Are there ways to avoid or reduce paying Capital Gains Tax (CGT) when selling a property?
Yes there are a few strategies that can help you minimise your CGT, and in this video tax expert Ken Raiss, director of Metropole Wealth Advisory, outlines some of them.
Unfortunately, there is no silver bullet to avoiding Capital Gains Tax entirely is you sell an investment property.
And, at the end of the day, if you have to pay CGT it means that you’ve made a profit on selling your property, which is what you were after in the first place, wasn’t it?
However, there are strategies to limit the tax payable on any capital gains so it is worth getting specific advice before you buy your next property to ensure you own it in the most appropriate structure.
Just to make things clear…
If you decide to sell an investment property, your CGT calculation will be based on the net sale price of the property, minus your expenses.
The gain is added to the income of the title holders to calculate the applicable tax.
These expenses are your cost base and are calculated by: -
- Adding the total sum of the original purchase price
- Plus any incidentals, ownership and title costs
- Then minus any government grants and building depreciable claimed.
You may now be wondering what expenses you can include, well, the list is long but generally include but are not limited to the following: -
- Incidental costs – stamp duty, legal fees, some bank fees, buyers agent fees, advertising and marketing fees, some travel expenses.
- Ownership costs – property searches, inspection costs.
- Improvement costs – replacing kitchens, bathrooms, flooring, or any other improvements you’ve made on the property such as additional toilet, decking, additional floor space.
- Title costs – legal fees associated with organising and defending your title on the property.
When selling, the costs associated with the sale such as agent’s fees, styling, repainting, bank fees, etc. are used to reduce your gross selling price.
If the property was purchased with the intention to keep, as opposed to sell, as an investment property, the capital gain can be reduced by 50 per cent if it was held for over 12 months.
However, you would have to add back the benefit of any depreciation you had claimed along the way.
Some investors actually make a capital loss when they sell their property, which would negate the need to pay any CGT at all.
It’s important to understand that any loss is attributable to the title holder.
To explain, a capital loss is when you sell a property for less than your reduced cost base as calculated using the parameters above.
The good news is that you can carry a capital loss forward into future years and offset this against future capital gains you may make.
Disclaimer
This is general information only and is intended as educational material. Neither Metropole Wealth Advisory nor its associated or related entitles, directors, officers or employees intend this material to be advice either actual or implied. You should not act on any of the above without first seeking specific advice taking into account your circumstances and objectives.