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Avoiding Capital Gain Tax

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Peter | 02 Jan 2013, 06:43 PM Agree 0
Hi Everyone. My wife and I have an investment property in Brisbane and are thinking about selling it. Does anyone know if living in the house for a few months or even a year will help us to minimise or avoid this horrible tax.
Any other tips on this topic would also be greatly appreciated

  • Mitch | 10 Jan 2013, 07:11 PM Agree 0
    My understanding is that if you have rented the investment property for longer then 6 years no matter what you do you will have to pay taxes. But if it has been less then 6 years and you move into the property you will pay no taxes. Can do this back and forth as long as its less then 6 years. Hope it helps
  • Eos Property | 11 Jan 2013, 11:08 AM Agree 0
    CGT is not necessarily straightforward and more information is required to provide more accurate information.

    I assume you have a PPOR as well. Is this correct?

    If you do you are only allowed to have one PPOR at a time although the ATO does allow a small overlap if you are selling one property to move into another. If this property was once your PPOR you may have some leeway under the 6 yr rule as explained by MItch.

    If the property has never been your PPOR the best you can do is to receive CGT exemption for the period of time the property was your PPOR when you moved back in. The trouble is your existing home then starts to incur CGT during your absence while you live in your old IP.

    CGT may be minimised by selling in a low or no-income year. Depending upon your level of income and whether or not you qualify for the 50% CGT discount you may lose approximately 25% of your net gain in CGT.

  • BradQ | 15 Jan 2013, 02:40 PM Agree 0
    CGT is just income tax, so it shouldnt be seen as some horrible thing. living in it for 3 months will mean you do not pay capital gains on the increase in value during those 3 months. You would need to have valuations done to back that up also. So not really worth it. If you and your wife own it 50/50, and you have owned it for more than 12 months, then the tax is only on 50% of the increase in value, and then you would both split that to your relative tax brackets... my advice, get an accountant
  • Roger | 04 Apr 2013, 05:34 PM Agree 0
    Can anyone tell me if we have to pay CGT on a property we share with family from a deceased estate. We have never rented however have payed rates , repairs ect.
  • Jenifar | 06 Jun 2013, 01:51 AM Agree 0
    Avoiding Capital Gains tax can be achieved in a number of ways. You can either shelter the entire investment in a tax free environment or you can create a capital loss that is equivalent to your gain; either way, experts on how to avoid capital gains tax will ensure you find the perfect solution.
  • Suzi | 16 Jun 2013, 07:20 PM Agree 0
    Hi Jenifar,
    Do you know any experts I can contact?
  • Nathan | 05 Sep 2013, 10:36 PM Agree 0
    OP, you need to consider that capital gains tax is payable on the portion of time your investment property was income producing. The "6 year PPR full exemption" on CGT applies only if you lived in the property for at least six months after purchase and you have no other PPR. For the period of 6 years after you move out this falls under the main residence full exemption.

    In majority of cases (and your case in particular), people may be entitled to a partial exemption if they decide to live in the property for a period of time. This may be the case, for example, if you were to move into the property for a few months and renovate before selling. Essentially, the capital gain you incur will be apportioned based on the number of days that the property was used for income producing activities divided by the total number of days the property is owned.

    Here's an practical example:

    Let's say your investment property was purchased for $350,000 plus $12,500 of capital costs, such as Stamp Duty, legal fees, etc.

    You purchase your property on 1 July 2010 and sell it on 30 June 2013 for $475,000 less $5000 of costs, eg legal fees, etc.

    Your gross capital gain will be $107,500. Now, lets assume you lived in the property for 6 months from 1 January 2013-30 June 2013, say 182 days. The total days owned was 1,087 and the number of days it was income producing was 905 (1,087-182).

    So $107,500 x 905/1087 = $89,500 Gross gain.

    You can then apply the CGT 50% discount for a net gain on disposal of $44,750 taxable income. If the property was OWNED jointly, then it would be 50% of that, ie $22,375, in your individual tax returns taxed at your marginal rates.

    If you had no other taxable income, then roughly you would pay $832 each in tax on the sale of the property. Had you not bothered to live in the property this figure would be $999 each in tax.

    If its necessary to live in the property then do it - but always be mindful that by changing your main residence to the investment property for that period then opens your own home up to CGT consequences! Which in most cases this would be a much bigger investment! Often it's not worth it to save a few bucks when you consider the time value of money.

    Always seek tax advice, and good tax advice at that - please be mindful that some of the comments above are nonsense and that there is no such thing (legally) as "tax avoidance" - only "tax minimization". I would only suggest a good Chartered Accountant to provide you with advice on these matters such as the most tax effective way to sell your property, and be mindful to seek professional advice whenever you are making large investment decisions in the future.

    Hope this helps!

  • thayl | 23 Nov 2013, 01:52 AM Agree 0
    Simple question, hopefully a simple answer out there. I am looking to buy a house, live in it, renovate it, then sell it. It will be my principle place of residence. How long must I live in the house as my PPOR to avoid paying any CGT?? Any advice would be greatly appreciated.
  • JOn | 24 Mar 2014, 04:05 PM Agree 0
    I bought an investment property in 2008/2009 and started renting it out within 4 wks after completion.
    It was purchased off-plan in 2008 with a 10% deposit for completion in mid 2009. And for some reasons the property price increased by a fair bit over the 6 months period after my purchase and at completion.
    - end 2008= purchased investment property at $380k
    - mid 2009= property completed in mid 2009, and valued at $430k (thus profit of 50k over 7-8 months before completion), and thus I borrowed 80% of 430k=344k (91% borrowing of original purchase price).
    - 2009-2014= property price dropped to 400k and risen back up to 480k.

    If i sell my property at $480k now, after renting out for 5 years, then would i pay CGT (im aware of 50% discount if held for more than 1 year) on:
    - "480k minus 430k (2009 price on completion)" , or,
    - "480k minus 380k (2008 purchase price)" ?

    Your help appreciated.
  • rob | 01 Apr 2014, 12:00 AM Agree 0
    Jon, use the value of your property when you started renting it out (the 2009 price upon completion)

    You use the value of the property when it starts producing income for you (ie. rent)
  • David | 15 Aug 2014, 11:41 AM Agree 0
    I have purchase an investment apartment in 2012 for 263000. I am thinking of selling it for say 283000 now. What CGT do I have to pay?
  • easye | 09 Sep 2014, 10:04 PM Agree 0
    you won't be paying much tax on that investment.. subtract selling, holding and buying costs and you would be lucky to break even
  • Adam Sweeny | 02 Oct 2014, 09:00 AM Agree 1
    Thayl - You don't have to pay any CGT on your PPOR, regardless of how long you live there

    David - easye is right. Are you sure the values only gone up by $20k? You can get a real estate agent to value it for you for free, then you have a more accurate estimate to work with to calculate your tax

    For general capital gains tax minimisation strategies you may find this article extremely helpful:

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