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What to do now to minimise any CGT

24 February 2019

 

What to do now to minimise any Capital Gains Tax?

 

You're probably like me and sick of Capital Gains Tax (CGT) already.

So many things will change over the next year or two, that in my opinon, the detail is irrelevant at this stage.  What rate, what is included, what isn't included, the start date, etc could all change.

So let's focus on what to do now!

There is really only one item - how do you maximise your values at a future valuation date?

- If you can subdivide, generally do it now (always get tax advice before subdividing starts, and before you sell any subdivided property).
- If you can do a development, can you get it finished in the next year or two, rather than land banking it?
- If you are wanting to buy the neigbours so that you have more land to subdivide, develop etc, can you do it sooner?
- If you own a business and are thinking of buying a commercial property to move your business into and add value.  Can you do it sooner?

So overall, if you have any major way to add value to your property or assets, can you do it earlier, before any valuation date for CGT?


Example:

1) Do nothing now.  Then in five years time subdivide and add $200,000 of value to a rental.  Most likely taxed and could be over $60k of tax.

2)  Do the subdivision now.  As long as not caught by taxing provisions for subdivisions, then capital gain isn't taxed.  If subdivided and rented for 3-4 years, then sold, most likely $0 tax, as the $200,000 equity gain is before any CGT.  NOTE - always get tax advice before subdivided and before selling a subdividable property,



COMMON MISCONCEPTION

A common misconception is that you need to sell now.

Most likely any capital gains to a certain date will be tax free.  Then only the gains after that date would be taxable.

Example:

CGT comes in 1/4/2021 and at 30%.
Property worth $1 million now.
Jumps in value to $1.5 million by 1/4/2021.
Then to $1.6 million when sold 30/11/2022.

What is taxable gain if CGT comes in?

$100,000!  Only the gain from $1.5 million to $1.6 million.

a)  There might be renovations and selling costs like commission that might reduce this $100,000.
b)  The valuation of the $1.5 million is really important and if you could push the valuer up to $1.55 million, then only $50,000 gain!

So, in this example, you would be much better off holding to 30/11/2022.  Paying $30,000 in tax but gaining $570,000 for yourself.  Obviously I do not have a crystal ball, and the figures above are completely made up.  The market could also go down over this time.


I hope you have found this helpful!


Kind regards
Ross Barnett

 
 
 
 

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