Capital Gains Tax (CGT) is a tax on the profit you make when you dispose of an asset that has increased in value. If you sell an investment property in Australia, you may be liable for CGT. Understanding CGT and using certain strategies can help you avoid it when selling investment property.
Understanding Capital Gains Tax
CGT is a tax applied to the profit you make when you dispose of an asset that has gone up in value. The amount of CGT you pay depends on your marginal tax rate and the amount of profit you make on the sale. CGT is usually payable on the sale of investment properties, shares and other forms of capital assets.
CGT is calculated by subtracting the cost of acquiring the asset from the proceeds of the sale. Any costs associated with maintaining or improving the asset can be subtracted from the sale price.
Strategies to Avoid Capital Gains Tax
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Use the CGT discount: If you have owned the asset for more than 12 months, you may be eligible for a 50% discount on the taxable capital gain.
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Rollover the capital gain: If you sell an investment property and want to buy another one, you can rollover the capital gain and defer the tax.
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Utilise the primary residence exemption: If you’ve lived in the investment property for at least part of the time you’ve owned it, you may be able to claim a full or partial exemption.
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Offset capital losses: Capital losses can be used to offset capital gains, reducing the amount of CGT you have to pay.
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Contribute to super: You can make a contribution to your superannuation fund and use the tax savings to reduce the capital gain.
These are some of the strategies you can use to avoid paying CGT when selling investment property in Australia. However, it is important to seek professional advice before making any decisions. A financial advisor or accountant can help you better understand CGT and determine the best strategy for your situation.
