With property reaching record prices, some property investors may be reviewing their finances and thinking about selling.

Unfortunately, one of life’s certainties is tax, and if you’re thinking of selling your investment property, while the sales figures may look tempting, the tax on the capital gains might not be so inviting.

Capital Gains Tax (CGT), is the tax you pay on the sale of non-exempt assets, such as property and cars, that were acquired after the 20 September, 1985.

As the name suggests, it’s applicable on capital gain of the property, ie the difference between the selling price and your cost base. It is only payable in the financial year in which you sell or dispose of your rental property.

Generally, if your house is your main residence, you will not have to pay CGT; it only comes into play for investment properties.

Here are some more things you need know about CGT:

What is the CGT rate?

There is no set rate of CGT in Australia for individuals; if you do pay tax, CGT is calculated at your individual income tax rate.

Is it possible to reduce the amount you have to pay?

There are some ways in which you can reduce your CTG bill, so first and foremost, before you sell, you must speak to an accountant who specialises in this area of tax; they can advise on your particular situation and fully explain all the points you need to consider.

Here are some ways you may be able to reduce your CGT:

• Own the property for more than 12 months

Individuals who are residents in Australia may be entitled to a 50% discount on CGT. For example, if you sell your property after 12 months of ownership, and you make a capital gain of $10,000, you will only be charged CGT on $5,000 (not the full $10,000 gain that you actually made).

• Offset your capital gain with any capital losses.

Capital gains from the current or prior tax years can be used to reduce a capital gain, and therefore the amount of CGT you need to pay.

• Before renting out a residential property, get a valuation

If you decide to turn your residential property into an investment property, get it valued before you rent it out. That way, you’ll only be liable for CGT on the capital gain you make from when you’re renting out the property, not on the gain from when you first bought the property and you were living in it.

• Offset some of the base costs

It may be possible to offset some of the tax against costs associated with purchasing the property, and disposing of it (such as real estate agent fees), and any holding costs (such as rates, repairs and insurance premiums).

Is there anything else I can do with the capital gain?

The alternative to selling, is to use any capital growth to grow your portfolio, and buy another investment property. That way you needn’t worry about CGT for a few years yet!

Once you’ve bought your investment property, get in touch with us to see how our property management services can make your life easier and free you up to do more of the things you want to do.

We’ve helped thousands of people realise their financial dreams through property.

Simply give us a ring on 02 4954 8833, send us an email to mail@apnewcastle.com.au or pop into our Cardiff office for a chat.