How To Avoid Capital Gains Tax (CGT) On Investment Property (Ep193)

How To Avoid Capital Gains Tax (CGT) On Investment Property (Ep193)


Capital Gains can actually be a pain in the
butt can be super annoying because all of a sudden you’ve got this growth amount and
have to pay massive amounts of tax on it. So today, I want to talk about how to avoid
Capital Gains Tax, also known as CGT on Investment Property. So, let’s go through the different exemptions
that may apply to you. Now, obviously this cannot be taken as taxation advice and should
always seek the advice of a professional before you go ahead and do any of this. But this
is going to help you for general education purposes only. So, let’s have a look at the
full exemptions first. If you live in your property when you first buy it, for at least
six months, so when you purchased the property you purchased it to live in it, you’re not
purchasing it to rent it out, you prove that by living in it for six months. And then,
if you live in it the full time, then the chances are that you’re going to get a full
capital gains exemption because it’s your principle place of residence, its where you
live, it’s not an investment, well then you’re going to get that exemption. But, there’s
also a clause where if you live in it first, so you’re purchasing it to live in it, but
then you decide that you need to move for some reason, maybe you need to move interstate
because of a job, or maybe you’re taking of a sick relative, or you’re going on extended
holiday, or something like that, you can lease your property for up to six years, whilst
you’re keeping it as your principle place of residence, hence you actually get that
exemption for six years. Now, there’s also a possibility, after that six years is out,
to go back and live in it for another six months to twelve months and then it can actually
reset that six years so you can move out and then you can then rent it out for another
six years. So, obviously you need to speak to your accountant about this, please don’t
take this as law but this is from the research that I’ve done, what I found. They say you
can acquire and live in a second property but that second property is not going to be
exempt. So you can only have one principle place of residence at a time, you can’t have
two. So, you’re having one property that’s dedicated as your principle place of residence
while the other property, even if you’re living in it, you’re going to have to pay capital
gains tax one of the time that you’re living there. So to get the full exemptions, it’s
your principle place of residence, there are some clauses that you can rent it out for
a certain period of time, that period of time being six years, and there is also the potential
to reset that if you move back in for another six months or more. But again, always speak
to an Accountant, I need to stress that. There are some partial exemptions as well
and there’s some roll over that we’ll look at. The partial exemptions you may be actually
eligible for a fifty percent discount on the capital gains that you have to pay if you
own the property for more than twelve months. So, if you’re not purchasing the property,
then quickly renovating it, and selling it six months later, you may actually be eligible
to fifty percent discount on your capital gains tax. So let’s say you purchase an investment
property, you hold it for ten years and then you decided it’s time to sell, you may be
eligible to get fifty percent off the capital gains tax that you would have had to pay,
that’s pretty cool. And again, if you have lived in that property for certain period
of time, then the period of time that you lived in that as your principle place of residence,
you get an exemption for that amount of time. The way that they work it out is, they work
it out time spent living vs. time spent as an investment, and they’ll actually look at
when did the market go up and while you’re living in it went up a hundred thousand dollars
but the whole time you rented it out it didn’t go up at all, it doesn’t work like that. It
works like, you lived in it for two years and you rented it out for eight years so twenty
percent of the time it wasn’t for investment purposes so often you get the twenty percent
exemption and you only pay capital gains tax on the eighty percent time that it was investment
property. So there’s the partial exemptions and the rolls over in some circumstances you
can roll over capital gains tax until a later date and this is basically the only reason
I could find was if you’re selling the property due to divorce and what’s best is buying it
off the other spouse, there is a potential to roll it over the capital gains tax when
the spouse who buys it finally goes ahead and sells it ten years down the track, or
whatever, then its rolled over so they have to pay for it. You can’t get those roll over
exemptions if you’re selling your property to a third party, someone else that’s not
involved in the divorce hence you can’t get a roll over if you sell your property or you
put it into your super fund. There are some ways to avoid capital gains
tax, obviously you can’t avoid capital gains tax completely legally, I’m sure there’s probably
illegal ways that people do this but I would not recommend that. I think it’s too easy
to make money legally than to go out and try dodge the system and try and avoid paying
a few thousand dollars in capital gains tax, I just don’t think it’s worth it. If you do
that it’s on you! It’s at your own risk, but there are some legal ways that can get exemption
or at least get partial exemptions. If it’s been an investment for the full amount of
time, you’ve never lived in it, it’s always been investment property and you’re not getting
divorced, well chances are you’re going to have to pay the full amount of capital gains
tax but actually you may be eligible to that fifty percent discount for holding it for
more than twelve months. I hope that has been helpful in understanding
capital gains tax, it’s a pretty difficult subject to discuss and to talk about. It was
good to do the research, get my head around it and understand it in even more detail.
If you want calculators that can help you analyze the potential cash flow of a property,
then you should check out OnPropertyPlus inside there I’ve got what’s called Advanced Property
Calculator and in just three steps you can enter the details of any potential property
you’re looking at and in cash you get an estimate of what the cash flow is going to be like.
Is it going to be positively gid is it going to be negatively gid, you can check all that
out. That’s web application is available to members, currently membership is $19.95 per
month or $199.95 per year but there’s also a bunch of other stuff in there as well. I
teach you how to find positive cash flow properties, I go out I find properties, I list them as
well so there’s a whole bunch of features that are super valuable to anyone who’s looking
to invest in property maybe this year or maybe sometime next year, that’s going to help you
so much. Anyway, you can check that out on our OnProperty.com.au/plus
and until tomorrow remember that your long term success is only achieved one day at a
time.

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