How to Avoid or Reduce Capital Gains Tax When Selling Real Estate in Australia
Capital Gains Tax (CGT) can take a big bite out of your profits when you sell real estate in Australia. However, several legal strategies can help reduce or eliminate this tax. Here’s how property owners can approach CGT more effectively.
Use the Main Residence Exemption
The easiest way to avoid CGT is by claiming the main residence exemption. If you live in the property from the time you buy it until the time you sell it, you can often sell it without paying CGT. The exemption applies only if the property has not been used to produce income, such as through renting.
Apply the Six-Year Rule for Rental Properties
If you move out and rent the property, you can still treat it as your main residence for CGT purposes for up to six years. This is called the six-year rule. You must not treat any other property as your main residence during this period. Selling within that six-year window can allow you to avoid or significantly reduce CGT.
Hold Property for Over 12 Months
Property owners who sell after owning for at least one year may qualify for a 50% capital gains discount. This benefit applies to individuals and trusts but not companies. Holding for more than 12 months lowers the assessable capital gain and can significantly reduce your tax liability.
Consider Superannuation Structures
Some investors choose to purchase real estate through a self-managed super fund (SMSF). Selling property within an SMSF may lead to lower tax rates, especially if the fund is in pension phase. A Commercial property lawyers Perth investors consult with can offer advice on setting up or managing property through an SMSF.
Offset Gains with Capital Losses
You can reduce your capital gain by using capital losses from other investments. If you sold shares or other property at a loss, those losses can offset your real estate gain. This tactic can reduce the amount of tax owed on the property sale.
Time the Sale Strategically
If you have a year with lower income—perhaps due to reduced work or retirement—selling during that period may result in a lower marginal tax rate. Since CGT is added to your assessable income, this timing strategy can reduce your overall tax payable.
Keep Records of All Property Costs
Your cost base includes more than just the purchase price. It also covers legal fees, stamp duty, agent commissions, and capital improvements. Keeping accurate records helps you increase your cost base and reduce the capital gain. Every legitimate cost counts.
Seek Professional Legal Guidance
Capital Gains Tax rules can be complex. Consulting with the Property lawyers Perth offers is a smart step for property owners. Firms like Munro Doig provide tailored advice that helps clients structure property transactions to reduce tax impact.
Final Thoughts
Reducing or avoiding CGT is possible with the right strategies. By using exemptions, planning carefully, and working with experienced professionals, you can protect more of your property profit. Being proactive today can save you thousands at sale time.
