Renovated Your Investment Property or Built Business Goodwill?
- Future Accounting
- 3 days ago
- 7 min read
The New CGT Rules Could Make Your Records More Valuable Than Ever
Written by: Melissa Cunliffe (CA)
The CGT reforms start on 1 July 2027. But if an asset has been heavily improved — or a business has created valuable goodwill from almost nothing — a simple valuation formula may not tell the real story.
A recent Australian Financial Review article has highlighted an important technical issue emerging from the new capital gains tax regime: the proposed simplified apportionment method may produce materially different outcomes for assets that have undergone major capital improvements, or for businesses whose value has been built through internally generated goodwill.
This is not a reason to panic, rush out for valuations tomorrow or sell assets before 1 July 2027. It is a reason to understand how the transition rules work — and to start preserving the evidence that may eventually determine how much tax you pay.
30 June 2027 is an important valuation reference date — not automatically a deadline to sell, restructure or obtain every valuation immediately.
What changes from 1 July 2027?
For individuals and trusts, the existing 50% CGT discount is being replaced for post-30 June 2027 growth by cost-base indexation, together with a 30% minimum tax on relevant real gains. Existing assets are broadly transitioned by deeming them to be sold at the end of 30 June 2027 and reacquired on 1 July 2027. The notional gain is deferred until the asset is actually realised.
For the transitional value, the law generally provides two pathways:
Use market value just before 1 July 2027 — supported by appropriate valuation evidence; or
Choose an approved apportioning method that estimates the transition value using a formula.
Importantly, the legislation allows the choice to be made when the later realisation event occurs. In other words, an owner does not necessarily need to decide on 30 June 2027 which method will ultimately be used.
Why the simple formula can be imperfect
Treasury's draft apportionment approach assumes an asset's value has effectively grown at a consistent compounding rate over its ownership period. That creates simplicity — but real assets rarely grow in a perfectly smooth line.
A property might be worth relatively little for years and then undergo a major extension, redevelopment or renovation. A family business might create very little goodwill in its early years, then build significant brand value, customer relationships, systems and recurring revenue later.
Where the economic growth happened at particular points rather than evenly over time, a formula based on smooth compounding can allocate value between the pre- and post-1 July 2027 periods differently from a properly supported market valuation.
Two assets can have the same eventual sale price and similar total economic gain — yet produce different transitional outcomes because one had major capital improvements or a low original cost base.
Property Renovations: Why the Timing of Capital Improvements Matters
Consider a property purchased many years ago for $800,000. Ten years later, the owner spends $700,000 on a substantial redevelopment that materially improves the property. By 30 June 2027 the property is worth $2.6 million.
The economic story is not simply 'an $800,000 asset grew smoothly to $2.6 million'. A large part of the value reflects another $700,000 of capital invested part-way through the ownership period.
A market valuation at the transition date can consider the property's actual condition, improvements, location and market at that time. A simplified mathematical formula may not reflect the same history. The correct outcome will depend on the final instrument, the asset facts and the method ultimately chosen.
Business goodwill can create an even bigger distortion
Goodwill is particularly important for family businesses because it may have a very low or even nil tax cost base despite being extremely valuable commercially.
A business started from scratch might have been worth very little in its early years. Over time it develops staff, systems, intellectual property, a brand, recurring clients and a strong reputation. By 30 June 2027, the goodwill may be worth millions.
A formula that assumes value accumulated smoothly from the original starting point may not reproduce the actual pattern in which that goodwill was created. Professional bodies have therefore argued that the apportionment method needs refinement for significant capital improvements and internally generated goodwill.
This does not mean every asset needs a valuation on 30 June 2027
This is where headlines can create unnecessary anxiety.
The legislation specifically allows the transitional calculation to be deferred until the asset is eventually realised. That may be years after 2027. Taxpayers can then compare the available approaches, subject to the final law and evidence requirements.
But there is an important practical problem: while you may not need the valuation until the year of sale, reconstructing what an unusual asset was worth on 30 June 2027 can become much harder five, ten or fifteen years later.
That creates a middle ground between doing nothing and valuing everything immediately.
You may not need a formal valuation now — but you do need to preserve the evidence that could support one later.
