An investment property is a time-consuming and exhausting asset to sell, so getting stung with tax that could have been avoided is like icing on the cake. To get the most money from the sale of an asset, it’s critical that you consult with an experienced accountant. Your accountant can help you minimize your tax bill by advising you how to sell your assets in the most tax-efficient manner possible. Just like the cases below.
I’ve tried to figure out the rules for claiming a tax deduction for putting a lump sum from the sale of an investment property into superannuation, thus reducing or eliminating Capital Gains Tax (CGT). It’s a mind-boggling undertaking. As previously stated, I’ve reached the age of retirement. Do you have any recommendations?
Let’s go through the process step by step.
Taxable capital gains are added to your taxable income in the year the sales contract is signed, less a 50% discount if you have owned the property for more than one year.
Taxes will be assessed based on your current tax bracket and your marginal tax rate, which may be higher than the aforementioned amount.
For example, let’s say someone earned $35,000 per year and had an after-discount capital gain of $30,000. The additional $10,000 would be taxed at a rate of 19%, bringing their total taxable income to $45,000. The remaining $20,000 would then be subject to a tax rate of 32.5%. If you received a $30,000 salary bonus, the tax consequences would be the same.
However, if you can lower your taxable income in the year in which you made the gain, you can reduce the CGT.
You could keep the total capital gain on the property under $37,500 if you made a tax-deductible concessional super contribution of $27,500. This would significantly reduce the additional tax you would otherwise owe.
To be on the safe side, keep in mind that contributions to a deductible super fund are subject to an additional 15% contribution tax. As a rule of thumb, those who are retired and between the ages of 67 and 75 must have worked at least 40 hours in the last 30 days to be eligible to contribute to their superannuation this year.
I plan to retire at the end of the financial year, just before I turn 70, after a lifetime of self-employment. In my super account, I have $1.1 million, and I’d like to start a pension fund with the money. For the long-term benefit of my children, who will inherit any remaining super balance when I die, I used a withdrawal-and-recontribution strategy in 2017 when I had a self-managed super fund. Before I switch my super to pension mode, should I take a lump-sum withdrawal of $330,000 and put it back into the fund as an after-tax contribution?
Keep in mind that the withdrawal would be split into the proportion of taxable and non-taxable components currently in your super fund, which is a good strategy in general. If the rules don’t change again and your total super balance doesn’t exceed the cut-off limits in three years, you could repeat this strategy given the rule changes that will take effect on July 1.
To avoid the death tax, take advantage of your superannuation to withdraw tax-free lump sums as you near the end of your life.
I am 75 years old and receive a full pension, as well as rent assistance, because of my disability. My son has asked if I would like to receive $7000 a year from his trust fund, paid fortnightly, as a beneficiary. Was there any impact on my retirement? Taxes are a concern for me. Is it possible that the new super rules would be enforced?
This appears to be a distribution from a discretionary family trust based on the information you’ve provided, in which case it would be treated as income by Centrelink for pension purposes and included in your taxable income.
Even though it’s a gift, it shouldn’t affect your retirement savings. Be sure to explain everything that’s going on with your son.
I have $200,000 in cold, hard cash earning almost no interest that I plan to use for home improvements or a new home purchase. However, it won’t be required for at least the next 12-18 months. For the time being, can I put this money in my partner’s mortgage offset account to save a lot on interest and withdraw it when I need it? Is there anything I should keep in mind in terms of taxes or the law? Because the loan was used to buy our home, there is no interest that can be deducted from our taxes.
No tax or legal ramifications of what you’re doing concern me, given that the interest on the loan isn’t deductible and that the funds are going through an offset account.
If the interest was tax deductible and the money was “parked” directly into the loan account, that would be a different story. As a result, it would be treated as a permanent reduction in the loan balance, and the associated loss of tax deductions would apply.
Contact the professionals at Greenshoots today for more information on how to maximize your profit from a capital sale.
