Capital Gains Tax in Australia: Top Strategies to Reduce Your Liability
Capital Gains Tax (CGT) in Australia can significantly impact your financial outcomes when selling assets. However, with the right strategies, you can effectively manage and reduce your CGT liability. Whether you’re an investor, property owner, or business owner, understanding CGT and planning ahead can lead to substantial savings.
At SKD Accountants, we help clients make informed decisions to minimise taxes and maximise wealth. Let’s explore the essentials of CGT and the top strategies to reduce it.
What is Capital Gains Tax (CGT)?
Capital Gains Tax is the tax you pay on profits from selling assets, such as real estate, shares, or business assets. The gain is added to your taxable income in the year of the sale. However, certain exemptions and strategies can reduce the tax burden.
1. Hold the Asset for Over 12 Months
One of the simplest ways to reduce CGT is to hold the asset for more than 12 months. Doing so qualifies you for a 50% CGT discount, significantly reducing the taxable portion of your capital gain. This strategy is particularly useful for property investors and share market traders.
2. Offset Capital Gains with Capital Losses
Capital losses can be offset against your capital gains in the same financial year, reducing your CGT liability. If your losses exceed your gains, you can carry them forward to offset future gains, allowing you to strategically plan your asset sales for optimal tax outcomes.
3. Utilise Superannuation Contributions
Contributing to your superannuation can be a powerful CGT reduction strategy. By making concessional contributions to your super fund, you can reduce your taxable income and potentially move into a lower tax bracket, reducing your overall CGT liability. This is particularly effective for high-income earners looking to lower their tax exposure.
4. Small Business CGT Concessions
If you run a small business, you may be eligible for specific CGT concessions when selling business assets. These include:
- 15-year exemption: No CGT is payable if you’ve owned the business for 15 years and are over 55 and retiring.
- 50% active asset reduction: Similar to the general discount, this reduces your capital gain by 50%.
- Retirement exemption: You can exclude up to $500,000 of capital gains from CGT if you use the proceeds to fund your retirement.
- Rollover relief: You can defer CGT if you reinvest the proceeds in a new business asset within two years.
5. Strategically Time Your Asset Sale
Timing is everything when it comes to CGT. Selling an asset during a year when your taxable income is lower can reduce the tax impact. For example, if you plan to retire or take a sabbatical, consider selling assets during these periods to benefit from a lower tax bracket.
6. Main Residence Exemption
If the asset you’re selling is your primary residence, it may be exempt from CGT. This exemption can apply to the entire gain or a portion of it, depending on how long the property was used as your main residence. If you’re renting out part of your home or running a business from it, a partial exemption may apply, but significant savings are still possible.
7. Use of Trusts and Ownership Structures
Smart use of trusts and ownership structures can help you manage CGT effectively. For example, discretionary trusts can distribute capital gains to beneficiaries in lower tax brackets, reducing the overall tax paid. Consult a tax advisor to ensure this strategy is implemented correctly and complies with Australian tax laws.
Reduce Your Capital Gains Tax with Expert Advice
Reducing your CGT liability requires strategic planning and a thorough understanding of Australian tax laws. At SKD Accountants, we specialise in helping individuals, property investors, and business owners minimise their tax burden and grow their wealth. Our tailored advice ensures you’re not only compliant with the law but also maximising your tax savings.
Contact us today for a personalised consultation and start implementing strategies that will benefit you in the long term.