With the property market booming, the phrase ‘buy in gloom, sell in bloom’ makes perfect sense to an investor sitting on their nest eggs. While the benefits of investing are clear, we often forget about the tax on an investment property that can cause a heavy strain, taking a significant chunk of our hard earned profit. Below are some ways to help you minimise the dreaded capital gains tax making sure your contract figure still remains attractive when it comes time to sell.
1. Make the most of a low-income year:
We have all been there, the good the bad and the ugly. Taking your lower income years with a grain of salt means that you may be in a lower-than-usual income tax bracket. This is a good chance to run your numbers on selling and make the decision before the end of the tax year. Things like maternity leave, unpaid long overseas holidays and job loss may work in your favour when it comes to minimising your tax on investment properties.
2. Deliver ongoing maintenance
Another way to minimise tax is to deliver ongoing maintenance to your property. While improvements you make on the home like a new kitchen are not tax deductible, you can claim expenses if you are maintaining the space.
3. Buy the property – just not 100 per cent of it
Found your dream investment, but worried about holding costs? Consider shared ownership with a trusted partner. If you own 100 per cent of a property, you get 100 per cent of deductions, but you also have to pay 100 per cent of the capital gains tax. If the property is positively geared, purchase in the name of the person on the lower income to minimise the tax on the investment property. The types of properties and circumstances will vary, so remember if your property is likely to be negatively geared, the purchaser should be the one in the higher income bracket.
4. Consider your super:
When selling your investment, consider putting a significant chunk of your profits into your personal super fund. This will help to reduce the tax you may have to pay otherwise and will be a smart investment toward your future after retirement.
5. Shared living space
One of the most advantageous ways to dodge the burden of a capital gains tax is to live in your investment property, then let someone else live there whilst you continue to claim it as your principal place of residence for up to 6 years. Just because your property is now up for rent, that doesn’t necessarily mean you have to give it up as your PPOR. By moving into another place and owning two properties, you will have to evaluate which is holding the most capital gain can be claimed as the primary place of residence
Need help getting started? iBuyNew will point you in the right direction! Whether you are looking for apartments, townhouses or house and land packages, working closely with an iBuyNew property consultant, who understands the market, will help you find something suitable that’s tailored to your needs and requirements. Get in touch with them on 1300 123 463.
Breanna Taylor
Breanna Taylor is a third-year journalism and PR student studying at Swinburne University in Hawthorn. She has a strong passion for interior design and a growing interest in property development and renovation.
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