I am in the process of selling 3 Ips i have owned for over a year and will use money to pay of PPOR (Great relief)and owe $140,000, but will have large capital gains Tax to pay. This is how it adds up profit on 3 ips 210,000, my salary $40,000 wifes $30,000 total $280,000.Anyone have ideas on how to minimise capital gains tax (no option but to sell)?
All options are available to me so fire away.
Thanks in advance
Dom[biggrin]
Hi Dom,
Some suggestions;
1. Don’t sell them all in the same financial year.
2. If appropriate balance the gains with other losses elsewhere.
3. Sell in a low/no income year.Derek
[email protected]Property Investment Support Available. Ongoing and never stopping. PM welcome.
Thanks Derek,
I like option 2 sounds good would you mind suggesting how?
DomHi Dom,
Option 2 would only apply if you had made some losses on other recognised investments property, shares etc.
If all of your investments have made capital gains then this option isn’t available to you.
Derek
[email protected]Property Investment Support Available. Ongoing and never stopping. PM welcome.
Derek what about purchasing a highly negative property to offset those losses as the 3 ips wont sell until the new fiancial year?
DomDerek, why do you suggest not to sell them all in the same financial year ?
As the Capital Gains Rule is used to calculate the tax the rate of tax will be identical so there doesn’t appear to be an advantage to sell in different years.
Dom, your question might produce a better result if you ask for the name of a good accountant in Queensland.
Pisces
Hi Salicious,
First I agree with Derek on all 3 points, especially (if possible) not to sell them all in the one financial year, thus avoiding the huge taxable income bill you will be faced with if you do sell them all at once.
But if you must, then I suggest (if you can) get your wife to put the profit from sales into her return, as she earns, even though only a slight 10K less………every cent you can save is better in your pocket and not the taxman’s!!!!
I also agree, option 2 of Derek’s is good, if you really must sell, try and offset the profit with losses from elsewhere if possible.
I have included a link that may help as a guideline to how much CGT you may be up for, and which formula would be best suited in calculating the CGT.
http://www.cch.com.au/cgi-bin/cgt00isapi.dll/
Cheers,
Jo
P.S. I parted with 77K last week thanks to CGT. [blush2][angry2][bawl] Oh well…..Hi Pisces,
As I understand it capital gains are added to your taxable income and levied accordingly.
As such realising all of your gains in the one year increases your gross income and as such you’ll be up for more tax.
Derek
[email protected]Property Investment Support Available. Ongoing and never stopping. PM welcome.
Monopoly,
Thanks for the link but i am not sure how to use it.
How much did you earn (if you dont mind me asking) to pay such a large tax bill?
This might give me some indication.
Thanks DomHi Derek,
If Dom had other investment loans, and he paid interest in advance on these loans, Wouldn’t this reduce any profit on investment and offset some of the capital gain?Regards
Steven
Mortgage Broker[email protected]
http://www.mobilemortgagemarket.com.au
Ph:1800 820 500
VICTORIAPLEASE note comments made should NOT be taken as specific taxation, financial, legal or investment advice. Please seek professional, specific advice.
Hi Monopoly
If the properties are owned in a way to get the negative gearing benefits eg 95% highest earner 5% lowest earner.
When they are sold can one do what you are suggesting the sale proceeds go to the lower money earner for tax purposes.
regards
alfThe profits must be declared in line with the ownership on the title to the property. You can not legally do what Monopoly has suggested.
Benson
Salicious,
My apologises, I was under the misguided impression, rather I made the assumption that the properties in question, were in joint names, and as such, was of the opinion that your wife could declare the profits as part of her return. As this may not be the case, ie. they are in your name solely, then this CANNOT be done…..if that were the case I would have happily have suggested my husband declare the proceeds from the sale which resulted in my hefty CGT bill !!!!
Thank you Benson, Alf, iamborediambored, you are quite correct, any proceeds must be declared according to the percentage distribution, as per ownership shown on the titles.
