How to Avoid Capital Gains Tax on Your Investment Property 

Selling property can mean making a profit if you manage to sell for more than your purchase price. But, profits can trigger tax obligations. In this blog, we share our top tips on how to minimise or avoid capital gains tax on your investment property.

What is capital gains tax and how much is it?

Capital gains tax is a tax liability triggered by a realised capital gain on the sale of an asset. Generally speaking, capital gains tax is paid at your marginal tax rate, so the amount you pay will be dependent on your other income from the relevant tax year. 

How to reduce or avoid capital gains tax:

Home owner

To be clear, capital gains tax on property is only charged on capital gains from the sale of investment properties. If the property you’re selling is your principal place of residence (PPR), you won’t pay a cent in capital gains tax. If you’ve lived in the property as your PPR and rented it as an investment property at some point as well, this can make things more complicated. Speak to your accountant about how best to approach these types of capital gains.

Tax planning

Since your capital gains tax liability is paid at your marginal rate, you can avoid or reduce capital gains tax by selling your investment property during a low income year. An experienced accountant can help you leverage this type of tax planning among other strategies, to find the most favourable tax environment.

Wait for a year

A key factor in capital gains tax calculations is how long the asset has been held for. If you own the property for more than 12 months, you may be eligible for a 50% discount on the capital gains liability. 

Offset capital losses

Capital losses can be used to offset capital gains, so if you anticipate triggering a capital gains event, consider planning to realise that capital gain in the same income year as a capital loss, to minimise your overall capital gains liability. Your accountant will be able to advise how best to approach capital gains and losses for the most favourable tax outcome.

 Self managed superfund

An interesting way to minimise or avoid capital gains tax on an investment property is through a self managed superfund. Owning investment properties within an SMSF carries a suite of tax benefits, many of which apply to capital gains.

For SMSFs in the accumulation phase, a capital gain from an investment property would be taxed at the flat rate of 15%, as it’s treated the same as all other income within the fund. However, the 12 month ownership rule applies in the same way as non-SMSF-owned assets. If the fund holds the property for more than 12 months, a discount of one third is applied to the tax liability – meaning only 10% capital gains tax is paid. Compared with a marginal rate of up to 45% outside of an SMSF environment, this method can provide substantial savings.

For SMSFs in the retirement phase, however, all income is tax free, meaning realised capital gains on investment properties are not liable for capital gains tax.

Need support from accountants who understand how to help you avoid capital gains tax on your investment property? Contact National Accounts today.

Mike Wilczynski

I am an unusual Chartered Accountant. That is, I have a passion for helping clients achieve the best outcomes. Strangely (for an accountant) I’m an excellent communicator, highly organised and work hands-on with clients, I love helping generate wealth and streamline their processes. Being a results orientated person I enjoy incorporating new technologies into businesses to increase efficiencies and harness opportunities for my clients in this ever-changing world of finance.

How to Plan for the Next Financial Year

A new financial year is an opportunity for individuals and businesses to focus on their tax planning efforts. The better you plan, the easier it is at tax time – for you, and your accountant.

The tax planning process

Tax planning differs from standard tax compliance. While tax compliance involves on lodging your tax return in accordance with ATO requirements and maximising your tax return by making appropriate deductions, tax planning leverages legal strategies to make structured savings. At National Accounts, we use a multifaceted approach to help you reduce reportable income, increase deductions and take advantage of available tax breaks and credits.

Tax Strategies

Where standard tax returns are reactive and focus on the financial year passed, tax planning takes a proactive approach to your tax affairs. By utilising legal tax strategies, we organise your finances in a way that’s most favourable from a tax perspective. These strategies include:

• Postponing income or bringing forward income into the more favourable tax year
• Reviewing debtors and writing off debts
• Paying expenses up front, or deliberately deferring them
• Shifting timings of superannuation contributions 
• Distribution of assets between spouses
• Small business restructures
• Sourcing CGT exemptions or reductions

Working with an accountant to effectively shift income and expenses into the most tax efficient structure can save you thousands in tax you’d have otherwise been liable for. A skilled accountant can research several available tax strategies to deliver the best results for you.

