Capital Gains Tax (or CGT) can be very annoying because you have to pay massive amounts of tax on the growth you’re experiencing. So I want to talk about how to legally avoid CGT on investment property.
Let’s go through the different exemptions that may apply to you:
This cannot be taken as taxation advice and you should always seek the advice of a professional before you do any of this. This is going to help you for general education purposes only.
Here are some full exemptions that I’ve found:
- If you live in your property when you first buy it for at least six months and can prove that it is your principle place of residence then you may be eligible for a full capital gains exemption because it’s your principle place of residence and not an investment.
- There’s also a clause that states if you purchased the property to live in it but then decide that you needed to move for some reason (such as a job or extended holiday) you can lease your property for up to six years whilst you keep it as your principle place of residence and you get the exemption for six years (there’s also a possibility that after the six years are up you can live in the property for another six to twelve months which then resets the six years so you can move out and rent it again for another six years).
From my research I also found that you can acquire and live in a second property but that second property is not going to be exempt because you can’t have two principle places of residence. Therefore even if you’re living in it you’re going to have to pay CGT on the secondary property and to get the full exemptions the property has to be your principle place of residence.
Make sure to speak to your accountant about these options. Please don’t take this as law as this is from the research that I’ve done.
Here are a couple of instances where you could qualify for partial exemptions on the CGT:
- One partial exemption is a 50% discount if you own the property for more than twelve months. So as long as you don’t buy and sell the property in under twelve months you may be eligible to receive a 50% discount.
- Also if you have lived in a property for certain period of time with it being you principle place of residence, you can get an exemption based on the period of time that you lived in it. It works out as time spent living vs. time spent as an investment. For instance if you lived in the property for two years and rented it out for eight years then 20% of the time it wasn’t for investment purposes so you may get a 20% exemption on the capital gains tax and only pay the 80% for when it was an investment.
In some circumstances you can roll over capital gains tax until a later date. The only reason I could find for this was if someone is selling the property due to divorce and one spouse buys it off of the other then it is possible to roll it over the capital gains tax. When the spouse who buys it decides to sell it then they have to pay for it.
You can’t get this roll over exemption if you’re selling your property to a third party or someone that’s not involved in the divorce and you can’t sell the property and place it in your super fund.
I hope that has been helpful in understanding capital gains tax because it’s a pretty difficult subject to discuss.
You can’t legally avoid capital gains tax completely but I would not recommend any illegal methods because I think it’s too easy to make money legally and it’s just not worth it.
If you do choose the illegal route than that’s on you! But just know that there are some legal ways that you can get exemptions or at least partial exemptions.
Until tomorrow remember your long term success is only achieved one day at a time.