Professional property investors run their portfolios like a business. Making marginal improvements t the operation boost overall yield, especially for investors taking a long term view.
Capital Growth Property
Capital gains tax (CGT) is one of those ubiquitous taxes that will almost always crop up when you sell something, unless the sale is in relation to a revenue asset (eg trading stock or depreciating asset). The same applies to real estate – if you sell a property, and unless you are in the business of buying, developing and selling properties, any gain you make from the sale of the property will likely give rise to CGT except for any specific exemption (eg, the ‘main residence exemption’) that may apply.
Given that CGT is a ‘sleeper tax’ that does not generally become relevant until something is sold, many people do not consider how to minimise CGT at the outset when the property is originally acquired. However, knowing how the CGT rules work may help you minimise your future tax exposure when you eventually sell the property.
How does it work?
The default mechanics of CGT are deceptively simple: if you sell a property and the ‘capital proceeds’ you receive on the sale exceed its ‘cost base’, the difference is a capital gain. If the property is held by an individual or a trust for at least 12 months, the capital gain will be halved by the 50% CGT discount, and the resulting net capital gain is included in the assessable income of the selling entity. On the other hand, if the cost base exceeds the capital proceeds, you will make a capital loss.