Changes to the Capital Gains Tax (CGT) landscape are placing greater attention on the value of personal assets, including jewellery. For professional jewellery valuers, however, the fundamental task remains the same, this being the provision of an independent and supportable assessment of market value at the relevant valuation date as set out in a professional valuation report.
The Australian Taxation Office (ATO) specifically identifies jewellery as a collectable for CGT purposes when it is used or kept mainly for the personal use or enjoyment of the owner or their associates. Other collectables include paintings and other artworks, antiques, coins and medallions, rare books and manuscripts, postage stamps and first day covers. This classification is important because collectables have specific CGT rules. Under current ATO guidance, a capital gain or capital loss from a collectable is generally disregarded if the asset was acquired for $500 or less, a share in the collectable for $500 or less before 16 December 1995, or that a a share in the collectable when the collectable had a market value of $500 or less.
Special rules also apply where collectables form a set, such as with a suite of jewellery. In such cases, a suite such as earrings and a matching necklace sold as a suite should simply be treated individually to obtain the $500 exemption. Capital losses from collectables also receive particular treatment and can generally only be used to reduce capital gains from other collectables. The detail of the ATO guidance is complex, so taxpayers are advised to seek expert advice and valuers should refrain from giving tax advice.
For jewellery acquired above the relevant threshold, valuation may become important when a CGT event occurs. This can include circumstances where jewellery is sold or disposed of, gifted or transferred without payment, or where parties are not dealing at arm’s length. In particular circumstances, the ATO’s market value substitution rules can require market value to be established. Notably, the ATO does not use the term “fair market value,” a term that has certain applications in different contexts.
Why The Valuation Report Matters —
A CGT valuation should be supported by a professional valuation report that clearly identifies the asset, valuation date, purpose, methodology, market evidence and concluded value. The industry standard is AVAA Professional Standard 6 – Minimum valuation report requirements establishes requirements for properly documented valuation reports, providing taxpayers and their advisers with a transparent and supportable valuation record that can be understood, reviewed and retained as part of their taxation documentation.
The short one- or two-page valuations often found in the jewellery sector are unlikely to have the integrity required for ATO purposes and thus, taxpayers should seek a professional valuation report.
Where a valuation is required, the professional task for the jewellery valuer is essentially unchanged. The valuer identifies and examines the item, considers gemstones, precious metals, maker, age, condition, provenance and relevant market evidence, and reaches an evidence-based opinion of its market value at the specified date.
This is where the AVAA Professional Standards become particularly relevant. AVAA Professional Standard 17 – Valuation Definitions & Methodology establishes a professional framework for valuation definitions, bases of value, market evidence, methodology, assumptions and professional judgement. Importantly for CGT work, it distinguishes market value from other concepts such as insurance value, auction appraisal value, fair value and liquidation value. Selecting the correct basis of value is fundamental because a valuation prepared for insurance purposes may produce a very different figure from a market valuation prepared for taxation purposes.
Who Should Do The Valuation —
An AVAA Certified Valuer (CVAu) has demonstrated professional valuation experience and maintains professional indemnity insurance, continuing professional development and compliance with AVAA Professional Standards. For jewellery being valued for CGT purposes, engaging a certified valuer provides clients with access to a practitioner operating within an established professional framework, with recognised requirements covering valuation practice, reporting, professional conduct and ongoing professional capability.
Importantly, CGT compliance does not change the fundamental role of the jewellery valuer. Questions concerning whether CGT applies, available exemptions, acquisition dates, cost bases, capital losses and the calculation of tax liability remain matters for appropriately qualified tax advisers.
The respective roles are clear. Professional Standard 17 supports the determination of the appropriate market value, while Professional Standard 6 supports how that valuation is documented and reported. The tax adviser can then determine how the valuation should be applied for CGT purposes.
The CGT framework is currently under review and may change. This information is general guidance only and should not be relied upon for taxation compliance purposes.
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Interested In Finding Out More?
If you’d like more information on the AVAA Professional Standards, send an email to standards@avaa.com.au or telephone 1300 928 165. You can also stay up to date by following AVAA on LinkedIn, X/Twitter and Facebook.
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