I have a IP for which I would like to sell this financial year. The only problem is that the CGT on the IP included with my salary for the year will be a hefty one. The IP will add $235K to my taxible income (taking into account capital cost and 1/2 capital gain rule). My salary for the year is likely to be $120K. This means a total taxible income of $355K for the year. Does anyone know a way around reducing or avoiding the capital gains tax burden. How can I avoid this in future?
Regards, OScar
Is it possible to salary sacrifice sufficient to get to a lower tax threshold? – that way you are taxed on the cgt at the lower MRT (is this feasible or does any salary sacrifice get added back to your income for cgt assessment?)
Quit work (take a sabatical/unpaid leave etc to reduce your income)
Find a few capital losses to offset against the gain (you will need the losses in the same tax year although you can carry forward your losses indefinitely).
Scott,
Thanks for your reply. I have considered salary sacrificing some money into superannuation. But that's only going to look after $40 – 50K. I have also looked at looked at taking a year off, and getting the mrs. to work fulltime (this saves us another $25 – 30K) and also allows some time with the 3 kids. In terms of capital losses I have none to offset (share trading has been in my mrs name to reduce tax burden). I was hoping to find some legit way of reducing a bigger portion of my total taxible income by giving it away to the govt. I don't want to sound like a sook here but the way I look at is that I have taken all the risk and the govt still gets to take a cut without taking any risk.
The main purpose for wanting to sell the IP is a number of things:
1. to pay off $320 K of PPOR debt which is non tax effective and for which I am finding more difficult to maintain all debts totalling $730K ($410K of which is allocated to investment) based on my current cash flows;
2. to sure up my cash flow for kids education (the first of 3 kids are just starting to go to private school (high school level)That's 16.5K pa. per child. (this one is call self inflicted pain);Unless some legit loop hole pops up that I don't know about, I will probably do one or a combination of the things you have mentioned, or but half the IP in my wife name which will enable me to shift all the debt across to the IP and close off my PPOR debt. However this is not as sweet as it looks because the mrs. is only working part time earning $15K so the tax offset with negative gearing on her half of the IP is not of any major benefit and there is also stamp duty to consider. Howevr the one thing this does is help reduce my capitial gains by half and slightly improve my cash flow.
So I guess
You could possibly sell part of the property to your wife or trust over a few years to reduce the tax burden.eg a third each year for 3 years. It may also be possible to sell using an option. eg. if selling for $300,000 you could sell an option this year for $100,000 with an agreed price of $200,000 with settlement next year. This would split the gain over 2 years.
If you must sell this year, then you could also look at prepaying some interest, if you have any other properties. You need to bring as many expenses forward as possible.
Talk to a few creative accountants as there is a lot of money involved.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Oscar
As Terry has mentioned you may wish to look at selling the property into a Trust structure.
Whilst this will trigger additional stamp duty the OSR merely require a letterhead valuation from a local agent in regards to the valuation base. Sure you can find a couple of local friendly agents.
Richard Taylor | Australia's leading private lender
Hello Oscar
I suppose selling the PPOR instead and moving into the IP and doing it up is not an option?
That would certainly solve the CGT problem
Just a thought
ElkaIm in the same boat atm, heres cpl ideas that Im thinking
1. getting a few intrest in advance loans
2. taking a few months off work unpaid (use this time to study and invest)
3. stocking up on office equip, reno supplies, tools etc etc
4. restructuring
all my investments are owned personally
So if I set up company/trust to purchase any new investments, can I claim the costs of setting up company personally or is that something that the company has to claim?
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