August 19, 2011 By Noel Whittaker
Publication: Sydney Morning Herald (subscribe)
Q. I am 54, semi-retired and self-employed, with super and shares worth more than $500,000. How can I minimise my future capital gains tax if I move into an investment property I have owned and rented out for seven years? I intend to live in the property for at least five years and sell the house my wife and I live in.
A. The CGT on the rental property will be apportioned on a time basis. For example, if you own it for a total of 10 years, and rent it out for seven, you will be liable for CGT on 70 per cent of the increase in value. However, as you’ve owned it for more than a year you will be entitled to a 50 per cent discount on that, which will reduce the taxable gain to just 35 per cent of any increase after buying and selling costs and capital expenditure have been taken into account.
Q. I am a 48-year-old woman and my partner is 52. We have both been divorced and now find ourselves starting out again. We are renting and our combined fortnightly net income is just below $4000. We have $180,000 in various bank accounts, earning different levels of interest. We are unsure whether to continue renting and significantly increase the contributions to our individual super funds or buy a modest unit, with a low mortgage that can be paid off quickly, and then contribute more to our super. What would you advise us to do?
A. I always prefer buying a property in such situations. It gives you free rent for life when it is paid off and also becomes an asset that is exempt when you are seeking an age pension. Also, the strategy of salary sacrificing into super and then using the eventual lump sum to pay off the housing loan eases the burden.
Noel Whittaker is a director of Whittaker Macnaught, a licensed dealer in securities. This article is general in nature. Readers should seek further advice before making financial decisions.
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