How To Avoid Capital Gains Tax (CGT) On Investment Property (Ep193) - YouTube

Capital Gains can actually be a pain in the butt can be super annoying because all of

a sudden you've got this growth amount and have to pay massive amounts of tax on it.

So today, I want to talk about how to avoid Capital Gains Tax, also known as CGT on Investment

Property.

So, let's go through the different exemptions that may apply to you.

Now, obviously this cannot be taken as taxation advice and should always seek the advice of

a professional before you go ahead and do any of this.

But this is going to help you for general education purposes only.

So, let's have a look at the full exemptions first.

If you live in your property when you first buy it, for at least six months, so when you

purchased the property you purchased it to live in it, you're not purchasing it to rent

it out, you prove that by living in it for six months.

And then, if you live in it the full time, then the chances are that you're going to

get a full capital gains exemption because it's your principle place of residence, its

where you live, it's not an investment, well then you're going to get that exemption.

But, there's also a clause where if you live in it first, so you're purchasing it to live

in it, but then you decide that you need to move for some reason, maybe you need to move

interstate because of a job, or maybe you're taking of a sick relative, or you're going

on extended holiday, or something like that, you can lease your property for up to six

years, whilst you're keeping it as your principle place of residence, hence you actually get

that exemption for six years.

Now, there's also a possibility, after that six years is out, to go back and live in it

for another six months to twelve months and then it can actually reset that six years

so you can move out and then you can then rent it out for another six years.

So, obviously you need to speak to your accountant about this, please don't take this as law

but this is from the research that I've done, what I found.

They say you can acquire and live in a second property but that second property is not going

to be exempt.

So you can only have one principle place of residence at a time, you can't have two.

So, you're having one property that's dedicated as your principle place of residence while

the other property, even if you're living in it, you're going to have to pay capital

gains tax one of the time that you're living there.

So to get the full exemptions, it's your principle place of residence, there are some clauses

that you can rent it out for a certain period of time, that period of time being six years,

and there is also the potential to reset that if you move back in for another six months

or more.

But again, always speak to an Accountant, I need to stress that.

There are some partial exemptions as well and there's some roll over that we'll look

at.

The partial exemptions you may be actually eligible for a fifty percent discount on the

capital gains that you have to pay if you own the property for more than twelve months.

So, if you're not purchasing the property, then quickly renovating it, and selling it

six months later, you may actually be eligible to fifty percent discount on your capital

gains tax.

So let's say you purchase an investment property, you hold it for ten years and then you decided

it's time to sell, you may be eligible to get fifty percent off the capital gains tax

that you would have had to pay, that's pretty cool.

And again, if you have lived in that property for certain period of time, then the period

of time that you lived in that as your principle place of residence, you get an exemption for

that amount of time.

The way that they work it out is, they work it out time spent living vs. time spent as

an investment, and they'll actually look at when did the market go up and while you're

living in it went up a hundred thousand dollars but the whole time you rented it out it didn't

go up at all, it doesn't work like that.

It works like, you lived in it for two years and you rented it out for eight years so twenty

percent of the time it wasn't for investment purposes so often you get the twenty percent

exemption and you only pay capital gains tax on the eighty percent time that it was investment

property.

So there's the partial exemptions and the rolls over in some circumstances you can roll

over capital gains tax until a later date and this is basically the only reason I could

find was if you're selling the property due to divorce and what's best is buying it off

the other spouse, there is a potential to roll it over the capital gains tax when the

spouse who buys it finally goes ahead and sells it ten years down the track, or whatever,

then its rolled over so they have to pay for it.

You can't get those roll over exemptions if you're selling your property to a third party,

someone else that's not involved in the divorce hence you can't get a roll over if you sell

your property or you put it into your super fund.

There are some ways to avoid capital gains tax, obviously you can't avoid capital gains

tax completely legally, I'm sure there's probably illegal ways that people do this but I would

not recommend that.

I think it's too easy to make money legally than to go out and try dodge the system and

try and avoid paying a few thousand dollars in capital gains tax, I just don't think it's

worth it.

If you do that it's on you!

It's at your own risk, but there are some legal ways that can get exemption or at least

get partial exemptions.

If it's been an investment for the full amount of time, you've never lived in it, it's always

been investment property and you're not getting divorced, well chances are you're going to

have to pay the full amount of capital gains tax but actually you may be eligible to that

fifty percent discount for holding it for more than twelve months.

I hope that has been helpful in understanding capital gains tax, it's a pretty difficult

subject to discuss and to talk about.

It was good to do the research, get my head around it and understand it in even more detail.

If you want calculators that can help you analyze the potential cash flow of a property,

then you should check out OnPropertyPlus inside there I've got what's called Advanced Property

Calculator and in just three steps you can enter the details of any potential property

you're looking at and in cash you get an estimate of what the cash flow is going to be like.

Is it going to be positively gid is it going to be negatively gid, you can check all that

out.

That's web application is available to members, currently membership is $19.95 per month or

$199.95 per year but there's also a bunch of other stuff in there as well.

I teach you how to find positive cash flow properties, I go out I find properties, I

list them as well so there's a whole bunch of features that are super valuable to anyone

who's looking to invest in property maybe this year or maybe sometime next year, that's

going to help you so much.

Anyway, you can check that out on our OnProperty.com.au/plus and until tomorrow remember that your long

term success is only achieved one day at a time.