Making Gains - Reduce Your Capital Gains Tax Liability
Friday, 10 July 2015 3:38 PM
If you are investing in property as a wealth creation strategy, receiving your annual tax bill can be a frustrating experience. In Australia, if you sell an investment property for a higher price than you paid for it the profit is known as a capital gain, and you will be liable for capital gains tax.
However, there are ways to reduce your capital gains tax liability. Here are some options to discuss with your accountant or financial planner:
Live in the property
If you sell a home that is considered your principal place of residence you do not need to pay capital gains tax. You can only nominate one property as your principal place of residence, unless you are selling one home and buying another (in which case there is a six-month overlap period, subject to certain criteria). As a result, many successful investors buy and sell homes every 12-18 months in order to generate short-term profits.
Claim all expenses
Your capital gains tax portion is calculated on the sale price of the property minus any related expenses. These expenses can include ownership costs such as rates, land tax and maintenance costs; improvement costs such as renovations; and incidental costs including stamp duty, legal fees and agent fees. Keep records of all relevant expenditure so your accountant can offset as many of these expenses as possible.
Use your super
In some cases, using a self-managed superannuation fund to invest in property can greatly reduce your capital gains tax liability, as any profits will be taxed at a lower rate. Buying property through super is complex and can be risky, so be sure to seek professional advice first.