Property valuation for transferring property to a family trust or company

Transferring a property into a family trust or company is a change of ownership, so it is a capital gains tax event and usually a dutiable transfer, and both are worked out on the property's market value rather than any nominal price. Because you and your own trust or company are generally not dealing at arm's length, the ATO's market value substitution rule treats you as having received market value, and the state revenue office charges duty on the higher of the price or market value. That is why an independent market valuation at the transfer date is required.

Do you need a valuation to move property into a trust or company?

In almost every case, yes. There are two separate tax reasons, and both point to the same document.

The first is capital gains tax. Transferring the property is a disposal, so any capital gain or loss is worked out at the transfer date, and the ATO uses the market value rather than the price recorded on the transfer. The second is transfer duty, also called stamp duty, which the state revenue office charges on the higher of the price paid or the market value. For a related-party transfer like this, that means market value.

So the valuation is not a formality. It is the objective evidence that sets the numbers for two different tax bills, and it protects you if either the ATO or the revenue office later asks how the value was determined.

Transferring property to a trust or company is a CGT event

When you move a property out of your own name and into a family trust or a company, the legal owner changes. That change of ownership is a disposal for CGT purposes, so a CGT event happens even if no money changes hands and even if you still effectively control the property through the trust or company.

At that point you crystallise any capital gain or loss on the property, based on the difference between its cost base and the capital proceeds. The important part for a transfer into your own structure is how those capital proceeds are worked out, which is where the market value substitution rule comes in.

There can be exceptions and concessions in specific situations, such as the main residence exemption if the property was your home, or certain restructure rollovers that defer the gain. These are conditional and fact-specific, so treat them as something to confirm with your accountant rather than assume.

The market value substitution rule, in plain English

The ATO's market value substitution rule decides what you are treated as having received when you dispose of an asset. There are two triggers that matter here.

If you receive nothing in exchange for the property, you are taken to have received its market value at the time of the CGT event. And if what you receive is more or less than market value, and you and the new owner were not dealing with each other at arm's length, you are again treated as having received market value. Arm's length means each party acts independently, with neither controlling or influencing the other.

A transfer into your own family trust or company usually fails that arm's length test, because you control or are connected to the entity receiving the property. So in practice the rule applies and your capital proceeds are the market value, regardless of the price written on the transfer.

The ATO illustrates the same principle with a simple example: an owner who sold a property to his son for $120,000 still had to calculate CGT on the professional valuation of $450,000, because the dealing was not at arm's length. The nominal price was ignored. For a deeper walk-through of how the rule works, see our guide to the market value substitution rule.

Transfer (stamp) duty is charged on market value too

Transfer duty is calculated on what the revenue office calls the dutiable value, which is the higher of the price you agreed to pay or the property's market value. When a transaction is genuinely at arm's length, the price is usually accepted as market value. A transfer into your own trust or company is not at arm's length, so the revenue office looks to market value instead.

For these transfers, the revenue office generally requires a formal valuation prepared by a suitably qualified person, showing the full market value of the property in its present condition. Duty is then charged on that market value even if you transferred at a lower price. In New South Wales, for example, Revenue NSW calculates duty on the higher of the purchase price or market value and asks for a valuation where parties are related or the consideration is inadequate.

Duty rates, concessions and evidence requirements differ across states and territories, but the underlying principle, duty on the higher of price or market value with a valuation for related-party transfers, is consistent. Check the requirements with your state or territory revenue office. Our guide to property valuation for stamp duty has more detail.

One valuation, two tax bills: what a compliant valuation looks like

The efficient part is that one valuation can support both tax heads at once, because both the ATO and the revenue office are asking the same underlying question: what was this property genuinely worth on the day it was transferred?

To be relied on, the valuation should be independent, based on objective and supportable data, and prepared as at the transfer date. For tax and duty purposes, a report prepared and signed by a registered valuer is the safest option, because it is the kind of objective evidence the ATO prefers and it supports penalty protection if your position is later reviewed.

Getting the date right matters. The valuation should reflect the property's value on the day of the CGT event and the transfer, not an older appraisal or a current-day figure produced months later.

Other things to check before you transfer

A valuation answers the "what is it worth" question, but a transfer into a trust or company has other moving parts that sit with your accountant and lawyer, not your valuer:

• Land tax. Holding property in a trust or company can change your land tax position, and some states apply different thresholds or a trust surcharge.
• Rollovers and concessions. Some restructures may defer or reduce CGT, but they are conditional and specific. Do not assume one applies.
• Foreign beneficiary surcharges. Discretionary trusts that could benefit a foreign person may trigger surcharge duty or land tax in some states.
• GST. Usually not relevant for residential transfers between related parties, but it can arise for commercial property or the margin scheme.

The valuation is one piece of a properly advised transfer. Get accounting and legal advice on the structure itself before you commit.

How Valato helps

If you are moving a property into a family trust or a company, Valato can prepare an independent, evidence-based market valuation as at the transfer date that supports both your CGT position and your transfer duty. A Signed Valuer Report is prepared and signed by a registered valuer, so it stands up as objective evidence for the ATO and your state revenue office.

Not sure which report you need? You can compare the CGT valuation and stamp duty valuation options, or order in a couple of minutes.

Frequently asked questions

General information only: This article is general in nature and does not take into account your individual circumstances. It should not be relied on as tax, financial or legal advice. Speak with a qualified professional before making decisions about your property, tax position or investment strategy.