What should property owners preserve?
purchase contracts and settlement statements;
invoices for extensions, renovations and capital improvements;
planning permits, building permits and certificates of occupancy;
quantity surveyor reports where relevant;
architectural drawings and project records;
photos before and after major works;
historical finance valuations;
rental records and property-management records;
contemporaneous sales evidence for comparable property; and
any independent valuations already obtained for finance, family law, insurance or other purposes.
What should business owners preserve?
historical financial statements and management accounts;
revenue and gross-margin history;
customer concentration and recurring revenue data;
staff and management structure;
business systems and intellectual property records;
brand, website and marketing investment;
acquisition or shareholder transactions that provide valuation evidence;
bank or finance valuations;
business plans and forecasts prepared contemporaneously; and
records of material events that changed business value — major contracts, new locations, acquisitions or restructures.
Do not let tax drive the commercial decision
Another risk is treating 30 June 2027 as a deadline to sell. It is not automatically one.
If a business owner was already planning a genuine sale, restructure or succession transaction in the short term, the tax rules may affect timing and should be modelled before a contract is signed. But bringing forward a disposal purely to avoid a valuation issue can create a much larger commercial mistake.
The right decision should consider sale price, business strategy, financing, succession, asset protection and tax together.
Market value versus the apportioning formula
Market value approach | Apportioning method | |
Potential advantage | Can reflect the asset’s actual circumstances, improvements and value at the transition date. | Avoids the need to rely on a formal valuation for the calculation and may be simpler for some assets. |
Potential drawback | Can involve valuation cost, judgement and later ATO scrutiny. | Assumes a prescribed growth pattern that may not reflect real-world timing of value creation. |
Best suited | Assets where reliable market evidence exists, or the pattern of value creation is unusual/material. | Potentially simpler assets where growth has been relatively even and the formula produces a reasonable result. |
Decision timing | Evidence should ideally be preserved close to 30 June 2027, even if the ultimate choice is later. | Can be applied at ultimate realisation, subject to the final instrument and records. |
Preserve. Protect. Prosper.
PRESERVE | Preserve the benefit of value already built before 1 July 2027 by retaining credible evidence of property improvements, business growth and market value. |
PROTECT | Protect the future tax position by identifying material assets, preserving records and avoiding rushed decisions based on headlines. |
PROSPER | Prosper by allowing commercial goals — growth, succession, investment and eventual sale — to drive decisions, with the tax rules modelled around the strategy rather than the other way around. |
What we recommend doing before 1 July 2027
Create a CGT Transition Asset Register covering material property, private-company interests, trust interests, goodwill and other hard-to-value assets.
Record acquisition dates and current tax cost bases.
Identify assets with major capital improvements or unusual growth histories.
Collect missing invoices and records for historical capital expenditure now.
For businesses, preserve financial and commercial evidence supporting goodwill and enterprise value.
Identify existing third-party valuations that may become useful supporting evidence.
Decide which assets are material enough to justify considering a contemporaneous formal valuation close to 30 June 2027.
Do not commission every valuation automatically — consider likely holding period, value, complexity and cost.
Before any sale or restructure around the transition date, model the tax outcome under the available methods.
Review again when the final apportionment rules and ATO guidance are settled.
The 3P's view
The valuation debate is not really about whether every investor should race out and value every asset.
It is about preserving choice.
If you retain strong records and evidence around 30 June 2027, you are more likely to have options when the asset is eventually sold. If you ignore the transition completely, you may later find that the easiest method is not the most favourable — but the evidence needed to support an alternative has disappeared.
At 3P's Future Accounting, that approach aligns directly with our Future Prosperity Model: Preserve the value already created, Protect the tax position, and Prosper by keeping commercial strategy — not tax panic — at the centre of the decision.
Review now. Preserve the evidence. Value selectively. Decide when the facts require it.
Disclaimer
This article does not constitute financial advice and is for general information only. It does not take into account any individual’s personal objectives, situation or needs, and is not intended as professional advice. Any similarity to an individual’s personal circumstances and the examples provided in this article is purely coincidental. Any person acting upon such information without receiving specific advice, does so entirely at their own risk.
Authorisation under an Australian Financial Services Licence (AFSL) is not required in the provision of this article and the author plus Future Accounting Group Pty Ltd is not acting in its capacity as an Australian Financial Services Licence holder
Liability limited by a scheme approved under professional standards legislation.
