Capital gains and your end game

Discussion in 'Accounting & Tax' started by big max, 13th Mar, 2016.

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  1. big max

    big max Well-Known Member

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  2. wylie

    wylie Moderator Staff Member

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    Regarding prepaying interest and the above answer...

    It is something that can work if you have a reason to bring the next year's interest into the current year. It is true that you have to find the money to do this, and it "can" mean starting a cycle that is hard to manage, continually having to find the money to prepay.

    If you have a number of loans, however, you don't have to be stuck with a year where there is no interest to claim. You can fix and prepay some loans, and don't fix some loans, and make monthly payments. This way, there is no sudden "stop" and you can ramp it up or down to suit.

    (Hope that makes sense.)

    Also, this must be arranged mid-May and if you are lucky your bank will actually debit the interest as arranged. Every single year, I am stuffed about and have to chase the bank up, sometimes up until the last minute of the last day of the financial year. It is very stressful and I've learned "never trust the bank to do it right".
     
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  3. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    That link is about the 6 year rule - you can be absent from your main residence, and rent it out, for up to 6 years yet still treat it as the main residence and sell it CGT free in certain circumstances.
     
  4. big max

    big max Well-Known Member

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    Yes makes sense. Thanks!
     
  5. sanj

    sanj Well-Known Member Premium Member

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    What makes you presume that?
     
  6. sanj

    sanj Well-Known Member Premium Member

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    there's nothing wrong with crystalising a gain and paying the tax if it suits the individual's circumstances at the time.

    sounds like you've been investing for a couple of decades and have made decent $$, go see an expert in this field, pay for their time and get specific answers to your questions and actual tailored advice vs Internet opinions.

    I think you're making too big a deal about it. of course we all want to minimise the tax we pay but if the idea of paying CGT is too much to handle then I'd suggest not investing in australia or, if you do, try not to make money.

    all property investors in this country benefit from the services the government provides, if no one paid tax they would not be able to provide said services.
     
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  7. HUGH72

    HUGH72 Well-Known Member

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    Lots of possibilities:
    Sell one with the aim of paying off 2 or 3 others, selling a property held by the husband/wife with the lower marginal tax rate.

    Living off rent with funds in offset or with loan balances substantially reduced by paying down debt.

    If someone is approaching their super preservation age then withdrawing a lump sum to reduce debt might be an option.

    Sell a low yielding higher maintenance property to increase cashflow.

    Sell the larger ppor and downsize to a smaller property.

    Sell a property to buy shares directly or in a LIC or ETF.

    Sell one every 3-4 years at the start of a new financial year to limit capital gains tax payable.

    Purchase newer properties closer to retirement with significant depreciation to be claimed.

    Maximise contributions to super, start a transition to retirement strategy if old enough.

    I think some people on here don't discuss these ideas because they are young, starting out and these ideas won't be relevant for many many years. Even then it assumes that early retirement is the goal, for many it might not.
     
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  8. sanj

    sanj Well-Known Member Premium Member

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    re preservation age, are you suggesting taking money out of super and using it to reduce personal debt? why would you take money out of a low or no tax environment?? would be madness if there was no pressing need to, if anything someone should consider cashing in on some gains outside of super and maximising non concessional contributions, currently you can put 3 x 180k in at once and if you did 180k on 30th june you could do another 3x180k on 1st July for next 3 years.

    you'd then have 720k (or possibly double if the spouse was the same age) on top of existing balance and the ability to use that to make money tax free
     
  9. Westminster

    Westminster Tigress at Tiger Developments Business Member

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    At the end of the day CGT is the price you pay for holding an investment property. For the cost of that CGT you get to generally enjoy around 70% of the profit. That is nothing to be sneezed at. Over the course of holding it for 20 or so years you will have enjoyed all sorts of tax benefits that may even outweigh that 30% or so CGT that you end up paying.
    Yes it makes sense to stagger the sales and do it after you retire when your income is lowest - ie do one per tax year rather than multiples so that your income is as low as possible to reduce the CGT.
    Other than that very logical minimisation it's pretty much the governments money.
     
