Legal ways to avoid CGT?

Just as an academic exercise, are there any ways to minimise CGT legally?

E.g. if I own a company that owns a single property, can I contract with a buyer to immediately lease the property to them (at a rate that's equal to a mortgage) then sell, say, 20% of the shares to him each year till sold? That way, if I'm retired, I can spread out the CGT income over several tax years instead of copping the top marginal rate on the bulk of it? Would this or similar work? Any other ideas?

 

CGT would apply for each share sale. But yes that is one way to spread it out. Similar with a unit trust - selling units to your SMSF where it will have no CGT or income tax once you are drawing an income stream.

I have written a tax tip on reducing CGT. Will post it soon.

 

Very simplistic I know.....how about you buy an overpriced otp property and sell it for a loss. No cgt payable, problem solved.

 

Sell any assets that are presently showing a loss in the same financial year.
Marg

 

You could sell it on option, ie agree on a price write up an option contract for them to purchase in xx years at $xx

 

This seems like a pretty elegant way - but can one structure the option to have the capital gain recognised over several years to avoid high marginal tax rate?

 

Great, looking forward to these tips

 

The concept of staging the CGT over a number of years is an interesting one! Especially if you just wanted to break it up over two financial years.. Aka June and July of the same calendar year.

 

Selling an option is itself a CGT event. The option fee is taxed as a capital gain - without the 50% discount.

Remember that the date of contract is generally the date that CGT is calculated on. Generally if yu had the payment spread over a few years this wouldn't change things.

You could sell a small % each year, but you have to think about the practical side of things - stamp duty for the purchaser would be more, and what about finance??

 

This is what I inform clients to do when this are selling their developed units/townhouses, depending on whether they are sold on capital or income account staging over 2 financial years can have significant tax savings.

 

1. Not incurring a CGT event ie dont sell
2. Using an exemption (Main Residence)
3. Using a small business concession
4. Using a CGT rollover if available ie marital breakdown
5. Offsetting deductions (ie super contributions if eligible !)
6. Deferring OTHER income
7. Bring forward deductions (ie prepay interest)
8. Change of residency issues
9. Splitting profits (structure must be chosen when acquired)
10. Avoidance and Evasion (not legal I must point out)

 

This is whats called earnout arrangements. Tax law does not allow the CGT calculation to be based on cashflows and spreadout in most instances. Instead the taxpayer may need to estimate the future proceeds based on todays knowledge. In a future year they can amend to correct these issues. The ATO will allow amendments outside the normal amendment period for this.

CGT proceeds and employee share scheme issues are generally both affected by this issue and result in VERY unhappy taxpayers who may be required to pay substantial tax well before any proceeds are even available. Often the tax imposes the obligation in the next tax year to sell substantial holdings. (ie when the tax is actually due)