Can anyone shed some light on how to effectivly reduce CGT? We have an IP we are selling and have multiple other IP's. Purchased in individual names, i.e not trust etc. I know you can pay loan interest in advance, rates, fees etc to reduce the CGT but all i can see this doing is just moving tax forward to later years, which i spose may not be a bad thing. I was thinking of doing any "repairs" on our other IP's this FY which may possibly increase value on the other IP's. Other than that i am lost and any money i can keep and not legally give to the ATO makes me feel really good inside )
Hmm - I think you need an accountant. You know you cant offset capital gains with business expenses right? You can only offset a capital gain with a capital loss. So the only way to reduce the CGT is to make a loss somewhere else. In saying that the tax may not be all that signficant in anycase. If you ahve held the property for more than 12months you get the 50% offset. So you will only be paying about +/-15% on the gain anyway. Speak to someone like @Terry_w or @PFI Blacky
First work out approx what the gain will be. You can then know what what you are dealing and the worst case scenario. Then work out if you are claiming all possible deductions. Then consider other ways to bring down your other income for the tax year - such as prepaying interest etc.
Sorry yes i have worked all this out with the accountant and with all deductions i'm still up for 30k capital gains tax (the tax on the gain itself), hence trying to find out if there are 'unusual' ways. I.e paying interest in advance was something new to me, but had already thought of rates, bills, body corps.
@Blacky yes understand technically it can only offset with a capital loss, except the gain is tacked onto all other income we produce such as IP's, Salary and therefore any reduction in these areas can offset our CGT as such. As capital gains tax isn't really a seperate tax to individual income tax.
Don't forget that paying in advance doesn't always work. If an invoice hasn't been issued and you pay rates etc those extra payments may be refunded to you.
I got 20K out the window there. Could go to 100K lol. Hope divis hold up.... In 20 years I'll break even
Salary Sacrifice is limited because of the Super concessional caps - $30k for those under 50 and $35k for those over.
The capital gain calculation itself is generally a pretty simple one and really there isn't much that can be done. The obvious advice is to ensure that you've held that IP for at least 12 months to make it eligible for the 50% discount. I assume you've already done this though and not a lot else you can do outside that. I also assume you have another PPOR or IP on which the main residence exemption applies as the most obvious way to avoid it, which even then given it's an IP and you have multiple it may be difficult to actually use it on this one. In general you've nailed most of the options. Obviously with other IPs it could be worth your while to prepay the interest on as many as you're capable of to maximise current year deductions (this obviously just delays but could be worthwhile if you expect other sources of income to be lower in the near future). Also to bring forward as many expenses as possible to the other properties you hold. If you're planning any repairs and the like, get them done in the year of sale. All of this assumes that your income will be significantly less in the following year obviously and that the CGT is bracket jumping you. Salary sacrifice or direct super contributions (if you're salary income only represents less than 10% of total income, which can be possible with a significant capital gain, rental income or business income but isn't likely for most people). If you're on a salary then salary sacrifice is more likely to be the best option, just be careful of the contribution caps. Obviously if both you and your partner have the asset in your names you can both use this option, so depending on your income levels and the amount of cap available it can be a pretty decent option. If you have another capital asset on which you have a significant unrealised capital loss it might be worth realising that loss. Just be really careful with how you structure this as it will generally be deemed as asset washing in which case the ATO can remove the eligibility to use the loss. Basically if you're going to attempt this you'd want to speak to an accountant and come up with a very specific purpose (other than the CGT benefits) for doing it (such as needing the cash for something urgent and then perhaps you rebuy those shares after sale). To be clear, I'm not recommending this because it is generally tax avoidance and not legal but there is some tiny slithers of grey area within it. Outside of that, basically you have the whole paying the tax thing unfortunately. IPs really don't leave a lot of scope for avoiding capital gains. Basically the trick to avoiding as much CGT as possible is to minimise your other income sources. You've actually mixed it up here. Losses made in other areas can be applied against a capital gain, it is a capital loss that can't be applied against other sources of income and is quarantined to be offset against capital gains only.
If the capital gain is large enough AND you satisfy the 10% income rule its also possible some taxpayers can consider making a tax deductible super contribution. Well worth getting financial advice first as the rules are strict. Also well worth tax advice too. One of the benefits of an accountant who also has a AFSL !! (most don't) The net benefit can mean paying 15% tax on the contribution but saving tax at your marginal tax rate....Savings can be in the 30% range for some. Caps limit the amounts etc Trish Power has a good article here : Managing capital gains tax with super contributions - SuperGuide
Yep, such a pity that they've tightened the caps so significantly in recent times on this front that it's a very limited deduction (though if self employed and not contributing anything it could be up to a $30,000 deduction (double that for two owners with the same circumstances).
Yep...But if they meet age tests and split it 2 people x $30K each they may still save up to $10,000k + tax in a single year v's not contributing. Their financial strategy for what they plan with the proceeds may not consider super too. (ie repay own home loan) This issue comes up with the small business concessions. One of the concessions allows proceeds to be banked to super to avert the CGT tax issue. That option for some can be attractive. Others not.