Jo
P.S. I will PM that figure to you, as I don’t feel it appropriate to disclose this in public.Monopoly,
You assumed right they are all in joint names(my wife and I) and how does the 5% – 95% tax deduction work?
Derek how could you do this “
“If Dom had other investment loans, and he paid interest in advance on these loans, Wouldn’t this reduce any profit on investment and offset some of the capital gain? “Could you please give an example?
Thanks Dom[biggrin]
Hi all,
Trying to tidy this up a little – please be aware I have no qualifications in accountancy and as such a discussion with your accountant and/or ATO is advised.
Capital gains is levied in accordance with proportional ownership as determined by the names on title documents. Joint ownership = 50/50 and tenants in common as shown. Whatever is shown on the title documents must be declared on appropriate tax returns.
Capital gains are added to a taxpayers gross taxable income. As such the gains can be reduced along the lines of Terry’s suggestion (assuming Dom has another property) or by offsetting the gain with the sale of loss making assets.
In Dom’s example he indicates a gain of $210K – if he were to sell another asset and made a loss of $50K his total realisable gain is now reduced to $160K – assuming all assets are jointly owned.
To highlight the diffference between selling all in one year and spacing the sale of the three properties out over three different financial years I have done some rough maths.
Note these are not totally accurate as I am not aware of percentage of ownership or if rental income is included in income figures given.
In a normal year Dom earns $40K and pays tax of around $8250, Mrs Dom earns $30K and pays $5250.
If the properties were sold in a staggered fashion (one per year for three years) and assuming $70K gain on each and no further growth Dom’s income would be $57500 (tax $14160) and Mrs Dom $47500 (tax $10500) in each of the three years.
Total 3 year bill – Dom $42.5K and Mrs Dom $31.5K.
If the properties were all sold in one year the total gain is $210K. As the properties are held for more than a year only $105 is included in tax calculations – of which $52500 is added to Dom and Mrs Dom’s income.
As such in this year Dom’s gross taxable income becomes $92.5K (tax $30360) Mrs Dom’s taxable income $82599 (tax $25660).
Three year total tax bill (1 big bill and 2 normal bills) Dom $47K and Mrs Dom $36K.
As such selling in a staggered manner will save Mr and Mrs Dom, between them a total of around $10K.
Whether or not this is the best decision in the context of the big picture only they will know as the a bulk, one off injection of funds into their home loan could realise significant savings in non-deductible PPOR interest.
Derek
[email protected]Property Investment Support Available. Ongoing and never stopping. PM welcome.
Thanks Derek great summary It is 50/50 partership and the $210,000 is the net profit after selling (more or Less).
Just one question what do you mean if rental income is included , because the 3 ips are all slightly negatively geared. I pay extra tax at my 9 to 5 job , $250 a month to be precise.So roughly on second sceniro $30360 + $25660 = $56020 in Tax[stun].
I think i might sell two which will help but if i made say $110,000 instead of $70,000 on one ip i would have to consider it as they are on auction.
Dom
Hi Dom,
As Rob indicated you didn’t tell us whether or not your annual incomes $40K & $30K were wage/salary only or were gross taxable incomes inclusive of net rent.
Derek
[email protected]Property Investment Support Available. Ongoing and never stopping. PM welcome.
As Rob indicated you didn’t tell us whether or not your annual incomes $40K & $30K were wage/salary only or were gross taxable incomes inclusive of net rent.
Sorry they are wages, which i pressume is gross taxable inncome.
DomHi Dom,
Just clarifying so we are speaking the same language.
Assume work related income is $40K, rental income is $20K, no work related claims and rental claims $25K.
Gross taxable income in this example is $40K + $20K – $25K = $35K and not $40K.
Derek
[email protected]Property Investment Support Available. Ongoing and never stopping. PM welcome.
Sorry i will try and make this simple my wage is 40k gross my wifes is 30k gross thats it.
For the rental income for three ips 12k each total 36k per year.
Hope this helps .Daerek are you saying the difference between selling them in one year or selling them in three year staggered lots is only 10kfor each of us ?
Dom[biggrin]
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