My wife and I bought a run down 3 br home in country vic, which I have been renovating in my spare time for the last 2.5 yrs.
We paid 65k for it and it would now be valued at 160k, we are low income earners but have assets, ie our primary residence is worth 300k.
We anitially had trouble buying our investment property as no bank would lend us any money because of our low income so we went through a broker instead.
I am almost finished the house and am looking at another property in the same town, coinsedently owned by my sister and she wants to sell, it is a comercial property.
I feel that we will have alot of trouble getting a loan for the second property because of our low income and I feel its a bit rough if we sell our investment property to pay capital gains on 100k.
My questions are, are there any loopholes on avoiding capital gains?
Someone told me that if you are a property developer ie renovator you can roll over the capital gains on to the next property when you sell, have you heard of this?
I have phoned the ato to ask them how long one has to live in a house in order to avoid paying cgt, but they gave me no clear answer.
How is one suppose to get anywhere in life if the ato sucks all your profits like a vacuum cleaner.Hi Betsy8
You may want to take a look at http://www.navra.com.au and maybe attend one of Steve Navra’s courses.
He specialises in dealing with people who are asset rich but cashflow poor.Keep smiling
Felicity
Greetings!
A BIG Friday hello and welcome to the community [
]Let’s see if I can help…
quote:
My questions are, are there any loopholes on avoiding capital gains?Well, first up, let me point out that you only pay CGT if you sell. I’d imagine that given the equity you have in your home and investment property you’d find securing finance a bit easier – especially on a no-doc or other non-conforming loan. Give Andrew Burgan (mortgage broker – Wizard) a call on 03 9870 4451.
If you feel you need to sell then I think that there’s a great chance you’ll pay less tax than you think.
Here’s why…
I imagine that you own the property in joint names or at least in one name as an individual (as opposed to a company).
This being the case you will qualify for a 50% exemption.
Ideally the would have the following effect:
Capital Gain: $100,000
Split 50:50 means you have a taxable capital gain of $50,000.
Then you both qualify for a 50% capital gains discount meaning that you will be paying tax on only $25,000 (each) of it.
I’m not sure how much other income you have, but, assuming you have none, tax on $25,000 is $3,880.
So, on a gain of $100,000 you might be able to knock it down to $3,880 * 2 (people) = $7,760.
If you own it in one name then you might be able to gift half of it to the other person… this is a bit tricky though and you should seek accounting advice.
Another option is to move into your investment property as your home, live in it for six months or so, and then sell it under the principal place of residence CHT exemption and pay no tax! Once again, seek proper accounting advice before doing anything.
quote:
Someone told me that if you are a property developer ie renovator you can roll over the capital gains on to the next property when you sell, have you heard of this?No. In fact if you trade in property then there is no CGT, instead you pay income on your profits as if it were say a salary or wage.
quote:
I have phoned the ato to ask them how long one has to live in a house in order to avoid paying cgt, but they gave me no clear answer.Because there is no clear answer to give. But you must be able to prove that it was your home and that you lived there.
quote:
How is one suppose to get anywhere in life if the ato sucks all your profits like a vacuum cleaner?Here Here!
Bye
Steve McKnight
**********
Remember that success comes from doing things differently.
**********
Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
https://www.propertyinvesting.comSuccess comes from doing things differently
I think that roll over of cgt to next property is only applicable in U>S>A>? correct me if I’m wrong, someone.
Don’t sell your investment property- try the banks, they may look at you, but make sure you get a no fees loan – their rates may be lower, but by the time you pay their fees, you might be better off somewhere else. Try a broker again – most can still go thru the major banks as well as alternatives.
Happy renovating[]Also, have you got your own self managed super fund? BECAUSE the cgt is charged at super rate of only 15%. But……super funds can’t borrow either. something for the future?
From Steve……….
Another option is to move into your investment property as your home, live in it for six months or so, and then sell it under the principal place of residence CHT exemption and pay no tax! “
I think you’ll find this period will be prorated against the amount of time that is an investment property.
Ie if you live in for 6months having held it for 2 years . The CGT applicable will be 3/4.
Regards
Tyron
Hi Betsy
I reckon that Steve was on the money (pardon the pun) when he spoke about refinance.
Q: Why would you sell an asset?
A: Oh, you mean that I don’t have too !!??What I mean is that provided that the investment property is paying its’ way (I assume that income net of all costs is positive) WHY would you sell it??
Why not just use it to help get the mortgage on all 3 properties.
Caveats:
1) It must stil work financially, i.e. ideally cashflow after refiance at higher lend is still (+)ve or neutral2) Ideally you will not have to cross-collateralise (more than one title per loan) the new property. You can faciliate this by redrawing on existing investment property and then using this money to help fund new one.
Some lenders like the cross-collateralisation route, but it makes it a little more complicated for you to sell things later (if you ever do). i.e. you need more than one valuation to vary the loan, etc, etc.
Best of all this way you NEVER pay CGT, as you have never disposed of the asset.
BTW the keep never sell idea came from a Dolf De Roos book “Real Estate Riches”; embellishments came from Steve Mck / Dave B / our solicitor / lender / personal experience
cheerio, and have fun [
]the Bruce
Hi All,
This one is for Steve.
You made the comment that CGT is non applicable if you trade up your investment property and you are taxed as if it were income. If the properties were held in a trust with a company as trustee, would the income be taxed at the company rate of 30%?
Cheers,
Matt.
P.S. Love the information available on this forum.
Matt,
Was I was outlining was that someone who is classed as trading in property does not pay capital gains tax.
This would be disadvantageous as no 50% CGT discount would apply to traders. Instead all of the gain is treated as assessable income.
The ‘trade up’ provisions of US law re: property do not apply in Australia.
Bye
Steve McKnight
**********
Remember that success comes from doing things differently.
**********Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
https://www.propertyinvesting.comSuccess comes from doing things differently
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