A simple strategy to reduce CGT is to consider the timing of when you make a capital gain or loss. If you know your income will be lower in the next financial year, you can choose to delay selling until then, so that your lower marginal tax rate results in you paying less CGT.
Six ways to minimise your Capital Gains Tax (CGT)
- Holding onto an asset for more than 12 months if you are an individual.
- Offsetting your capital gain with capital losses.
- Revaluing a residential property before you rent it out.
- Taking advantage of small business CGT concessions.
- Increasing your asset cost base.
Do you pay capital gains tax on a rental property?
While the sale of your family home – or main residence – is usually tax free, each time you sell an investment property you must pay Capital Gains Tax (CGT) on the transaction. With rentals, the capital gains tax on the property applies on the date you sign the contract of sale.
When do you not have to pay CGT on rental property?
If you as owner are living in your home when you die, then as long as the executor of your estate sells it within 2 years, the executor will not be subject to CGT either. Where you do sell your property you may need to consider the application of capital gains tax.
When does a CGT event occur on a property?
Generally, a CGT event arises for you when you sell your property. If you do not sell your property before you die you generally do not have to worry about capital gains tax. When you die you are not treated as having disposed of your assets at that time and no CGT events arise, other than for certain limited exceptions.
Do you have to pay capital gains on rental property?
From the above two examples, you can see that the capital gains tax calculation is quite simple if the use of the property is clear cut i.e. it is either your primary residence or it is never used for this purpose.
When do you get a discount on CGT?
If held for longer than 12 months it can qualify for a discount of 50% on the capital gain. If that rental property is later occupied as a main residence, the capital gain will be apportioned between the period occupied as a rental and the period occupied as a main residence, measured by the number of days rented and number of days occupied.
