Capital Gains Tax Tips: How to Minimise Your Tax When Selling Property

Taxes are an inevitable part of life, but when it comes to selling an investment property in Australia, there are legal strategies to reduce your Capital Gains Tax (CGT) liability. By understanding how CGT works and implementing key tax planning techniques, you can potentially save thousands.

Here’s everything you need to know.

What Is Capital Gains Tax on Investment Property?

CGT applies when you sell an investment property for a profit. The taxable amount is calculated by subtracting the property’s cost base (acquisition and improvement costs) from the sale price. The resulting capital gain is added to your assessable income and taxed at your individual rate. Fortunately, there are several legal ways to reduce CGT.

Top Strategies to Reduce CGT

1. Hold Your Property for Over 12 Months

If you’ve owned your investment property for more than a year, you’re eligible for a 50% CGT discount. This is a significant tax benefit available to individual Australian residents and small businesses, allowing you to only pay tax on half of your capital gain.

2. Primary Place of Residence (PPOR) Exemption

If your property has been your primary place of residence, it’s generally exempt from CGT. Even if you’ve rented it out for a short time, the six-year rule allows you to maintain this exemption, provided you don’t treat another property as your main residence.

3. Leverage the Temporary Absence Rule

Planning to rent out your home while moving for work or an extended holiday? The temporary absence rule allows you to treat your home as your main residence for up to six years while renting it out, exempting you from CGT during that period.

4. Increase Your Cost Base

Every dollar spent on your property impacts the final CGT calculation. By keeping meticulous records of expenses—such as stamp duty, legal fees, and renovations—you can increase the property’s cost base, reducing the capital gain you report.

5. Sell in a Low-Income Year

If you’re anticipating a decline in your income, consider selling your property during that year. A lower income will place you in a lower tax bracket, reducing the CGT you’ll need to pay.

6. SMSF Investment Benefits

For those who purchased an investment property through a Self-Managed Super Fund (SMSF), significant CGT discounts are available. If you sell during the pension phase, you may avoid CGT entirely. Alternatively, a sale during the accumulation phase offers a 33.33% CGT discount.

Pro Tax Tip: Have the Property Valued Before Renting

A pre-rental valuation can provide a new cost base for your property, ensuring any future capital gains are calculated more favorably. This can be especially useful if property values have appreciated since you first purchased the investment.

Key Considerations When Planning to Sell

While these strategies offer valuable ways to reduce your CGT, timing is crucial. It’s important to assess market conditions, your personal financial situation, and changes in Australian tax law before making decisions. Consulting a tax professional early in the process can make all the difference.

How Aero Accounting Group Can Help

Navigating CGT concerns can be challenging, but Aero Accounting Group is here to help. Our experienced accountants in Canberra, Gold Coast, and Springwood are ready to assist you in optimizing your property sale and minimising your CGT liability through tailored tax strategies.

Contact Aero Accounting Group today and take the first step towards a smarter financial future.