Hi,
I have been thinking the investing strategy “Buy, Renovate and Sell”. Let’s say if I make $50k profit, but how can I get away from paying the massive capital gain tax? I won’t always be able to live in the property for 6 months since it can be in the outer suburb areas/interstates.
Isn’t it better to “Buy, Renovate and Rent” instead since it doesn’t incur capital gain tax? What are the pro’s and con’s of these 2 different strategies?
Hi Asou,
how can I get away from paying the massive capital gain tax?
Two ways that spring to mind are these:-
1. Wait 12 months before onselling (be sure you check which dates are important – I believe Contract Date applies, and NOT Settlement date…. but check that). In so doing, you HALVE the CGT owing – well, really, you HALVE the amount needing to be reported as a gain. CGTax then is paid accordingly – it may bear no relation to “HALF”….. in fact, you could pay a lot less than half, especially if it has you in a lower marginal Tax scale.2. Start a Company – that way you would pay only 30%.
Or, as you say, Buy/Reno/Hold can work well too – but this doesn’t leave you quite so free in cash terms.
Do note this is all opinion – listen more to those who have a sig that shows they KNOW all this,
Regards,
BennyOr alternatively, buy, renovate, retain and buy again with equity gain. $0 CGT attributed.
Flipping is a great way to make money for the State government, real estate agents, conveyancers – but not so much the person doing the flipping.
Corey Batt | Precision Funding
http://www.precisionfunding.com.au
Email Me | Phone MeInvestment Focused Finance Strategist - servicing Australia-wide
CGT won’t apply for something like this as the property will be treated as trading stock. It would be good if you could hold on for a while so you could get CGT applied. The max tax rate would then be 24.5% or so, but this could be much lower. Consider utilising a trust too. Not necessarily the property owned by the trustee 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
Agree with Corey – flipping isn’t the usual path to wealth creation. Especially in the cheaper markets.
By holding onto the property you might be able to leverage that newly created equity to purchase another property – rinse and repeat.
Cheers
Jamie
Jamie Moore | Pass Go Home Loans Pty Ltd
http://www.passgo.com.au
Email Me | Phone MeMortgage Broker assisting clients Australia wide Email: [email protected]
Hi Jamie/Terryw/Benny,
Thank you for all your advise. I just have another question regarding using a trust. I heard trust don’t have to pay any tax. Does this mean if I have my investment property inside a trust, then I don’t have to pay any tax unless I withdraw the rental income?
Discretionary trusts are generally dont pay tax if the income is distriuted but if it is not then the trustee will pay tax at the top rate.
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
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