There are many things to think about when selling any property.
Obviously getting the best price is important but what about the myriad of taxing points you need to consider? Here are some things to think about.
Before signing the Contract
Hopefully some thought has gone into considering what Capital Gains Tax Issues (for passive investors) are going to hit you once the contract is signed. This is important to remember if you are about to sign something just prior to 30 June, as a few extra days might give you another 12 months to consider any potential tax.
Once the contract is signed, your tax planning should alleviate any Capital Gains Tax plus you have time until the following 30 June to take measures to minimise it.
If the Contract price for the property sale is greater than $750,000, you must get a Capital Gains Tax clearance certificate to give to your settlement agent so that 12.5% of the sale price is not withheld and sent to the tax office.
You may be eligible to use a Capital Gains Tax exemption if the property is used in your business pursuit. There may be options available to reduce the taxable amount to zero and you may have 2 years to do it.
Goods & Services Tax (GST) is different to Capital Gains Tax as its trigger point is generally at settlement. You will have to determine whether it will apply or whether you can get an exemption. A couple of important exemptions are the going concern principle and the farmland exemption. A common mistake made by some sellers is assuming GST applies to the property-owning entity when in fact it isn’t registered for GST. The fact the business entity is registered for GST is a separate matter.
You’ll remit any GST collected in your next BAS.
The purchasing decision of a property is a very important step as this can save a lot of tax when you eventually sell it. This requires some forward thinking and planning and is a step that should be discussed with your RSM advisor in detail. A couple of questions you should go armed with are –
- What structure/entity should I use to purchase the property to minimise future tax?
- What structure/entity should I use to minimise tax while I hold the property?
- What capital losses or revenue losses do I have, and which entity has them?
- Do I have to register for GST?
- How will land tax apply as my entity accumulates property?
Tax planning 10-20 years out is difficult but important. Capital Gains Tax has been in play since 1985 and it really hasn’t changed much since 2000.
Please refer to our ‘Structuring your property investment to suit your needs’ article to find out more.
If you are a non-resident for tax purposes you must seek advice prior to selling your property as much of the above does not apply to you.
You should also be mindful of the ‘ghost tax’. Please refer to our Beware of the liability of the annual Vacancy Fee (the so-called “ghost tax”) article.
If you want to sell your property, best to speak to your local RSM adviser first, to help get set up for the process. Contact your accountant today.