Are you worried about Capital Gains Tax (CGT) on your investment properties? Well, you
have landed at the right place. In this blog, we will share some important things about CGT.
More importantly, we will explain how you can minimise your CGT and stay compliant with
ATO guidelines! So, let’s get started.

What is Capital Gains Tax (CGT)?

Capital Gains Tax is levied on the profit you make from selling an asset, such as an investment property. Remember, CGT is not a separate tax but part of your income tax. The gain is added to your assessable income. Later, it is taxed at your marginal rate. Still, there is a lot of room for exemptions, concessions and strategies to help slash your CGT payables.

Here are some important elements of CGT that every proper investor should know.

1. Capital Gain

This is a profit that you make by selling your property. It’s calculated as the difference between the property’s sale price and its cost base.

2. Cost Base

It’s the original purchase price of your property. It includes the price of the property, along with any other expenses incurred to get the ownership. For example, stamp duty, legal fees, and renovation costs.

3. Discount Method

Under this method, if an individual or trust is holding a property for 12 months or more, they can get a 50% discount on the CGT.

4. Indexation Method

For properties acquired before 21 September 1999, you can index the cost base to account for inflation up to 30 September 1999.

How do you minimise your Capital Gain Tax?

Option #1: Take benefit of the CGT Discount

If you hold the investment property for more than 12 months before selling, you might be
eligible for the CGT Discount. Under this option, you get a 50% discount on your capital
gain. So this can bring down your taxable gain a lot. The lower your capital gain, the lower
your tax liability. However, there are other factors that can impact the decision to hold a
property for 12 months or more. For e.g., the market sentiments and demand for the property.
It’s important to discuss with an experienced tax expert who can help you determine which is
the best option for you.

Option #2: Offset Gains with Capital Losses

If you have made some capital losses from other investments, you can use those losses to
offset the capital gains. This can reduce your capital gain and relevant tax liability. So, make
sure you are calculating your capital gain after setting off all your capital losses. If you have
any loss-making asset, you can sell it in the same financial year and can reduce your capital
gain tax payable. So consult a tax accountant specialist and track all your investments for the
best tax benefit.

Option #3: Timing of Sale

Timing is very important. Let’s say, in this financial year, your income is lower. So, if you
sell your property this year, your taxable income will also be lower. And this will make your
CGT payable lower. On the contrary, if you think that your income will be higher in this
financial year, you might want to wait till the financial year is over. However, this option
requires an accurate projection of your income and tax calculation. So always consult an
expert like Nanak Accountants for the best outcome.

Option #4: Main Residence Exemption

If the property was your main residence at any time, you might be eligible for a partial
exemption. You can claim an exemption for the period for which the particular property was
your main residence. So, if you lived at that property for quite a long time before selling it or
renting it out, you could get a good exemption in terms of CGT. So make sure you keep your
occupation documents clear to support your claim exemption.

Option #5: Use a Trust Structure

If you are holding a property through a trust, you might be able to get some tax benefits.
These tax benefits include the option to distribute the income to beneficiaries of the trust.
This can significantly bring down your capital gain. As a trust, you can also claim asset
protection and estate planning advantages. So it’s a good option. The only problem? You will
have to do a lot of paperwork and careful planning. So consult with a tax professional for a
seamless trust setup.

Option #6: Renovations and Improvements

Keep detailed records of all expenses related to renovations and improvements. Why? Well,
this increases the cost base of your property. So, when you sell your property, your capital
gain will be less. But it’s important to keep accurate records of these transactions to support
your claim. So make sure you invest in renovations to improve your property’s aesthetics and
value, along with an option to reduce your capital gain.

Option #7: Superannuation Contributions

If you are contributing to superannuation, you might be eligible for some tax benefits. All the
eligible individuals can use some part of their capital gain from the sales of property to make
a concessional contribution to your superannuation fund. Result? Your taxable income goes
down. This option helps you save big for your future planning and can help you reduce the
tax for the current financial year.

Additional Consideration

Apart from the options mentioned above, there are some additional steps you can take to
reduce your tax Capital Gain Tax. Here are they:

• Maintain Accurate Records
• Take depreciation into account
• Claim CGT concession for small businesses (if applicable)
• Consult a tax professional for the right guidance

Wrapping Up

There are multiple options to minimise your Capital Gain Tax. But each one demands proper
planning and mitigating existing ATO guidelines. You will need expert guidance at each step
of this planning. So make sure you consult a tax professional like Nanak Accountants & Associates.

We’ve have helped hundreds of our clients reduce their CGT liabilities by a great margin
using our expertise and experience. We can do the same for you. So feel free to reach out for
consultation or any further information.

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