Capital gains and your end game

There are different approaches

The Jan Somers books which were popular in the 1990 advocated buying serveral properties and then perhaps selling one or 2 to pay down the rest so that you can live on the rents.

I have a client who is selling about 5 unencumbered Sydney properties so she can invest in index funds and get a higher yield without the land tax and hassles of property.

Others plan to live on rents without selling - which may take longer.

Then there are variations on the above, sell the main residence CGT and move into one of your rentals etc. etc.

 

Thanks. All good. But in selling up is she not losing a huge chunk in capital gains tax?

 

Yeah. It's for this reason I mainly buy in countries with no cgt. Like HK and Singapore. Right now I'm actually very excited about the fundamentals for Gold Coast property but I can't get my head around the capita gains tax.

 

Lol!

 

Not sure I fully understand the question. But yes, one can pay more tax, or less tax, or no tax on a property sale. What I want, obviously, is to have the max gain and then the minimum taken away from me. That's what I am seeking guidance on. Make sense?

 

Yes makes sense now. Will vary how you have set up the property in the first place. Are they all in your name? Do you have a ppor, which you know if you sell has no tax payable.
You could sell when your no longer earning an income, or can offset your greatest losses, this will help reduce tax payable for that year. One per financial year will keep paying hire tax bracket.

Paying tax shouldn't be a concern, as long as your overall profits(after legally minimising what you have to pay) are greater than other investment options, taking into consideration risk factors other investment options have.

@Terry_w , your switched on with this. How can big max pay as little as possible in his current scenario?

 

Are you not an Australian resident for tax purposes?

 

I'm going to sell down half of my portfolio after the (fingers crossed) south east Queensland boom and put all the money into my PPOR.

I'm currently renting but have a PPOR up in Logan that is still exempt from CG tax.

My plan:

Buy a new place at the end of the year that will become the new PPOR in the area that we want and rent it out for about a year. We will move back into the old PPOR and do it up for sale (fix gardens/landscape, repaint inside etc etc.)
I have 2 properties in Logan including the old PPOR and I will sell both of them in about another 2 years or so as they would have grown by then and put the profits into the new place. It doesn't matter if I sell both in the same financial year as one of them will be exempt from tax anyway.

This will leave me with 2 NRAS properties that are making me around an extra $15k per year after tax. This money will be used to pay down the rest of the PPOR debt and invest in fully franked dividend shares.

I eventually want to have almost no property holdings and have a large share portfolio as the dividends and lack of maintenance is very appealing.

This is the bare basic plan for myself and is the core of what I want to do, but I will still chase deals and do at least one development but I'm going to move away from buy, hold and pray.

 

Northy have you seen these 2 strategy threads of mine which may interest you?

Strategy: Rent where you live and Buy Investment Properties Strategy: Rent where you live and Buy Investment Properties

Strategy: Rent and Maximise CGT concessions to Pay off the Home loan sooner Strategy: Rent and Maximise CGT concessions to Pay off the Home loan sooner

 

It all depends how Max has set up and his situation and what he wants to do and where the properties are.

He could sell one property, for example, in a year of low income, and prepay interest on other loans so as to increase expenses for the year to save CGT etc..

 

I think both residents and non residents pay cgt on property sales of the property is in oz? Or am I mistaken? (If so that would be great!)

 

Prepay interest on a loan? Is that even possible? I've never heard of that.

 

Noted on selling when no longer have an income. Unfortunately (or actually fortunately) I prob won't be in that position. Same with losses to offset, although who knows it could happen of a house gets damaged or something like that and is not covered by insurance or I have a terrible year with stocks (but again not very likely).

 

You're correct on that front, I was asking more because if you're a non-resident as your original post would imply then it fundamentally changes everything as far as possible advice.

If you're not a non-resident you might want to have a long chat to your accountant if you've not been paying or plan on not paying the CGT on foreign real property as you'd be putting yourself firmly in the ATO's cross-hairs for an audit for tax fraud/evasion on one of their absolute top priorities right now. Just because another country doesn't have a specific CGT provision doesn't exempt you from the basic premise as an Australian tax resident that you're tax on world wide income.

Absolutely is possible, it's a powerful technique if you're going to be in different tax brackets as a result of the CGT event and thus get a major benefit from the negative gearing boost, of course it means you either get stuck in a prepayment cycle or have no interest deductions in a future year, you also obviously need to be able to pay the full amount. Banks can sometimes limit it based on loan types as well.

 

This is the case, but non residents don't get the 50% CGT discount.

 

My comment was actually more oriented at his comment regarding buying in other areas that don't have specific CGT regimes and the allusion that it meant he wouldn't have to pay CGT.

 

I think considering where you are tax resident when selling property needs to be part of your strategy if possible if you own o/s.

 

Thanks. Yeah noted on buying overseas whilst an oz resident. I'm more interested in the opposite. That is cgt whilst not being a resident for tax purposes. Sounds like it still needs to be paid huh?

 

Yep, as a non-resident you will pay tax on all your Australian income. Depending on where you're a resident you might at least be entitled to some kind of foreign tax credits but can't offer and advice other than to read any double tax agreements. As a non-resident it's actually almost certainly going to be worse, not that you want to hear that!

 

If possible I think you'd want to aim to be resident here in the tax year you're selling your aus ip. Pretty sure you can do that and pay the 'minimum' 50%.