Careful planning of your asset sale can help you to avoid paying too much capital gains tax.

Here’s how:

1) One of the top tricks to avoid paying too much capital gains tax is to hold the asset for more than 12 months. This would be a relatively easy feat for property investors, as it is quite unlikely that the growth in 12 months will be sufficient or lucrative enough for them to sell – but in the current property market, it could be a real possibility that the property is flipped under 12 months.

Holding the property for 12 months or more means that you get an automatic 50% discount on the capital gain that you make. This is a very handy piece of legislation, so all property investors should really have this under their belt.

Note: This does not apply to your family home.

2) Another useful piece of legislation, following on from the “family home” comment above, is Primary Place of Residence (PPOR) rule.

If you move into your new property straight away, you will qualify for it to be your PPOR. This means your property (as your home), is exempt from capital gains tax, when you decide to sell.

If you already have another PPOR, there must be careful planning around your movements, so make sure you meet with your accountant to plan around it.

3) The golden 6 year rule is another wonderful tactic that property investors can use, to shift around and profit from property, without having to pay excessive tax.

You are able to rent out your property for up to a period of 6 years, and still be entitled to the full capital gains exemption. There are some rules around this, one being that it must be your only primary place of residence. You cannot have two PPOR.

Please note that the 6 years also do not need to be continuous, so careful planning could mean the difference between thousands in tax, or nothing in tax.

You can also reset the clock if it is to your advantage, so having a property accountant work with you and your family plans is critical. 

4) Always have your property revalued if you are renting it out. For your investment property, the capital gain is the difference between the sale price and the property value at the time that it was first rented out. So if you do not get a valuation done at this time, your gain may be higher. This is due to the requirement that the original purchase price be used as a part of the calculation, if the valuation is not carried out.

In the current property market, it is even more important, as property prices have climbed to unimaginable heights. What you originally paid for the property and what it is currently valued at, at the time the property is rented out, could a very large difference, so get a valuation done!

5) If you have more than one property in your property portfolio, and you have a diversified portfolio, chances are one property will give a higher gain on sale than the other.

Choosing the right property to be your Primary Place of Residence is crucial. The one with the highest expected capital gain should be the one that would be the PPOR, but only if it ticks the right boxes and also suits your family lifestyle.

6) Timing is key to property sale – whether it is to ensure the sale fall into one particular financial year, as opposed to the next, or whether you are able to reduce your overall taxable income through other means.

Always consult your property accountant before you take any steps to sell your property. Once a property has exchanged, there really isn’t much more that can be done in terms of timing, but there could still be other areas that can be addressed.

And if you do have a whopping big tax debt, selling in the beginning of the financial year will mean you have more than 12 months to pay the tax debt! You could effectively earn interest on the settlement amount, so that it can be put towards your tax bill.

It is very important that you work with an accountant that understands property, owns property and is also proactive in giving you valuable planning advice. We have many clients that have saved thousands in tax, because of careful planning.