Quick answer
Assets acquired before 20 September 1985 sit outside the CGT regime, but the exemption is fragile. Major capital improvements, a change in majority underlying ownership, or death can bring the asset — or part of it — into CGT. Establishing value at the relevant trigger date requires a retrospective valuation, often decades after the event.
The basic rule
A CGT asset acquired before 20 September 1985 is disregarded for CGT purposes on disposal. Acquisition is generally tested at the contract date, not settlement, so a property contracted on 19 September 1985 and settled in November 1985 is a pre-CGT asset.
The exemption attaches to the asset, not the owner, and it is fragile. Once lost it cannot be restored.
How the exemption is lost
These are the events that convert a pre-CGT asset into a post-CGT one, or create a separate post-CGT asset alongside it.
- Death of the owner. The beneficiary is taken to acquire the asset at its market value on the date of death — which is exactly why date-of-death valuations are commissioned on properties bought in the 1970s.
- Majority underlying interests in a company or trust holding the asset changing after 19 September 1985 (Div 149).
- A building or structure constructed on the land on or after 20 September 1985, which is a separate CGT asset under s108-55(2) — with no threshold test.
- Other capital improvements large enough to be a separate post-CGT asset under s108-70.
- Subdivision, where the new parcels may take a different character from the original land.
- A change in the asset itself — for example, land that becomes trading stock.
Improvements that become separate assets
Two different provisions do this work and they are routinely conflated. A building or structure constructed on pre-CGT land on or after 20 September 1985 is a separate CGT asset under s108-55(2), full stop — there is no threshold and no dollar test. Build a house in 1998 on land bought in 1980 and the land stays pre-CGT while the house does not.
Section 108-70 covers other capital improvements — subdivision works, rezoning costs, land improvements. One of those becomes a separate CGT asset only where its cost base exceeds both the improvement threshold for the income year in which the CGT event happened and five per cent of the capital proceeds from that event. Both tests must be met, and related improvements are aggregated under s108-70(3).
The threshold is indexed annually under s108-85(2). For 2025–26 it is $187,962; it was $174,465 for 2023–24 and $162,899 for 2022–23. Always use the figure for the year the CGT event happened, not the current one.
One useful exception: s108-70(2) does not apply to a CGT event that happens because of your death. Improvements that would have become separate assets on a sale are not carved out when the asset passes to your beneficiaries.
Where a separate asset does exist, the valuation instruction is an apportionment of the capital proceeds between the original asset and the improvement, as s116-40 requires.
Why a 1985 valuation is still commissioned
A valuation effective in or around September 1985 is required in several situations that remain live.
- A Division 149 change of majority underlying interests, which deems acquisition at market value on the changeover date.
- An apportionment between exempt pre-CGT land and a post-CGT improvement.
- Land that changed character after 1985 — for example, from private use to trading stock.
- Reconstructing an estate’s position where records are incomplete and the executor needs a defensible starting figure.
Can a 1985 valuation actually be evidenced?
Yes, and we prepare them routinely. Settled sales evidence from 1985 is available through the major property databases, and it is supplemented by council rate records, historical aerial photography, contemporaneous newspaper listings and archived market commentary. The evidence set is thinner than for a current valuation and the report says so.
The practical constraint is describing the property as it stood in 1985. Where the owner or executor holds original contracts, building approvals or photographs, the report is materially stronger. Send whatever exists, however incomplete.
Questions we are asked about this
My parents bought in 1982 and I inherited the house. Is it exempt?
No. Death is one of the events that ends pre-CGT status: you are taken to have acquired the property at its market value on the date of death. That date-of-death valuation becomes your cost base.
Is acquisition tested at contract or settlement?
Generally the contract date. A property contracted before 20 September 1985 and settled after it is still a pre-CGT asset — but confirm the position with your accountant, as the rule varies by the manner of acquisition.
How far back can you value?
We routinely value to 20 September 1985 and have prepared 1970s valuations for legacy estate matters where sufficient evidence existed. Earlier dates are assessed case by case before we quote.
Keep reading
Sources
- Income Tax Assessment Act 1997 — Consolidated Act, AustLII
- Market valuation for tax purposes — Australian Taxation Office — the eight valuation fundamentals
- Australian Property Institute — Professional Practice Standards and the CPV designation
This page is general information about how valuations are used for tax purposes. It is not tax advice. Your accountant or tax agent should confirm which provision applies to your circumstances.
Written and reviewed by
Jarrad Khoury
Head of Valuations at Asset Valuations Group, where he leads the Business Valuation Services division. Over 10 years in property and business valuation. Registered Valuer in Queensland (Not Limited), Licensed Valuer in Western Australia (Not Limited), CPV through the Australian Property Institute (Not Limited), CPV and CBV through the Australian Valuers Institute, and Registered Business Valuer through the AIBB.
Last reviewed 15 September 2026 · About the practice · Editorial policy