by Jason Ginns
The recent property boom has seen a large number of property owners cash in and sell their properties, resulting in some large capital gains and similarly the potential for capital gains tax (CGT).
For those who have sold a residential property including a partly-rental property, or are about to, then one of the main areas to review is the options available under the main residence exemption. For commercial property owners, one area to take a close look at is the Small Business CGT Concessions if the property was connected to your business.
Residential & Rental Properties: CGT Main Residence Exemption
If you’ve sold a property that’s been your main residence for the whole time that you have owned it, then in most situations you won’t have any tax issues as you can claim the main residence exemption for CGT purposes.
Alternatively, if you’ve never lived in the property, then you aren’t eligible for the main residence exemption. In this case, your tax minimisation strategy is simple – make sure you account for all of the capital costs over your ownership period, and review your eligibility for the 50% CGT Discount for those properties that were owned for more than 12 months, to make sure the capital gain isn’t any larger than it should be.
Where it gets more complicated – and there are strategies to potentially minimise your CGT here too – is where you have lived in the property for part of your ownership period, but the property was also a rental property for part of this period.
A property can maintain its main residence status for up to six years after you’ve moved out of it, so this is one strategy to review in relation to main residence properties that were rented for a period. However, you can only have one main residence at any one time for CGT purposes, so you have to factor in and consider any other properties you have lived in over this period.
Alternatively, for those properties that had an original use as a main residence, and then were later rented out, the CGT is based on a market valuation of the property at the time that it was first rented, as opposed to the property’s original purchase price. This valuation could be substantially higher than the original purchase price, significantly reducing the CGT.
The main residence rules are not as simple as you may think, so it’s best to seek the advice of one of our tax advisors to discuss any properties that you’ve sold that have this mixed main residence and rental property use.
Commercial Property: Small Business CGT Concessions
For commercial property owners, if the property you’ve sold has had any connection with a business you have operated over its period of ownership, then it’s well worth exploring any eligibility for the Small Business CGT Concessions.
If you are eligible for the Small Business CGT Concessions, then the first of these concessions being the Small Business Active Asset Reduction reduces your CGT by 50%, in addition to the 50% CGT Discount for those properties that were owned for more than 12 months. In effect, you are taxed on only 25% of the gain.
This 25% gain can be reduced to no capital gain in certain circumstances, using one of the other Small Business CGT Concessions, which are dependent on your age, use of superannuation contributions, and whether the sale of the property is connected with your retirement.
With the rewards of potentially being taxed on only 25%, or even 0% of the capital gain, this means the benefits of seeking the advice of one of our tax advisors is even greater in relation to commercial properties that have been used in connection with your business at any time during the property’s ownership period.
How We Can Help
If you’ve sold a residential or commercial property over the last couple of years, or you are about to, with the high sale prices being achieved, the potential CGT savings from getting the right advice at the right time can be substantial. So make sure you reach out to one of our tax advisors so we can guide you through this process and help you to minimise your CGT. Get in touch below.