Professional valuations provided by the person
A person is not expected to obtain professional valuations for any asset. If a person provides a written valuation this can be used to determine market value if the valuation:
- was done by a professionally qualified valuer, and
- it is based upon the highest and best use of the asset and is supported by evidence of recent comparable sales.
If there is a doubt about correctness of the valuation, or someone other than a professionally qualified valuer provides the valuation, it is treated as though it is a person's estimate.
Council rates notices provided by the person
The use of council rates notices to form the basis of a property valuation is not recommended due to the variance of methods used by different councils.
Valuations of assessable property
Real estate is valued using the person's estimate of the market value, unless the:
- person is paid under the assets test, or
- the pension is assessed under the income test and the total value of the person's assets falls within $10,000 of the assets value limit.
In these cases, a valuation from a property valuation service provider should be obtained at no cost to the person.
Reviewing the value of assessable property
Property values already included in a pensioner's assessment may be reviewed through the annual bulk valuations, targeted compliance reviews, individual reviews and pensioner initiated reviews. Pensioners are generally not required or expected to obtain property valuations, or to notify the Department of the change in asset value of an existing property, as there is not an identifiable 'event'. However, if any changes are made that may impact on the value of the assessable property, a revaluation may be required. For example, an existing assessable property which has been extended, or the creation of an easement that limits the way part of the property can be used, may require a revaluation by a property valuation service provider.
Actuarial valuations
Actuarial valuations are also required for the following:
- a life interest created by the person, the person's partner, or on the death of the person's partner (other than a life interest in their principal home), or
- a life interest surrendered for disposal purposes, or
- a contingent interest, remainder interest, or reversionary interest created by a person or acquired for valuable consideration.
Actuarial valuations should be sought from the Australian Government Actuary as this organisation has the recognised expertise in undertaking actuarial valuations for government. This also ensures that the same methodology is always used, ensuring consistency in assessment.
Requests for actuarial valuations should be referred to the Team Leader of the Investment Database Unit.
Valuing a Jointly owned asset
Where an asset is jointly owned, the value of a person's partial interest in the asset is held in their assessment. Their partial interest (such as a determined percentage) is then applied to the market value of the asset.
The market value of the property still applies where the property is jointly owned. A long-established principle of determining asset value is that a hypothetical situation is envisaged, where a willing purchaser meets a willing vendor. This valuation approach is based on the High Court decision Spencer v Commonwealth of Australia, 1907. It is not necessary that an actual purchaser who wants to acquire only the partial interest in the jointly owned asset exists. For this reason, the market value of the whole property is not discounted based on the inability of the joint owner to find a real buyer for their partial share in the property.
A joint owner's share of the property can be calculated on the basis of their direct share of the legal title. However, as with wholly-owned properties, delegates should also consider whether there are other factors beyond the legal title which may affect the extent of the person's interest in the asset, such as the proven beneficial interest of another party.
Valuing an Interest in an Asset subject to a Will
A person, such as the executor of a will, may be provided with full legal title to an asset solely for the purpose of facilitating a sale, with the executor then distributing the proceeds of the sale in accordance with the instructions in the will. The executor may also have a known personal interest in the asset value, based on the will. In these circumstances, it is reasonable for the delegate (for a short period of time) to disregard the legal title, and to not assess the person as having any interest in the asset until after it is realised. The person's anticipated interest in the asset (based on the terms of the will) can be disregarded in the short term given that the asset value is unable to be accessed or relied upon for self-support by the person before it has been realised.
This disregarding of the asset value for a short period of time is based on the expectation that the change of legal title is solely for the purposes of a rapid sale, with the share of proceeds then being useable by the executor, and so assessable for pension purposes. If the finalisation of the sale and the distribution of the asset value is unduly delayed, the person's known interest in the asset, based on the terms of the will, should be held.
Valuing a property asset during construction
During the progressive construction of an assessable house or other property asset, there is no standard approach, such as obtaining a property valuation, to determine the increasing value of the asset. One possible measure is to accept the value of the funds periodically transferred towards the completion of the property. Alternative approaches may be to accept the client's estimate of the increasing value of the property during construction, or to compare the period of construction with the expected final valuation on completion, and to apportion the value to the stage of completion.
Other factors may also be considered, such as the extent of land ownership, which has a value independent of the construction process. It is not necessary that a series of official property valuations be obtained, as the alternative valuation approaches outlined above provide a readily available and satisfactory measure of the change in the market value of the property, at each stage in its completion. It is not correct to defer a decision on the valuation of the property until it is completed. The test of market value allows a willing purchaser of a property asset which is still under construction to be assumed.