Ask Paul: How can I pay less capital gains tax on my property?


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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.

paul clitheroe

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.

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Paul Clitheroe AM is founder and editorial adviser of Money magazine. He is one of Australia's leading financial voices, responsible for bringing financial insight to Australians through personal finance books, the Money TV show, and this publication, which he established in 1999. Paul is the chair of the Australian Government Financial Literacy Board and is chairman of InvestSMART Financial Services. He is the chair of Financial Literacy at Macquarie University where he is also a Professor with the School of Business and Economics. Click here to ask Paul your money question. Unfortunately Paul cannot respond to questions posted in the comments section. Please view our disclaimer here.
July 30, 2020 5.36pm

I retired 5 years ago at 60 own my own property which is subject to cgt and drawing down on my funds which l withdrew in full from my superfund due to low returns and fees.

As l am paying myself a salary from my own funds and not of pension age, don't care about lost interest as l wish to obtain a full pension in a years time am l subjected to the gifting or drawing down of funds when l come to claim the aged pensioned.

Damian revell
August 5, 2020 9.48pm

You would simply be subject to the asset and income test for the Age Pension at the time you apply and only subject to the gifting rules if you had given away more than $10,000 per year and no more than $30,000 over the 5 financial years prior to becoming eligible / applying for the Age pension. In addition dont discount being eligible to use any part of the 5 year bring forward concessional cap provisions to reduce or mitigate an potential cgt liability with the disposal of any CGT asset as long as you remain eligible to contribute to superannuation. Please ensure you receive personal tax advice from licenced tax agent before employing the previously mentioned strategy.

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