CGT planning

I have often wondered how those with 2 or more IP's manage their CGT when selling. Must be painfull when your investment is now worth 100K-300K or more than what you paid. Do you take a year off work or wait until you have retired, however that wouldn't work as investors you have planned for retirement and how much income you would need.

How about a discussion on ways and means

 

Sell in a low income year
Prepay interest in advance for following year to increase deductions in sale year (will eventually catch up with you though at some stage)
Contributions to super

 

I can answer this...as I am experiencing this as I sell down....here are my thoughts

1. You raise an excellent point...people crowed about making 600k profit..but it becomes a headache when you sell as you lost about 140k in taxes....I have always said that 100-300k is very manageable..
2. Pay interest in advance...and keep paying that on a rolling basis. If you have two properties..then lets say you pay 30k in interest pay it in advance which gives you 30k deduction
3. Take 1-2 months of unpaid leave
4. Tip in more money into super from your salary (only up to 25k...minus whatever contributio your employer pays)
5. Bring forward essential maintenance on other properties

Lets say you sell a property bought in 2012 for 250k for 500k. Stamps/Legals 10k....sell costs 10k. So you are up for 230k profit. Allow 50% CG deduction you add 115k to your income.

If you used the following and lets say you are on 72k...you could reduce you salary down to (45k - 2 months unpaid leave....18 into super).

So your taxable income is 160k. Deduct another 30k for interest paid in advance. You total tax liability is about 33k.....which is not bad. In the end you only paid 14% tax out of the 230k gain.

Please seek financial advice as this is a example only and your circunstances can be different.

 

I have written about this here
Tax Tip 119: How to Reduce CGT on Investment Property (Part I) Tax Tip 119: How to Reduce CGT on Investment Property (Part I)

 

My tip is make sure you exchange contracts in the year of lowest income, as at settlement doesn't count.
PS Made this mistake myself - Ouch!

 

if you have SMSF, contribution reservation strategy....basically making next year's 25K allocation minus projected employer contribution in current year.... Don't have one but was reading in an article by Sam Henderson...

 

Why do you need to sell it all at once? Do not sell and you do not have to pay.

If your loans are structured properly you can take cash out of the offset and reset the initial tax deductions of your loans.

So if you do need lots of money you can still defer sale events over a number of years and use the lifestyle Cash with tax deductions on the interest cost.

Most wealthy clients use the offset strategy to not sell. Sometimes it happens and the trusts typically benefit the extended family on lower tax rates.