Deductible expenses and losses

The first step to effective year-round tax planning is to keep on top of deductible expenses and losses. These form the core of your tax planning strategy and can work to minimise your tax liability by reducing your taxable income. Taking advantage of the instant asset write off facility can allow you to invest in equipment to help your business grow, and reduce your tax liability at the same time. 

Tax deductible losses can also be creatively used to minimise your tax bill. Your business structure will dictate how you can use losses to reduce your liabilities, but in many cases carrying forward a tax-deductible loss from a previous income year triggers a greater tax benefit.

Super contributions

Super contributions are an excellent way to minimise your tax liability, as you’re able to allocate up to $25,000 in deductible contributions to your superfund each year. This means reducing your real time tax liability and increasing your retirement savings in the process. There may also be opportunities to make co-contributions to a spouse’s superfund to reduce tax liabilities and make the most of contribution caps.

Understanding contribution caps, concessional and non-concessional contributions and how this works in tandem with other tax strategies can make all the difference at tax time.

Self Managed Superannuation Fund

SMSF members must pay extra attention to tax planning. SMSFs carry a suite of tax benefits when managed effectively, and ensuring you’re on top of all the available tools can be key to your future retirement wealth creation. For expert advice on tax planning for the 20/21 year, reach out to the talented team at National Accounts. We specialise in tax planning for family businesses, SMSFs, sole traders, partnerships, individuals and companies.

Mike Wilczynski

I am an unusual Chartered Accountant. That is, I have a passion for helping clients achieve the best outcomes. Strangely (for an accountant) I’m an excellent communicator, highly organised and work hands-on with clients, I love helping generate wealth and streamline their processes. Being a results orientated person I enjoy incorporating new technologies into businesses to increase efficiencies and harness opportunities for my clients in this ever-changing world of finance.

Working from home tax deductions explained

The rise of remote working has seen more and more employees switch to working from home. For many Aussie tax payers, this opens up an entire new realm of home office tax deductions. At National Accounts, we’re your trusted tax specialists, here to ensure you’re not paying more tax than you need to. We’ve rounded up all the tax deductions you can claim for working from home in the 19/20

Home office equipment deduction

Working from home often requires you to have an office set up, and that can be costly. From office chairs to laptops and printers, you’re entitled to deduct a portion of your costs. You can claim the full amount of these items if they’re under $300, or the decline in value on items over $300.

Home office utilities deduction

You’re also eligible to claim a portion of the utilities (lighting, heating, cooling) used while working from home. You can either claim these expenses using the fixed cost method (52c per hour for the 19/20 tax year), or you can calculate your actual expenses using the actual cost method.

 For the fixed cost method, you’ll need to keep a record of the hours you’ve worked from home throughout the year, or a diary of a four-week representative period of your working pattern.

 For the actual cost method, you’ll need to work out the actual cost per hour worked and the number of units used for heating, cooling and lighting.

Phone and internet work from home deduction

Employees who work from home can also claim a portion of their phone and internet costs, providing you have paid for them yourself and have reasonable evidence to substantiate their claim.

For claims over $50 in total, you’ll need to reasonably establish the percentage of your phone and internet costs that were for work and personal use. You may then deduct the work related percentage from each bill, ensuring you retain records to back up your claims.

Work from home occupancy deductions

Generally, employees are not eligible to claim a portion of their rent or mortgage expenses for their workspace, except in either of the two scenarios:

–   no other place of work is provided by your employer and you are required to dedicate a space to that employer’s business

–   the space in the home is of a business nature and is not suitable for domestic use

Working from home tax deductions as a result of COVID-19

Employees who are temporarily working from home as a result of the COVID-19 pandemic have the option to use the new shortcut method of deducting 80c per hour they work at home, to cover all their working from home expenses.

If you’re working from home due to COVID-19, you can choose the above-mentioned shortcut method, or you can choose to use the standard fixed costs or actual cost methods available all year round.

