When we sell capital assets, we can either make a capital gain or capital loss, depending on what it cost to maintain the asset.
These gains or losses need to be declared on our annual income tax return.
Gains are added to your income and may increase the amount of tax you need to pay.
Losses can be used to reduce a capital gain.
Once your assessable income has been determined, the Capital Gains Tax to be paid, will be based on your tax bracket for that year.
If you end up in the highest tax bracket, you could pay up to 45% on your property’s gain.
CGT is paid as you file your return for the year that you sell your property and the date of sale, refers to the date that you signed the contract.
There are several legal ways to avoid capital gains tax when selling your investment property.
If you live in the property right after acquiring it, the asset can be listed as your primary place of residence, which makes it exempt from GST.
Also, if you wait for one year after you have bought the property, you can receive a 50% tax discount on any gain that you make on the property.
You can also hire a valuer before renting out your property to assess the value and you will be able to calculate any future gains ( or losses) from the cost base they provide.
In addition, you can use a self-managed super fund to get a SMSF property loan.
You are not allowed to live in the property until you receive your pension but once you are a retiree, you can sell the property without paying any capital gains tax.
Also, if you rent out your property for 6 years or less, you can use this to gain a full CGT exemption, as long as you are not treating another property as your main residence.
For related blogs, visit: https://www.realrenta.com.au/blog/post/638 Rental properties 2019-ATO Guide
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Jason Gwerder
Monday, 13 January 2020
