How to reduce CGT bill when selling a high equity IP

Discussion in 'Accounting & Tax' started by skyfall, 27th Sep, 2021.

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  1. skyfall

    skyfall Well-Known Member

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    So ppor can't be claimed as my main residence and be exempt from cgt if it's rented out during that 6 year period after I vacate?

    I thought this covers it:

    Where you have previously lived in the property it may be possible to still claim the property as your main residence, even though you may have been absent and renting it out and keep it CGT free. This will be done by using the 6 year rule (s118-145). See my tax tip: Tax Tip 23: The 6 year Absent from Main Residence Rule
     
  2. Terry_w

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

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    it could be fully exempt, but it depends on a lot of other factors which may mean it is not fully exempt.
     
  3. Prashant Pare

    Prashant Pare Member

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    Hi,
    I was discussing the 6 year rule with my Accountant. According to him, "if a PPOR is rented out, there is no 6 years limit (as long as you havent declared any other PPOR) .. you can rent it for as long as you want ( i.e. more than 6 yrs as well), treating it as a PPOR and sell it without CG. The 6 year rule applies in specific scenarios like moving outside the state/country"
    Not sure this matches what I have understood from this forum. Can someone clarify please.
     
  4. Terry_w

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

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    it is obvious that she hasn't read the legislation.
     
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  5. Trainee

    Trainee Well-Known Member

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    Ask your accountant for the reference to the legislation or case law that supports their opinion.
     
  6. Terry_w

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

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    Here is the legislation:

    upload_2021-10-5_17-35-59.png
     
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  7. wylie

    wylie Moderator Staff Member

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    I'd be looking for a new accountant.
     
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  8. Mike A

    Mike A Well-Known Member

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    not accurate
     
  9. skater

    skater Well-Known Member

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    You need a new accountant.
     
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  10. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    They need to be reported to the Tax Practitioners Board for incompetence. What a numpty.

    If a property is rented aftre being occupied by the owner as their home then the 6 year absence rule applies to ALL property if the taxpayer elects to use it and is able to. The absence rule contains NO time limit if the property does not produce income. The absence rule doesnt apply in "specific cicumstances" at all. Its very broad. The test condition is that the property was your main residence and the owner/s are "absent". Of course your dopey accountant may not have mentioned how s118.192 also may impact matters in some cases.

    However other factors could impact. Is this a new construction you built under a profit making activity ?

    Yes....
     
  11. devank

    devank Well-Known Member

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    How is this strategy to spread your gains across multiple years?
    Let's say you need to pay tax for $100k.

    Buy two opposite shares such as GEAR and BBOZ each $200K worth.
    Wait for one to go down to $100k and sell both the property and the stock which had the loss. The other stock would have increased to $300k.
    Then start selling the stock which made profit in following financial years.
    Your CG is spread across multiple years which may enable your marginal tax rate to be lower.
     
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  12. Terry_w

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

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    If one share goes down then you could sell and the capital loss could offset the capital gain.

    Do those shares behave opposite to each other?
     
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  13. devank

    devank Well-Known Member

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    BBOZ goes up when the market goes down, I believe by 3 times.
    So 3x ASX200 and BBOZ can be opposite stocks.

    Similarly, one could buy all top 10 or 20 stocks. Sell the ones gone down in value to offset the property's capital gain. Keep the profit-making stocks and sell them in later FYs.
     
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  14. Terry_w

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

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    That is interesting. It could certainly allow for some strategies.
     
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  15. Momentum

    Momentum Well-Known Member

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    Seems like it won't be difficult for OP to claim the 6 year absence rule and increase the cost base by doing so, aka reduce CGT bill

    @skyfall another strategy is to gamble on the ASX with speccy shares like some miners and biopharmaceuticals. Check the most active threads at HotCopper and the 10 bagger thread for some ideas. If the shares turn out to be duds then sell them for a loss before selling your IP to offset any gains. If they turn out to be winners then you pay CGT when you sell them. Paying tax means you're making a profit
     
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  16. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    Not quite. Its is 2 x leveraged. However its certainly not a natural "mirror". If ASX rises you can magnify losses too.
     
  17. skyfall

    skyfall Well-Known Member

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    Thank you, good to know I can claim the 6 year absence but I still have a big CGT bill #FWP
     
  18. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    CGT wont normally be more than 25% of the profit. And CGT is almost always optional.... You can easily avoid it by never selling.
     
  19. skyfall

    skyfall Well-Known Member

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    Yes never selling will avoid CGT but sometimes it's the best strategy if you can't refinance. Plus we will all be dead within 50-100 years so there comes a point when you should cash out to enjoy life. No point being the richest guy in the cemetery. It's called delayed gratification because it's delayed, it's not put off forever.
     
  20. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    Perhaps. You could die and leave a IP tax free to beneficiaries if you know how. Its possible to own a ip for decades and move in, then die and the tax issue is gone