If your home was first used to produce income after 20 August 1996, it would have been fully exempt from CGT just before then, and you would now get only a partial main residence exemption because of that use, tax law treats you as having acquired it at its market value at that time. A valuation as at the date it was first rented is the usual evidence. An inspected Tax, Transfer & Compliance Valuation is $495 + GST ($544.50 incl. GST); an indicative desktop assessment is $99 + GST ($108.90 incl. GST).
When does the "first used to produce income" rule apply?
Under section 118-192 of the Income Tax Assessment Act 1997, the rule applies when all of these are true:
- you would get only a partial main residence exemption because the home was used to produce income (for example, rented out) during your ownership;
- that use began after 20 August 1996; and
- you would have got a full exemption if you had sold the home just before that use began.
(CGT applies to homes acquired from 20 September 1985.)
When it applies, you are taken to have acquired the home at its market value at the time it was first used to produce income. Your accountant decides whether it applies to you.
What about the six-year absence rule?
If you move out and rent the home, you may be able to choose to keep treating it as your main residence for up to six years at a time while it earns income, as long as you don't treat another property as your main residence (with limited exceptions). Whether to use that rule is a tax decision for you and your accountant; a market value at the date it was first rented is still useful to have on file.
What evidence should you keep?
A dated valuation report showing the market value at the date the property was first rented, the comparable sales near that date and how the value was worked out. The ATO expects a market valuation to be based on supportable evidence and a reasonable method.
Which report suits?
Where the value will set your cost base, the Australian Property Institute recommends an inspected report: Tax, Transfer & Compliance Valuation, $495 + GST ($544.50 incl. GST). For an indicative value of a standard house, unit or vacant lot: Desktop Property Assessment, $99 + GST ($108.90 incl. GST). Your accountant decides which suits.
Questions
Do I need a valuation when I rent out my home?
Not always. If the "first used to produce income" rule in section 118-192 applies, you are treated as acquiring the home at its market value at that time, and a valuation is the usual evidence. Ask your accountant whether it applies.
Can I get the value years after I first rented it?
Yes. A retrospective valuation gives the market value at the date the property was first rented, using sales evidence from around that date.
Sources
- Income Tax Assessment Act 1997, section 118-192
- ATO: Using your home for rental or business
- ATO: Treating former home as main residence (six-year rule)
This guide is general information, not tax, financial or legal advice. We value property; your accountant, auditor or lawyer decides how a value is used and what evidence they accept. The ATO does not approve or accredit valuers or valuations for CGT purposes.