Ways to reduce tax after selling an IP - 2022

Calling all the gun accountants here…

In addition to my PAYG income which is already classified as high income, I will be selling only one IP and will have a profit of 200K in just one financial year. I plan to use the funds to purchase a PPOR.

What are some of the genuine and legit ways to reduce CGT?

In my view, my accountant is just an ordinary one who is not very experienced in investments etc….

TIA

 

Read @Terry_w tax tips (under his sig)

 

You can salary sacrifice to Super.

 

If your super fund balance is under $500k you can potentially look at making high super contributions over your ordinary cap of $27,500 a year without incurring excess concessional contributions tax.

Of course chat to an investment advisor about what your super is then investing in - no point in a great tax strategy to then invest in a dodgy us property syndicate…

 

There are only a limited number of ways to address a windfall CGT amount
- Basic concessional cap (extra contributions)... But the tax saving may be limited to 17% (since Div 293 applies). This is the gap between what the employer pays and the $27500pa cap. A tax penalty applies if you get it wrong.
- As Ross says the concessional cap can be increased for SOME taxpayers and this could add a further deduction. This is called a catch up contribution.
Both the above need formalities to obtain the deduction.

- Prepaying loan interest on a IP. This can bring forward deductions intended for the 2023 year into 2022 so the IP will effectively have 2 years of interest (warning - and none the following years unless its repeated.)
- Stopping or deferring income. Hard if you are a PAYG earner unless you take unpaid leave (eg Parental leave)
- Selling any other investments in your name that could trigger a CGT loss.

One of the other ways to ensure the CGT amount is calculated and known and is correct. We commonly see people worry about the tax they will pay when the reality is different. Once the value is know reliable planning and setting the funds asdse can be more reassuring. This will allow you to then max the amount to spend on the new home.

 

Something often overlooked: if there were periods of vacancy where the property wasn't genuinely available for rent (so you didn't claim rental deductions for the full financial year) you can add ownership costs during said periods to increase your cost base

Things like interest, council rates r&m, etc.

 

That is a matter along with many others for ensuring the correct CGT calculation is performed. Few taxpayers (and even some accountants) get CGT on property right.
I commonly find taxpayers read about third element costs and add then add in ALL ownership costs even when it is rented and the deductions were claimed.

Common too is

• not adding in selling costs or adjustments and even acquisition costs like duty, legals etc (sometimes)
• Depreciation add back to leave a reduced costbase
• Periods of non-residency ?
• A former home and a CGT costbase reset
• Improvement original costs are often missed. Sometimes incorporated into the QS report but not the costbase.

 

the usual strategies to consider

1. deductible super contributions
2. prepaying interest on other investments
3. reserving strategies if you have an SMSF
4. ensuring CGT calculation is correct
5. utilising capital or tax losses where possible

 

And as of last night, downsizer age and age limits on super have changed FROM 1 July 2022. No tax benefits in downsizer as such BUT may open opportunities to reinvest proceeds or profits up to $600K in a tax sheltered manner. And the age limit change may open up catch up and concessional cap contributions more than it was. Care must be taken for the period between now and June 30 however. Shame it wasnt retrospective from assent.

 

Tax Tip 119: How to Reduce CGT on Investment Property (Part I) Tax Tip 119: How to Reduce CGT on Investment Property (Part I)

Tax Tip 209: How to Save CGT on Investment Property Part II – Planning ahead Tax Tip 209: How to Save CGT on Investment Property Part II – Planning ahead