When you dispose of an investment property you might have to pay capital gains tax on any profit. What can you do to legally minimise your tax?
Claim all your costs
The capital gain is worked out by taking the sales proceeds and deducting the cost base. The cost base is not just the cost of acquiring the property but also includes many incidental costs (such as stamp duty, legal fees, real estate agent costs), costs of ownership (e.g. interest on borrowings, repairs), improvement costs and title costs. Make sure you claim these. The higher your cost base, the lower your capital gain.
Sell when you’re at a low taxable income
If you’re considering selling your investment property in the near future and it will incur a capital gain, consider selling it when you know you will have a low taxable income that year. This is because, capital gains tax is not a separate tax but simply added to your taxable income when you lodge your tax return and if your taxable income starts low then you will obviously incur less tax on your capital gain.
Claim the discount
If you held the property for more than 12 months, the capital gain can be discounted by 50% for individuals and trusts or by 33.33% for certain superannuation funds. There’s no discount for companies.
Held the property since 1985? It could be exempt from capital gains tax
If the property was acquired before September 20, 1985 (when capital gains tax was introduced), there would generally be no capital gains tax.
Lived in the property?
If the property was your private residence at some point during your ownership, the gain covering that period might be excluded.
A number of small business concessions are available where capital gains on business assets are incurred. So long as the conditions are met, you can apply for as many concessions as you’re entitled to until the gain is reduced to nil – check whether you’re eligible.
Capital gains tax is a complex subject—so please consult your Accountant or ask for a referral to one of our professional Accountant’s.