The 19/20 tax year is set to be one of the most complex years for tax returns, with more employees than ever claiming home office tax deductions. At National Accounts, we’re committed to supporting you through your tax return, ensuring every expense you incurred is accurately accounted for. Reach out today for assistance filing your 2020 tax return and claiming those all important working from home tax deductions.

Mike Wilczynski

I am an unusual Chartered Accountant. That is, I have a passion for helping clients achieve the best outcomes. Strangely (for an accountant) I’m an excellent communicator, highly organised and work hands-on with clients, I love helping generate wealth and streamline their processes. Being a results orientated person I enjoy incorporating new technologies into businesses to increase efficiencies and harness opportunities for my clients in this ever-changing world of finance.

The Pros And Cons Of Accessing Your Superannuation Early

Generally speaking, superannuation in Australia must not be accessed until you reach your applicable preservation age and retire from the workforce. That said, there are certain circumstances that permit you to access funds from your superannuation early. In this guide, we’re unpacking the pros and cons of accessing your superannuation early, and what the implications may be if you choose to do so.

When can you access your superannuation early?

There are certain instances in which you are permitted to access your superannuation early. These include compassionate grounds, financial hardship, terminal illness and incapacity. If you are not terminally ill or out of work due to disability, early access to your superannuation will likely only be granted if it prevents the sale of your home or other debt enforcement action on unpaid bills.

New legislation in 2020 also permits eligible applicants to release up to $20,000 of their superannuation over the next two years if their income has been impacted by the COVID-19 pandemic. You’re eligible if you’ve been made redundant, your employment income has been cut by more than 20%, or you’re a sole trader who has suffered losses in turnover of at least 20%.

What are the disadvantages of accessing your superannuation early?

Accessing your superannuation early might sound like an easy way to access money without going into debt. While true, there are some significant downsides to doing so. Consider the impact that the funds from your superannuation would have on your circumstances, and consider whether it’s worth sacrificing potential compounding returns by leaving it in your super.

Your superannuation is invested with long term returns in mind, so while you may withdraw $10,000 now, you could be losing out on much more had you left that money to continue growing in your super fund.

This is particularly important if you’re accessing your super fund to pay mortgage arrears or other debts. If the amount you access can’t fully pay off the debt, you may still end up in danger of having your home repossessed or defaulting on debt repayments – but you’ll still have missed out on the potential returns from your superfund. In addition, funds within your superannuation are protected from creditors. If you withdraw it, you lose this protection.

Accessing your superannuation early can also mean paying higher rates of tax, plus fees from your superfund provider.

What are the advantages of accessing your superannuation early?

Accessing your superannuation early may relieve extreme financial stressors of debt, medical expenses, funeral costs or legal costs. Withdrawing from your superfund would allow you to pay these bills without taking out additional credit.

Withdrawing your superannuation early can also allow you to enjoy time with friends and family if you have been diagnosed with a terminal illness, or help with the financial aspects of temporary or permanent incapacitation.

Accessing your superannuation early due to financial hardship

The main advantage of accessing your superannuation early is to combat financial hardship. If you have exhausted all other options for paying your creditors and are experiencing emotional stressors relating to your bills, accessing your superannuation early can provide relief – but only if it solves the problem entirely.

If the amount you can withdraw from your superfund does not cover the entire debt, you’re simply prolonging eventual debt enforcement action. This leaves you with less in your superfund for retirement and/or another incident of financial hardship.

 It’s important that you weigh up the short term benefit and the long term disadvantages of accessing your superannuation early due to financial hardship.

Mike Wilczynski

I am an unusual Chartered Accountant. That is, I have a passion for helping clients achieve the best outcomes. Strangely (for an accountant) I’m an excellent communicator, highly organised and work hands-on with clients, I love helping generate wealth and streamline their processes. Being a results orientated person I enjoy incorporating new technologies into businesses to increase efficiencies and harness opportunities for my clients in this ever-changing world of finance.