Unlocking the Secrets to Minimise Capital Gains Tax (CGT): Your Essential Guide

Great news and congratulations! If you have to pay capital gains tax you have made money from investing. In many cases you may have made money while you sleep and without exertion. From here, you can use these funds to enjoy or, use to achieve other goals.

The challenge is:

1. Working out the potential capital gains tax
2. Determining if there is a strategy to minimise the tax that aligns with your goals.
3. What is the best place for the proceeds?

“We have to pay tax but there is no need for a tip.”

Exemptions

The good news there are a few potential exemptions for paying capital gains tax:

1. Selling your home – although it is more complicated if you have used the property as an investment property at some stage.
2. Selling commercial property – if you qualify for the small business concessions.
3. Investments within superannuation pension phase. Please find an article if you are interested in reading more on this exemption.

I plan to write articles for these exemptions. In the meantime, please reach out if you would like advice on these exemptions. 

How do I work out the capital gains tax?

Have good record keeping – Working out the tax is often a challenge because of record keeping. If you have owned the asset for a long time, finding the purchase price and purchase costs can be tricky. For investments in shares, ETF’s and managed funds, were fortunate to have online platforms that do the record keeping for us. I have written another article on platforms if you’re interested. For property assets, this can be challenging too.

The calculation for determining is CGT is simply:

• Gross gain = Sale price less purchase price. You can deduct buying/selling costs. Although, you have to add back depreciation if you have claimed it on a property sale.
• The gross gain can be reduced if you have capital losses.
• The gross gain is halved if you have owned the asset greater than 12 months.
• This gain can be divided again depending on how many people have owned the asset.
• The gain is then taxed at your marginal tax rate.

For your tax return, your accountant will calculate the capital gains tax for you.

How do I reduce the capital gains tax?

I recommend that you seek advice, as this can be tricky as the best strategy needs to align to your other goals, not simply to reduce tax. However, please find some principles to consider.

• Sell when your tax rate is low. You may need to sell the investment for personal reasons or because selling now will mean you get a great price. However, you may also consider selling the investment when your tax rate is low. For example, when you have retired, and your income is low or even zero (0%). Tip: If you are selling a property, the sale date is when contracts are exchanged, not on settlement (when you receive the proceeds).

• Claim eligible tax deductions. For example, there is one deduction (if you’re eligible) that is currently up to $137,500 and from the 2024/25 year will be up to $150,000. These deductions can contribute to your retirement goals too.

• Bring forward deductions. You will need to seek advice but there are some deductions where you can pre-pay (or pay them early) and obtain a tax deduction. For example, prepaying interest on a loan that was used for investment.

• Consider the ownership when you purchase an investment. For example, you can invest via superannuation and depending on eligibility, when you sell the investment, have no capital gains tax. Another example may be to own the investment in a family trust, as the capital gain may be shared with several beneficiaries.

Lastly, what to do with these funds?

You may have plans to spend the funds on travelling, renovating or simply to enjoy a great retirement lifestyle. If you are looking to invest or clear debt, I would recommend seeking advice, so there are not new future tax liabilities created.

The wrap 

Congratulations, having a capital gain is a great result. I encourage you to get advice on using these funds to achieve your goals and to minimise the tax in the correct way.

Disclaimer

This information is general advice. We have not considered your objectives, personal or financial circumstances. You should consider the appropriateness of the advice for your circumstances before making any decision. You should obtain and consider the relevant Product Disclosure Statement and seek the assistance of an authorised financial adviser before making any decision regarding any products or strategies mentioned in this communication.

Past performance is not an indication of future performance.

This presentation has been prepared and presented by Roger Perrett, Freshwater Wealth Management Pty Ltd CAR no.1307016, Alliance Wealth Pty Ltd AFSL No.449221. This information cannot be used or copied in whole or part without our express written consent.

While every effort has been made to ensure the accuracy of the information, it is not guaranteed. It is based on our understanding of regulations and laws as at the publication date. As these are subject to change you should talk to a professional adviser for the most up-to-date information.

To the maximum extent permitted by law, no person including Alliance Wealth Pty Ltd nor its related entities, employees or representatives accepts responsibility for any loss suffered by any person arising from reliance on this information.