Should investors renovate before the 1 July 2027 CGT valuation date?

With the recent market downturn, property owners may not be able to rely on general market growth to increase their property’s value by 1 July 2027.

This has naturally led some investors to consider another option: renovating the property in the hope of achieving a higher valuation at that important CGT date.

For affected investors, a higher valuation as at 1 July 2027 may be more favourable for future capital gains tax (CGT) purposes.

Before you rush out, remove your tenant and start knocking down walls, there are some very important things to consider.

Firstly, ending a tenancy is subject to the residential tenancy laws in your state or territory. You need to obtain appropriate advice and follow the correct process.

Even where you are legally able to obtain vacant possession, removing a reliable tenant purely to renovate the property may not be the brilliant strategy it initially appears to be.

You need to consider the loss of rent, vacancy period, renovation costs, holding costs and the possibility of delays.

As anyone who has renovated knows, a “quick cosmetic update” can somehow turn into three months, four tradespeople disappearing and a conversation about why one bathroom tap costs $900.

More importantly, not every dollar spent on a renovation adds a dollar or more to the property’s market value.

This is where property owners need to understand the difference between renovating for a higher sale price and renovating for a higher valuation. They are not necessarily the same thing.

A buyer may fall in love with beautiful tiles, expensive tapware or a dramatic feature wall. A valuer, however, must assess the property using market evidence. We consider how the renovated property compares with other properties that sold around the valuation date, how the broader market responds to those improvements and whether the renovation has genuinely changed the property’s utility, condition, accommodation or overall market appeal.

You may spend $100,000 and assume you have added $150,000 to the property’s value. The valuer may conclude that the works have added considerably less.

Unfortunately, valuers do not assess value by adding up your renovation receipts and add that to the market value of your home and then add a bit on top to justify the renovation.

When renovating works

This does not mean renovating before 1 July 2027 is always a bad idea. It may make sense where the property genuinely requires improvement, the proposed works are appropriate for the property and local market, and there is a strong likelihood that the renovation will create measurable value without overcapitalising.

The ideal opportunity may arise if your tenant organically decides to vacate the property. If the property becomes vacant without you having to disrupt a good tenancy, you can then assess whether completing carefully selected improvements before 1 July 2027 is financially worthwhile.

The key is to obtain professional advice before commencing the work, not after the renovation is finished and the money has already been spent.

It is also important to understand that you do not necessarily need to have the valuation report prepared on 1 July 2027. A Certified Practising Valuer can prepare a retrospective valuation at a later date and assess the property’s market value as at 1 July 2027.

However, if you intend to renovate after 1 July 2027 and have not yet engaged a valuer, thoroughly document the property’s condition as at that date. Take clear photographs of every room, the kitchen, bathrooms, external areas, improvements and overall condition. Keep floor plans, rental condition reports, renovation records and any other relevant documents.

This evidence can help the valuer accurately assess what the property was worth before the subsequent renovation took place and as at the 1 July 2027 set date.

My advice is simple: do not remove a good tenant and sacrifice rental income simply because you assume a renovation will automatically produce a significantly higher valuation. Run the numbers, understand what the proposed works are genuinely likely to add and make sure the strategy stacks up.

Sometimes the smartest renovation decision is knowing when not to renovate.