Here are some ways you can reduce or avoid Capital Gains Tax when selling your property:
🏡 Your Principal Place of Residence (PPOR)
If you can verify a property has always been your PPOR & wasn’t used to produce income then any Capital Gain will be exempt. You can only claim this exemption on one property at a time, with a 6 months leeway granted when buying/selling. The full exemption also only covers a property up to 2 hectares, if your property is greater then this then only a partial exemption will apply. Also if you have purchased land the PPOR exemption only applies if it is built on & moved into within 4 years of the purchase date.
6️⃣ The ‘6 Year Rule’
If your property is your PPOR there are circumstances where you can move out & rent the property for up to 6 years without losing the PPOR exemption. This means that there would be no capital gain if you sold down the track if you had received rental income from the property. However, you would have to have met certain conditions for the ATO to allow the exemption, one of which is making sure that no other property is your PPOR during this time.
🔎 Get a Valuation!
A valuation can come in handy if you’re moving out of your PPOR & looking to convert it into an investment property. The valuation will help you when it comes time to sell, as you only have to pay tax on the capital gain made between the time you moved out & sold the property.
🗓 The 12 month Discount
If your property is an investment property, then holding the property for over 12 months will give you access to a 50% CGT discount. This could be beneficial for you if you were considering selling an investment property not long after a purchase. Here it would be worth while holding for a year to get access to this discount.
📉 Use up your Capital Losses
If you had capital losses from other investments, then these can be used to reduce any capital gain you may incur when you sell your property.
🐖 Home Loan through your SMSF
It’s also possible to buy property within a Self-Managed Super Fund. Property held within super only pays 15% tax on rental income & if you sell when the fund is in pension phase at retirement the capital gain is tax free.
🏭 Active Asset Discount
There are also certain instances where small business concessions can be used to reduce your CGT liability if you sell a property that you have been using to run your business. One of which is a 50% Active Asset Reduction which would reduce the capital gain by 50%. This is separate to the 12 Month Discount. It is possible for both of these discounts (plus further concessions) to be applied.
⏱ The Timing of Your Sale
Another important note is that capital gains are determined using the contract date and not the date of settlement. So be sure to review this if your planning on selling around the end of the financial year. This is because the net capital gain is added to your taxable income in your tax return, where you pay tax on it at marginal rates. So it may be tax beneficial for you to sell in a particular financial year where other assessable income you have may be lower.
If you are looking for specific tax planning on your personal circumstances then we can recommend an excellent tax agent that we work with who can give you all the tax advice you need!