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  10. wogitalia

    wogitalia Well-Known Member

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    Not to mention that unless you have substantial wage income, then you'd probably be able to make the maximum concessional contribution and get the immediate deduction against the capital gain as well, would only have to pass the 10% rule which if the gains are as substantial as he has implied shouldn't be overly difficult.
     
  11. sanj

    sanj Well-Known Member Premium Member

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    Im constantly amazed that so many people try and find every single loophole out there that exists and others that don't in order to save tax but they ignore a completely legal tax free or low taxing environment, especially those a bit older.

    pay for good advice people...
     
  12. wylie

    wylie Moderator Staff Member

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    @sanj who do you advise seeing for this type of advice? My parents engaged RetireInvest and they helped them plan this type of transition, minimizing costs and tax as they made changes.
     
  13. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    Once strategy may be to withdraw super pay off the home loan and then quickly put the money back in super by making concessional and non concessional contributions (which may take time to get). A financial planner should be able to work out if this is worthwhile or not.
     
  14. Northy85

    Northy85 Well-Known Member

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    thanks mate, I think I'm pretty much doing 80% of this strategy which I'm happy with. I've almost finished Peter Thornhill's book Motivated Money, and a variation to this approach, which I'm doing now anyway, is to redraw the money paid off the mortgage to buy into shares and pay down the mortgage with the dividends, then redraw more and repeat.
     
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  15. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    Great approach.

    Make sure you don't contaminate the loan by doing this. See my thread on debt recycling and also on the loan structuring strategy so that you can do this without needed to split the loan constantly.

    Tax Tip 2: Debt Recycling

    Tax Tip 13: Simple Loan Structuring Strategy
     
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  16. HUGH72

    HUGH72 Well-Known Member

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    I'm not directly suggesting any one option, I was replying to ellejay's post.
    Regarding taking a lump sum from super, this might be necessary depending on one's circumstances if they still have ppor debt approaching retirement and don't wish to downsize or sell other assests. Excess cashflow funds could then be returned to super via a non concessional contributions or they could transition to a account based pension while maximizing salary sacrifice contributions.
     
    Last edited: 16th Mar, 2016
  17. See Change

    See Change Well-Known Member

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    We're going to sell some properties ( pay CGT ) to pay off other properties so we can live off rent . Some of those will be within Super , but we aim to have other fully paid off properties within trust funds and possibly even in our own names.

    Have long term holds in different states / structures to minimise land tax ( only land tax will be in Tassie but minimal amount ) . Our long term holds are either high returning or bought in good areas when the market was flat so good returns were available on good properties.

    I have seen peoples retirement plans ruined by the GFC so not interested in having a significant percentage in the share market , even in index funds , and my parents conservative retirement has been hit by decrease returns on Term loans in last two years . They don't have an " issue " but now have to watch there money , so they don't waste money by going to an expensive restaurant when there's a cheaper one available .

    Quite happy to have a fully paid of residential portfolio so it's effectively indexed .

    Cliff
     
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  18. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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  19. See Change

    See Change Well-Known Member

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    Terry , I'll leave that up to others to judge.

    Part of the other reason I sell , is that I time my buys to take advantage of the property cycle . With the recent restrictions on how much one can borrow c/o APRA , I think this may be even more important .

    For example we have sold two and are about to sell another property in Sydney . These have seen significant growth in the last 5-6 years we have held them . I think most places will out perform Sydney in the next few years .

    We had reached our borrowing capacity and with the two we have already sold , we kept two loans and then via substitution we used these loans to buy further properties in Brisbane and Adelaide , which we otherwise couldn't have bought . My thoughts are , % wise these two properties will grow more in the next 5-7 years than the properties we sold in Sydney ( they're also better cash flow wise ) . We also used the profits from the sale to pay down a fair chunk of debt , though we could have used it to pay cash for further properties if we wanted .

    Coincidentally , APRA consider our borrowings to have maxed out at around the same time as our SANF gave the same message .

    Compared to two years ago our portfolio is worth a similar amount of money but with a gradually decreasing LVR .

    Cliff
     
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  20. trinity168

    trinity168 Well-Known Member

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    Hi SC,

    When you started buying property, did you buy it under your personal name or, you had setup the trusts at the start?

    Thanks.
     

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