Dealing with taxes, especially Capital Gains Tax (CGT), is one of the many complications you’ll have to confront when selling your home.

Despite the fact that CGT is an obligatory tax, there are ways to reduce the amount you have to pay to the ATO. There are ways to sidestep them as well, but only if you match certain criteria.

What Is Capital Gain Tax?

CGT is a tax that is levied on the profit or gain generated from the sale or disposal of an asset that has appreciated in value since its acquisition.

The tax, which was implemented in Australia in 1985, is typically levied on a variety of assets, such as real estate, equities, bonds, and other investments, as well as personal-use assets such as collectibles and specific personal property.

When you sell your property, the Capital Gains Tax Calculator on your mortgage can provide you with an estimate of the CGT you may be required to pay.

If there are any exemptions in Capital Gain Tax?

You may not be required to pay CGT in certain circumstances:

Capital Loss: If you sell your property for less than its original purchase price, you are exempt from CGT because there was no capital gain.

Principal Place of Residence (PPOR): If your property satisfies the following criteria, it is classified as your PPOR, and you will not be liable for capital gains tax upon its sale:

• It is the residence of your family and yourself.
• The property contains personal possessions.
• It functions as your delivery address.
• It is the address that is listed on the electoral registry.
• It is connected to essential services such as gas, phone, and power.

Change From PPOR to Rental Property: If you turn your main home into a rental property and then sell it within six years, you will not have to pay CGT on the rental income. You are free from this tax if you did not have another main home during the rental time. When you move back into the house as your main home, the six-year rule starts over.

Property with Multiple Uses: If your main home is also your main place of work, you may only have to pay CGT on the part of the property that you use to make money.

If the property was bought before September 20, 1985: If you bought your property before CGT was put in place, you will not have to pay it when you sell it. But because the property doesn’t have to follow the rule, you won’t be able to lower your taxable income if you lose money when you sell it.

Strategies to lower your capital gain tax

Even though CGT is a tax that you have to pay, there are acceptable ways to lower the amount you have to pay. To give you some examples:

1. Hold on to the house for at least a year: If you sell your home within a year of buying it, you will have to pay full CGT. On the other hand, if you decide to sell your home after 12 months, you can get a discount. You can do this in two ways:

• The discount method gives you a 50% discount as long as you’ve owned the item for 12 months.
• You can use the Indexation Method if you bought your home before September 21, 1999. This method lets you change the amount based on the Consumer Price Index.

       2. Consider selling when your income is lower: If you wait to sell your home until the year when your               income is predicted to be lower, you might be able to save money on taxes. In this way, you can lower                       your CGT and take advantage of a lower income tax rate.

      3.Take advantage of your SMSF: If you sell a property that is kept in your SMSF, you may get tax breaks.           If you sold a house during the accumulation phase and had it for more than 12 months, you will only be                   taxed on two-thirds of the capital gain at the full rate. The other third will be taxed at a reduced rate. There             will be no CGT on homes sold during the pension phase.

     4.Increasing your cost base is another way to lower the amount of CGT you have to pay: To do               this, make sure you keep track of all the costs that come with owning a property, like stamp tax, legal fees,               title fees, and the capital costs of repairs.

    5.Invest in affordable renting housing: If you are selling a home that you used to rent out for reasonable         prices for at least three years, you can get an extra 10% off the price. Your home must have been handled by a         registered Community Housing Provider and be hired for less than the going rate.

Talk To The Experts

By learning the tax rules and getting professional help, you may be able to properly lower your CGT obligations and possibly make the most money possible.

Keep in mind that tax laws can change, so it’s important to know the most recent rules and talk to professionals to make smart financial decisions when you sell your home.

Buying a house to rent out or wanting to refinance, walk in or talk to the market experts at ASK Financials 

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