16/11/08 - Tax minimisation strategies that can save you thousands $$$$$.
Reducing CGT on the sale of a holiday house or a vacant land
The sale of a holiday home is subject to CGT even if that property was never used to generate rental income. Given the increase in prices of property generally, and sea-side property even more specifically, the sale of a holiday home can generate a nasty CGT bill.
So, to help reduce this bill, you should be aware that the tax law allows for extra amounts to be included in the cost base of a property if that property was bought or acquired after 20 August 1991.
This means that the following costs could be included in the 'cost base' for CGT purposes to reduce the amount of profit you make and in doing so, the amount of tax that you pay:
- Interest on the loan to buy the holiday home;
- The council rates you pay over the life of your ownership;
- The insurance that you pay on the holiday home;
- The cost of any maintenance or repairs on the holiday home.
As always, the cost of the legal fees to buy and sell the property; the stamp duty that you paid when you bought the property; and the real estate agents fees on the sale are also taken into account to reduce the profit you have made on the sale of your property, and in doing so, the amount of tax that you pay.
(By the way, the same rules apply when you sell a block of vacant land.)
Please Note: an asset should be discussed with us before you sell that asset, so that you can do what you can to reduce the tax payable. This is just one of many strategies that might make a difference to the end result.
Salary sacrifice for property investors
This strategy helps with a couple of different problems and may be something to consider if you;
- Own a negatively geared property in joint names and one spouse does not work, or, only has a small income; or
- You wish to bring your combined income down below the thresholds so that you can receive family tax benefits from Centrelink.
The basic strategy is that the high income earner of the family asks his/her employer to enter in to a salary sacrifice arrangement and for the employer to pay all of the interest on the investment loan directly rather than pay a full salary.
This strategy effectively allows the high income earner to reduce their taxable salary in such a way that;
Legally hides part of their income from the Tax Office, Centrelink or Child Support Agency
Claims a 100% tax benefit from the interest paid on their behalf (at effectively the highest tax rate) instead of splitting the benefits in accordance with the property ownership proportions.
Now, under the 'Otherwise Deductible' rules of the FBT law, there are no Fringe Benefits Tax problems or costs with this strategy for your employer, either.
Please Note: Obviously, before doing anything along these lines you should probably discuss the concept in more detail with us to ensure that the strategy is appropriate for you and your circumstances.
Superannuation Planning
How would you and your spouse like to pay no more than 15% tax on the assessable income in excess of $250k? Talk to us and we will show you how.
Negative Gearing
One of the most popular ways to minimise tax and create wealth. You can also do it so don’t delay and talk to us about your situation.
