Selling without taking capital gains into account.

May 05, 2022

Capital Gains Tax (CGT) can be a minefield to navigate and can sometimes come as an unwelcome surprise to many property investors – especially if you have sold a property that has grown in value. Unfortunately, some sellers while counting their property profits are completely devastated and frustrated to find out they must now pay CGT.

Of course, it is difficult to avoid CGT completely, however good timing can play an important role in minimising the amount of CGT you may be required to pay the tax office. 

Getting advice from a qualified and proficient accountant before deciding to sell an investment property can be extremely helpful and possibly save you lots.

What is capital gains tax (CGT)? 

According to the ATO, capital gains tax (CGT) is the tax you pay on profits from selling assets, such as property. Confusingly for some, CGT is actually a part of your income tax and as such, if you have a capital ‘gain’, this will mean you need to pay more tax. If you would like to learn more about CGT, you can visit the ATO website here.

Here are 5 helpful tips to get you thinking about CGT and its implications.

1. CGT for individuals is calculated on your personal income. So if you know your income will decrease in the coming years, you may want to consider holding off. This can get tricky when the market is booming. Sometimes the pros could out way the cons.
2. The longer you own a property the lower the CGT will be. For example, if you make a profit on your investment property in the first 12 months and sell it, you could pay as much as 50% of the profit in CGT! However, if you sell the property in the second year of purchase, your CGT could be reduced by 25%. As such, the timing of when you sell your property could greatly affect the amount of capital gains tax you need to pay. As such, we highly recommend speaking to an accountant before you sell.
3. Keep your receipts for expenses that concern your investment property. Purchase costs, costs associated with setting up finance, interest paid on investment loans, insurance costs, council rates, cost of improvements, cost of a property management service, etc. You will want to keep records of pretty much every penny you spend on your investment property as this can help reduce your capital gains tax.
4. If you decide to use your home as an investment property, for example, if you decide to buy a new home and rent out your old one, don’t forget to get three appraisals from real estate agents or better still, a sworn valuation. This ensures you can prove to the tax office what your property was worth when you moved out. Because your old home could attract CGT from the date you moved out until the day you sell it.
5. Get advice from an accountant. Every investor’s situation is different and this information is only of a general nature and should not be relied upon.