Navigating the complexities of capital gains tax (CGT) in Australia can be challenging, particularly when looking to sell an investment property. The Western Australian property market offers lucrative opportunities, but these gains often come with tax implications. Fortunately, there are legal avenues and strategies that can be employed to minimise or even avoid CGT.
Also read: When to Sell an Investment Property
The Basics of Capital Gains Tax
In Australia, capital gains tax is levied on the profit realised from the sale of an asset, such as real estate. The amount of CGT payable is added to your taxable income and taxed at your marginal rate.
For individuals, if the property has been held for more than 12 months, a 50% discount on the CGT is available. Recognising these fundamentals can offer valuable insight into how to potentially alleviate this fiscal burden.
Utilise Your Main Residence Exemption
One of the most effective ways to sidestep CGT is through the ‘main residence exemption’. This applies when a property is considered your primary home. By establishing an investment property as your principal place of residence, you could be eligible to claim this exemption.
However, demonstrating that a property is your primary home requires clear evidence – think utility bills in your name, electoral roll registration, or genuine occupation periods. Be mindful, though, that utilising this strategy entails legitimate intention and occupancy.
Explore the Six-Year Rule
If you’ve vacated a primary residence and turned it into an investment rental, you can still claim it as your main residence for up to six years following your departure if no other property is claimed over this period.
This means you won’t incur CGT during this timeframe, provided the property remains rented out and is not simultaneously declared as an investment for tax purposes. This exception is particularly advantageous for those looking to re-enter the property market after upturning personal circumstances, such as temporary relocation.
Evaluate Ownership Structure Revisions
Ownership structure significantly influences CGT liabilities. Transferring ownership into self-managed superannuation funds (SMSFs) or family trusts might provide tax advantages, depending on individual circumstances.
These structures often attract a lower tax rate, reducing potential capital gains impact upon sale. Carefully assess and consider legal advice before undertaking such changes, as they come with stringent compliance and operational requirements.
Strategise with Capital Loss Offsets
Leveraging past capital losses against current gains can substantially offset CGT liabilities. This strategy involves careful management of investment portfolios and a keen understanding of your tax position.
Offsetting is only beneficial if there are applicable losses readily available to neutralise realised gains from the sale of property, thus making detailed record-keeping of your financial history crucial.
At Better Way 2 Build, we simplify property development in Perth by connecting you with expert building brokers. Whether you’re embarking on a subdivision, group development, or custom home build, we offer comprehensive services from builder selection to site management, with 3D designs and inspections included. Let us maximise your returns and streamline your path to market success. Contact us today to see how we can bring your property vision to life.
