...