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Capital gains tax can seem complex on the surface, but if you can grasp some fundamental concepts, it can help you to make both smart and tax-effective investment property decisions.
Capital gains tax (CGT) is a crucial concept for any property investor to understand. We'd like to share some strategies and insights on minimising the CGT you pay when selling an investment property.
CGT in Australia is a tax on the sale of certain types of assets, including investment properties. Investment properties differ from your residential home from a CGT perspective because the sale of residential homes is exempt from CGT.
If you sell your investment property and make a capital gain (i.e., a profit), then you will be liable for CGT. Your profit is the difference between the property’s selling price and what’s known as “the cost base” of your property. Your cost base includes:
CGT rates on an investment property vary depending on whether the property is bought in your name, within a self-managed super fund (SMSF) or in a company name.
Let’s look at each scenario in turn.
The simplest way to avoid CGT is to not sell your property. Australian investment properties in strategic locations have a long-term track record of capital growth, so it makes sense to hold onto good properties that are in high-growth, high-rental-yield areas.
The other way you can avoid CGT is by making a capital loss, which is obviously not ideal. However, you can reduce your CGT by offsetting any past capital losses you may have against any future capital gains that you make on your investment property.
CGT is only payable when you sell and make a capital gain.
If you can’t avoid CGT completely, minimising it is the next best option. You can do that by:
There’s an old saying that there are two things you can’t avoid in life —death and taxes. But you can avoid or minimise CGT if you make smart and tax-effective investment property decisions. It’s worthwhile getting professional advice.
DPN’s property investment strategy for our clients is to buy high-quality, high-yield properties and to hold them for the long term. This strategy maximises both capital growth and rental returns while also minimising CGT.
Our team at DPN can help you with all aspects of property finance, investment and ongoing management.
Contact us today to find out more.
The information provided is general in nature and should not be taken as advice. It does not consider your personal circumstances, needs or objectives. We recommend seeing your accountant to determine the best strategy for you. Taxation rates current at Nov 2023 and are subject to change.
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