Highlights

  • A draft Treasury determination offers an answer that does not need a valuer.
  • It remains a draft and has not yet been registered, so the formula is not yet law.
  • With more tax reform legislation reaching Parliament this week, it is worth understanding how it would work.
  • That deemed sale divides one holding period into two parts.

A draft Treasury determination would let property owners split a capital gain across the July 2027 changeover without a valuation, by assuming smooth growth. Here is how the formula works, with Treasury's numbers and a worked rental example. Property investors facing the 1 July 2027 capital gains tax switch have one practical question: how will the gain be split between the old rules and the new ones?

Why a split is needed at all

Growth up to 30 June 2027 keeps the 50% discount. Growth from 1 July 2027 is measured against a cost base indexed to inflation and falls under the new 30% minimum tax rules on capital gains. The obvious way to draw that line is a market valuation at 1 July 2027. The draft determination is an alternative for owners who do not obtain one.

What the draft determination says

Its full title is the Income Tax Assessment (Method for Apportioning Capital Gains and Capital Losses) Determination 2026. It would be made under section 112-185 of the Income Tax Assessment Act 1997, start the day after registration and be disallowable by Parliament. real property, including investment properties assets without a readily ascertainable market value, such as shares in a private company Listed shares are excluded because their market price on 1 July 2027 will be known. The formula is optional, not compulsory. Treasury released the draft with its second tranche of tax reform papers on 4 August, and consultation ran until 21 August.

How the formula works

The method assumes the asset grew at a constant compounding daily rate over the whole time it was held. In plain terms, it takes four steps: Divide the capital proceeds by the first element of the cost base, usually the purchase price, to get the total growth. Convert that total growth into an equal daily rate across every day the asset was held. Apply that daily rate to the purchase price for the days up to 30 June 2027 to produce a deemed value at that date. Treat the gain up to that deemed value as old-regime gain, and the rest as new-regime gain. The pre-2027 portion keeps the 50% discount. The post-2027 portion is calculated using a cost base indexed by the consumer price index, although holding costs (the third element of the cost base) are not indexed. Treasury's own worked example uses an artwork bought on 1 July 2016 for $520,000 plus $2,000 in fees, then sold on 30 June 2034 for $1.5 million with $3,000 in selling costs. Its assumed CPI figures move from 105.54 to 125.45. It was held for 6,574 days, with 4,017 of them falling on or before 30 June 2027. The deemed 2027 value is $993,429.55, leaving a discount-eligible gain of $471,429.55. The indexed cost base after 1 July 2027 is $1,183,838.90, so the post-2027 gain is $316,161.10. A second example applies the same method to a sale for $440,000. It produces a pre-2027 capital loss of $52,460.94 and a post-2027 loss of $32,539.06.