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Valuer inspecting a property to conduct a capital value assessment.

What is a Capital Value Assessment and How Does it Work?

A capital value assessment, also known as a capital valuation, is a professional appraisal done to determine the market value of a property for tax purposes. In Australia, state and territory revenue offices use capital valuations to calculate land tax.

Who Carries Out Capital Value Assessments?

Capital valuations are performed by qualified valuers appointed by the state’s Valuer-General or revenue office. They physically inspect the property and analyse relevant market sales data to assess the property’s market value.

The valuers appointed have appropriate qualifications and experience in property valuation. They also undergo regular performance reviews to ensure they meet expected standards.

When are Capital Value Assessments Done?

Each state and territory has a cycle for revaluing properties for taxation. This ranges from every 1-3 years on average.

Outside the regular revaluation cycles, a capital valuation may also be triggered by:

  • The property being sold or transferred to a new owner.
  • A significant change to the property through renovations, extensions etc.
  • The property use changing e.g. residential to commercial.
  • A successful objection by the owner to a previous valuation.

What is Assessed in a Capital Valuation?

The capital value assessment seeks to establish the market value of the land and any improvements on the property.

Key elements assessed include:

  • Land size, shape and dimensions.
  • Zoning and allowable uses for the land.
  • Any developments and buildings on the land – their size, construction, age, condition.
  • Property access and location attributes.
  • Supply and demand factors impacting value.

Both the land and building values are combined to determine the overall capital value of the property.

How is the Capital Value Determined?

Professional valuers use accepted valuation methodologies to calculate the capital value. The most common methods used are:

Sales comparison approach – Assessing recent sales prices of comparable properties in the area to derive a market value range.

Cost approach – Calculating land value plus the depreciated replacement cost of buildings and other improvements.

Income approach – For income-producing properties, valuing based on the property’s earning capacity.

The valuer reconciles the results of these approaches into a final capital value opinion. Adjustments are made to account for unique property attributes versus direct comparables.

Notifying the Property Owner

Once the valuation is complete, the state revenue office issues a notice to the property owner advising the new assessed capital value.

If the owner believes the value is inaccurate or assessment errors have been made, they can lodge an objection. This may lead to the valuation being reviewed or updated.

By regularly assessing capital values using approved methods, state authorities can levy land tax and other property taxes fairly and equitably.