Tips on Avoiding Capital Gains Tax From Experts in Perth
Capital Gains Tax (CGT) is a tax on the profit you earn from selling an investment. When it comes to property, effectively managing or minimising the impact of this tax can significantly reduce your overall expenses. In this guide, the experts at Motivate Property Group in Perth will explain what CGT entails, outlining the main residence exemption rules, and sharing strategies specifically designed to minimise your tax liability.
CGT Definition and Main Residence Rules
Capital Gains Tax (CGT) applies to the sale of an investment property, but it does not affect your principal place of residence, i.e. your home. The Australian Taxation Office (ATO) considers a number of factors when determining whether a property is your primary place of residence, including:
How long you’ve lived at the property
Whether the property has been used to generate income—such as through rental payments or commercial use. If so, you will not qualify for the main residence exception.
Whether the property is situated on land of two hectares or less.
Investors who want to avoid CGT often consider using their investment property as their primary place of residence for a certain period of time. According to the ATO, the six-year absence rule allows you to rent out your primary residence for up to six years while still claiming the main residence exemption from CGT. Each six-year absence period is treated individually, meaning if you move into a second property, both properties could qualify as your main residence for CGT purposes for the first six years after leaving the original property.
Liability Minimisation Strategies’
At Motivate Property Group, our specialists can tailor strategies to help you minimise the impact of CGT. For example:
Utilise the Main Residence Exemption: Partial exemptions to the CGT may apply if you have used this property to generate income. Our experts can offer specific advice to help you with this.
Leverage Capital Losses: If you lose money on another investment, you can use that loss to reduce the taxes you owe on any profits you made from other investments. For example, if you made $5,000 from one investment but lost $2,000 on another, you can subtract the $2,000 loss from your $5,000 gain. This way, you only pay taxes on the $3,000 profit instead of the full $5,000.
Apply for Temporary Absence: If you move out of your main residence and later decide to rent it out, you can continue to treat the property as your main residence for up to six years.
Choosing and implementing the right strategy can often be complex. Make sure to contact Motivate Property Group for a consultation with our team of experienced professionals. We’re here to guide you through the process and help you make informed decisions.
Book a consultation today by contacting our team online.