Reducing tax payable on sale of property

Discussion in 'Accounting & Tax' started by robbie_p, 30th Jul, 2018.

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  1. robbie_p

    robbie_p Well-Known Member

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    Hi All,

    I am in the process of selling an investment property (under contract). Contracts exchanged a week ago. There is going to be a profit made on the sale, so capital gains will be added to my income this year and tax paid to the ATO at the end of this tax year.

    As the capital gains is added to my income for the current year, are there ways for me to reduce my taxable income therefore paying less tax?


    Things off the top of my head include (not sure if possible):

    1: Working 1 less day per week this tax year, therefore earning 20% less income
    2: Taking unpaid annual leave
    3: Contributing more to my super fund?

    I’m not trying to avoid paying tax, just looking to legally reduce it.

    Thanks,
    Robbie
     
  2. Brady

    Brady Well-Known Member

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    Pay interest in advance on an investment home loan.
     
  3. robbie_p

    robbie_p Well-Known Member

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    So lets say i need to pay $50k tax at the end of this financial year (due to the sale of an IP), are you saying i pay the interest upfront for an existing loan of another investment property?
     
  4. Brady

    Brady Well-Known Member

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    Yes. pay next years interest up front in advance this financial year.
    Speak to your accountant.
     
  5. robbie_p

    robbie_p Well-Known Member

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    Thanks, ill speak to my accountant.. but just some I understand..

    Lets say I sell IP1 and there is $50k in tax payable at the end of this tax year.

    I also have 2 other IPs

    IP2: $6,000 interest per year
    IP3: $15,000 interest per year

    How does paying the above interest upfront reduce the tax payable when the above interest amounts will be submitted at the end of the year (as deductions)?

    Cheers,
    Robbie
     
  6. Brady

    Brady Well-Known Member

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    Because it's interest for this FY and next financial year.... so twice the deductions.
    Means next year you will have no deductions or continue to do so each year.
     
  7. Paul@PAS

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

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    1. Determine accurate estimate of the additional income. Not a guesstimate.
    2. Discuss tax advice supporting ways to reduce tax. Often many strategies combine for better effect.
    - Interest in advance MAY be of some limited benefit (remember next year will have a opposite effect unless repeated)
    - Super contribution up to concessional cap
    - Self ed
    - Selling any shares which you own at a loss
    - Can you buy annual leave through sal sacrifice ?
    - Can you salary sacrifice and defer income in another way until July + ? (eg Bonus). Typically you cant defer income other than things like bonuses etc
    - Deferred salary increase
    - Unpaid leave
    - Tax Agent = Late lodge tax return (Jun 2020 rather than Oct 2019

    All can be measured and benefit calculated but start point is the increased tax due.
     
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  8. Paul@PAS

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

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    Think of paying a whole years interest in IP2 + IP3 so 2019 return includes deductions of $42K rather than $21K as interest deductions.

    Tip : Ignore how much tax to pay. Important issue is taxable amount of capital gain.
     
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  9. robbie_p

    robbie_p Well-Known Member

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    So if I pay double interest this year, does that mean next year I dont pay interest?
     
  10. Brady

    Brady Well-Known Member

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    Yes unless you do it again next year.

    Speak to accountant for some advise should be pretty easy to work out what's best.

     
  11. robbie_p

    robbie_p Well-Known Member

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    With regards to self ed... I assume that means self education? If so, it could be a good time to sign up some some training (anything?) I had in mind?
     
  12. Marg4000

    Marg4000 Well-Known Member

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    Check any planned education expenses meet all the criteria for deductibility.
    It’s not just any course will qualify.
    Marg
     
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  13. Paul@PAS

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

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    Existing work place skills and knowledge and its furtherance...Not a new form of education or new qualification or something to assist a new form of income.

    eg If you are an Air Con mechanic then becoming a licensed sparkie would be non-deductible. But a plumber may do a course in AC installs etc and thats OK.
     
  14. Paul@PAS

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

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    It can. Its ONE option.
     
  15. robbie_p

    robbie_p Well-Known Member

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    Paying for my wifes Certificate 4 in bookkeeping (so she can do the books for my properties), does that count?
     
  16. Terry_w

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

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    not unless she works as a bookkeeper now.
     
  17. robbie_p

    robbie_p Well-Known Member

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    My accountant mentioned the new tax deduction that has been introduced which is a contribution of super up to $25,000 including your employer super guarantee.

    Does this mean if my employer paid $12,000 towards my super, i can contribute $13,000 fax free?
     
  18. Terry_w

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

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    It means you could potentially claim a deduction for a contribution of up to $13k.
     
  19. robbie_p

    robbie_p Well-Known Member

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    Could I also use some of the profits to put back into my investment properties which could be used as a tax deduction?

    I know my tenants have been asking for a few things (sheds, heating, landscaping)
     
  20. Beyond Wealth

    Beyond Wealth Well-Known Member

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    Yes, depending on what you do - some items may be deductible outright this year and some apportioned over a number of years based on the effective life