hi guys
sorry to bring this up again but need a bit of help where CG are concerned. my partner and I own a property that we are negotiating selling to our current tenants. it is owned 90% – 10% between hubby and myself. What are some of the ways that we can reduce the amount of capital gains to be paid if we were to sell??
thanks in advance!
Marie
Get hubby to salary sacrifice a good amount of his wages into super.
Or take a long leave without pay.
Need a lot more information to give you some more detailed feedback.
How long have you owned this property?
What capital gain have you had?
Taxable income levels?
Any carry over losses you can offset this gain with?
Are you buying another property?
Any other investment properties?And so on……………………………………
There are some strategies but just remember if you owe tax you have made a profit so it is not all bad news.
Hi,
Depending on the profit, it may not be much to worry about so you might choose to pay rather than get too excited avoiding it. Otherwise there are other options which ultimately involve reducing your hubby’s income (I’d guess that he’s the person paying the most tax in this deal?). If you own other investment properties one of the options is to pre-pay interest for the following financial year which can reduce your income.
Sit down with your accountant and I’m sure you’ll get a clearer idea of how you can reduce your tax bill to an extent. Just make sure your accountant is someone who knows about property – not all accountants are the same!
Good luck!
DenCatalyst
Thanks for that. Had thought of this option, only thing is we don't realise this profit until our 60s?
Derek,
Thanks for your time. We have owed the property for 5 years now. It hasn't been a large CG but roughly $150. Our income level is roughly 90k and only one, yes – hubby – is working. We can claim a loss of $5000 I think plus a few years where I have had a loss due to no income – don't think that will help us much, though? Yes, will be buying more properties – both PPOR and IPs in the future.
Hi Den.
That is correct, hubby takes greatest amount of CG as he is the one working – well, for an income that is!
Still haven't got myself an accountant and the one I have my eye on is getting married today so might not be available for a while. I have been doing our Tax Return for years, probably a bad thing as might have left a few too many things out! Ouch..
Thanks for your help people! Any other ideas??
Marie123 wrote:Catalyst
Thanks for that. Had thought of this option, only thing is we don't realise this profit until our 60s?Um…. selling is not the only way to realise profit. Refinance and/or leverage equity to use as deposit for yet another place is a means of realising your profit. And you don't have to pay capital gains tax because you ain't selling
Jacqui Middleton | Middleton Buyers Advocates
http://www.middletonbuyersadvocates.com.au
Email Me | Phone MeVIC Buyers' Agents for investors, home buyers & SMSFs.
Thanks JacM.
Not sure what is the best road to take but see your point when it comes to holding onto the property.
Cheers
$150,000 'profit'
take off buying and selling costs, = maybe $120,000 profit
50% discount = $60,000 profit90% = $54,000 to him
$6,000 to youHe would pay a max of about $20,000 in tax.
You possible no tax.It is not so bad if this is the case. (very rough)
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
Hey Terryw
Thank you. Didn't think about the buying costs! I don't think that includes stampduty though does it? Selling costs would just be settlement fees (that I can think of) as we will be negotiating directly with the tenant on price, etc.
Yes stamp duty would be claims me as would legals on buy sell. U may have to add back depreciation though
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
HI again Terryw
Are you saying we have to add back any depreciation we have claimed onto our purchase price?? That is something like 30k. Ouch. Can you tell me how that works please? I might just pull out Steves book, I am guessing it should cover this topic. Many thanks!
Hi
Not sure of the finer details it may also depend on when the house purchased best to ask am an accountant
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
HI Marie,
Wot numbers Terry said.
For some reason people seem to think CGT is a major issue. After allowing for 50% CGT discount the max anyone pays (rough, back of the envelope maths) is around 25% of total profit. Even this can be reduced by sellign in low and no income years, pre-paying interest on other properties etc.
But in answer to your depreciation question – from ATO Landlords Guide 2010/2011 on page 23
"Zoran acquired a rental property on 1 July 1997 for $200,000. Before disposing of the property on 30 June 2011, he had claimed $10,000 in capital works deductions. At the time of disposal, the cost base of the property was $210,250. Zoran must reduce the cost base of the property by $10,000 to $200,250."
In your case the $30K claimed in capital works deductions (not plant and equipment) is used to reduce your cost base. In other words your taxable profit increases by $30K (assuming it is all for capital works – which it probably isn't)
Link to Landlords Guide 2010 – 11 http://www.ato.gov.au/download.asp?file=/content/downloads/IND00270214N17290611.pdf
Reaffirming Terry's comment – check with an accountant.
Have you considered leveraging off this property? If the reasons for selling are to move into another property somewhere else you may not have to sell.
Hope this helps
I don't get why people become involved in hundreds of thousands of dollars worth of property deals, but wont invest a couple hundred dollars talking to an accountant. If you've owned this property for 5 years, and plan to buy more in the future, you should already have a relationship with an accountant, but given you don't now's the time to start.
Saving cents makes little sense. Many people see advice as a cost & of little value but when it comes to asset sales of hundreds of thousands $, a couple of grand is chicken feed, esp if it could have sat in a low tax environment eg super. Crunch the numbers, even with 15% tax rate.
Derek
Thank you, that was helpful information.
I have considered leveraging, yes. Might have to reconsider that one as it is nearly a positively geared property – but it's taken 5 years! (I didn't know what I know now when we purchased it). Right now we need somewhere to live (tenant most likely can't afford to buy it anyway) so will be moving into that property and decide from there what we will do.
I guess the consesus is that I just need to get myself an accountant. Anyone in WA who has a good accountant they can recommend? I wanted to get a few ideas together before I asked for an opinion – what is the point of paying someone if there is a straightforward answer I can get from others who have had the expereince? Those were my thoughts – and the fact it was the weekend.
Thanks all.
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