Ask Paul: How can I pay less capital gains tax on my property?
I have owned a rental property since 1998. I bought land and built on it straight away.
It has been rented mostly since, but I have lived in it at different times for short periods.
I have lived in the property for the past 12 months and now thinking of selling.
How do I prove I lived in the property from 20 years ago to reduce my capital gains tax? What other strategies can I use to reduce the tax?
The property and land cost about $200,000 and are now valued at about $420,000. - Nicole
Of all the investment issues I do my best to answer, tax is always a nice one.
And no, I have not gone crazy. It is simple: to not pay tax on investments and just lose money each time you invest.
Personally, I recommend trying to invest to make money and accept tax is part of most successful decisions. Of course, the family home does not generate any tax, hence your question.
Here, though, I am going to recommend you see your accountant.
I imagine you have someone who helps you with your tax return, depreciation on your property and so on.
They are the right people to talk to about establishing what your CGT liability is. It will get down to whether you lived there for six months, establishing a cost base for the property and then showing you what your CGT liability would be.
It is great you are doing this planning before selling. CGT is set at a 50% discount to your personal tax rate, and there is also planning in this area to be done to minimise the eventual tax you pay.