Selling an investment property can generate significant capital gains. Understanding how these gains are taxed can help investors maximise returns. Here’s an overview of capital gains tax and strategies to manage it when selling rental properties or other investments.
Calculating Your Capital Gain
Your capital gain is the difference between what you paid for the property (your cost base) and the sale price. Cost base factors in the purchase price plus improvements like renovations. To determine the taxable capital gain, deduct eligible capital losses and costs associated with selling like agent fees.
Tax Discount for Longer Ownership
If you’ve held the investment property for over 12 months you may qualify for a capital gains tax discount. For individuals this is a 50% discount, cutting your capital gain in half for tax purposes. This incentive aims to encourage longer-term investments.
Offset Gains Through Depreciation Deductions
Claiming allowable depreciation deductions on your investment property can increase its cost base and lower your overall capital gain. Maximising these deductions legally minimises tax. A quantity surveyor can provide a depreciation schedule optimising these claims.
Manage Timing to Your Benefit
Consider timing the sale to align with lower income years, maximising benefits of tax brackets and offsets. Spreading a capital gain across multiple years through a contract of sale may also reduce overall tax paid. Professional advice suits large gains.
Record Keeping Supports Accurate Returns
Maintain thorough records including purchase contracts, settlement statements, renovation receipts, and depreciation schedules. This evidence supports accurate capital gains calculations across ownership periods, sales costs, improvements, and other deductions.
Understanding capital gains tax obligations when selling investment properties allows smart planning to manage tax impacts. Consult qualified valuers, accountants and advisors to leverage legal deductions, timing strategies, and record keeping.
