Capital gains and your end game

A bit late to the party here. And I know financial planner is a dirty word amongst most property investors, but they do have some value, if... you can get a good one! I think with your situation it might be worth dropping $2k on a statement of advice.

Some things to remember:
1. If you have enough income from the properties to maintain your current life style think about maxing out your concessional contributions to super
2. If you stagger the property sales over several years you can put $180,000pa after tax money into super (or bring forward 3 years).

I know it does not help with your current situation, but once you turn that super into a pension ZERO tax!!!

Also if you own a business you can dump the proceeds from that sale into your super, tax-free up to $1.3m. Or own your business premises put that into your SMSF, no stamp duty, just enjoy that sweet tax free rental income!

This is the type of strategy you want to look at if you want to sell up and live off low maintenance dividends for your retirement, who would not like to live out their twilight years paying $0 tax!

 

Good points.
... or a very good accountant who understands and implements these strategies for clients you will be on the right track

 

don't forget us tax lawyers either.

 

Unfortunately many property investors buy IPs in their own name and can NEVER get the property into a SMSF and save tax. s66 SIS prohibits most property from being acquired by a SMSF from a member or a relative etc. Its a fatal issue really and the general anti-avoidance rule includes any scheme that gives effect to a transfer to bypass the rule. It can be illogical but is fairly strict

 

A SMSF can be a very powerful tool in this situation, I agree. We turned profits from sales into 3yr concessional lump sum to set our SMSF up with enough money to do something worthwhile.

 

In answer to Big Max's original question. I think each person's situation will be unique and their end game has to be worked out accordingly.

In my own situation, I plan to keep the IP's that have the largest capital gains tax liability. The reasons for this are that I have held these IP's for the longest amount of time and they are also my best located IP's. I believe these will continue to grow in value over time.

I also have shares and eventually super that I will use to generate income. So for me, the strategy is to sell down some IP's to balance the debt and live on a mixture of rental income and share income. The break down % wise if I were to go through with the strategy today would be:

Income:
Rental Income: 53%
Share income: 46%

I haven't included super as I can't access it for at least 15 more years!! I could also decide to sell down more IP's and invest further cash into shares if I think this will generate a more secure income stream. We'll see!

 

Tip is to seek financial advice early (when you are in late 50s) as this enables some long term strategies to be implemented. Super works a few different ways to keep tax rates down....
- Cap Gains rate as low as zero
- Tax on income as low as 0% or worst case 15%
Compare this to the lowest personal rate from $20K+ at 19% and quickly rising into the 30/40% range. However bear in mind that cap gains tend to be large and lumpy.

Sometimes leaving property in own names makes sense and sometimes super works. Sometimes a combined strategy to shift selective profits on sale prior to retirement age in super helps too. Personal advice will address which strategy works and its value. But do it earlier... Its too late when you get to 65.

Further food for thought is to not throw all property into one basket and one state. Land tax can be a killer to that strategy.

 

The hidden secret to CGT on property is that it only gets taxed if it gets sold. The debt passes with the asset to beneficiaries on death. This explains some huge property dynasty's....

 

How is CGT free property treated if inherited or sold before vs after passing.

 

Tax Tip 94: Inheriting Pre-CGT Property https://propertychat.com.au/community/threads/tax-tip-94-inheriting-pre-cgt-property.7168/

 

I was gonna say, I bet Terry has a tip written on this & I think I was joking about carrying them out to new home....weekend at Bernies style

 

Inherited v's sale are different.
1. Inherited before death?No. After death it is considered to have a cost base of the MV at the date of death.
2. If sold before death. It is GST exempt. Ignore it. If sold after death special rules apply. I assume you mean the executor sells after death (otherwise the beneficiary is treated in the manner in 1 above). The costbase is the MV at the date of death

Deceased estate and CGT
This link is a guide to various CGT issues at death and there are examples.

Note the special rule right down the bottom of the page about cost base adjustments in some instances.

 

Keep in mind that anyone living/working overseas doesn't get the 50% capital gains discount....so for us we have ZERO interest in selling any until we retire back to Australia in 20+ years to come.

 

Same here, have an experiment going to acculumate properties in a few countries and combine this with extended holidays. Tax deductable trips to inspect and maintain and keeping in mind tax residency status when selling.

 

Keep in mind you still wont get the 50% discount when you become a tax resident again.

 

This is what I'm working on at the moment.

 

@Terry_w how about Post-CGT Investment Property?
It was an IP then became PPR (no income producing) and to children as inheritance. Are they liable for CGT if sold on the day or use as their PPR? Thanks in advance

 

If it was the main residence at death then it would be inherited with a cost base as at value at date of death. If not main residence then it would be inherited withe cost bases of the deceased.

 

Yep but can be less of a factor as a percentage over time.