Key tax tips for selling property in Australia

Selling a property involves planning and consideration. 

Understanding the selling process can help you maximise your sale price while limiting costs such as capital gains tax (CGT).

This guide outlines key strategies to help you sell your property smoothly and cost-effectively.

Record-keeping is important

It is important to keep accurate records to help you calculate your CGT liability. Make sure to document all outgoings related to the property that you haven't claimed before; this will help you qualify to claim those outgoings. Also, having a detailed timeline of how you've used the property can make you eligible for certain CGT exemptions, depending on your situation.

Important documents to keep include:

1. Settlement Statement on purchase and sale
2. Purchase contract and sale contract
3. Written valuation report for the market value at the time of first rental, if it was initially your main residence and subsequently became an investment property.
4. Invoices or Receipts relating to the purchase and sale of the property, for example, the services of a surveyor, valuer, auctioneer, broker, agent, consultant, settlement agent, or legal advisor
5. Stamp duty paid
6. Cost of advertising or marketing
7. Fees to check land title
8. Borrowing expenses
9. Costs of holding the property that has not been claimed previously; rates, land taxes, repair, insurance premium and interest on any loan.
10. Capital costs to enhance or maintain the asset's value or to install or relocate it.
11. Costs of applying for zoning changes.

Preparing your property for sale

To achieve the best sale price, you may need incur some expenses to prepare your property. Consider the following:

• Repair and maintain the property to improve its appeal.
• Invest in professional marketing to reach a wider audience.
• Hire a reputable real estate agent for the sale process.
• Consider the cost-benefit of minor improvements before listing the property.

Capital Gains Tax (CGT)

You generally become liable for capital gains tax when you sign the contract to sell the property, not at the time of settlement. Understanding this timing is crucial for effectively leveraging potential tax-saving opportunities. 

If you sign a contract to sell the property in June and the settlement occurs in July, you may miss the chance to contribute to your superannuation fund to reduce your tax liability. This is because funds might not be available for contribution until settlement takes place in the next financial year. The law requires that personal contributions be received by the fund before 30 June to be counted within that financial year. 

Strategies to reduce CGT liability

• Use concessional super contributions or carry forward concessional contributions to lower taxable income through personal super contributions.
• Document all unclaimed outgoings during the ownership period to support any deductions you claim.
• Keep a detailed record of rental activities to establish eligibility for CGT exemptions.

If you are an Australian resident for tax purposes, you will need a withholding tax clearance certificate

Australian residents now must obtain a withholding tax clearance certificate to prevent 15% of the sale proceeds going to the Australian Taxation Office (ATO). This certificate remains valid for twelve months. In instances where the property has multiple owners, each owner must individually apply for a clearance certificate. To avoid delays in receiving the certificate, ensure that all previous tax returns have been lodged with the ATO on time and that any other pending issues with the ATO are resolved.

Long-term considerations

• Individuals, partnerships and trusts that hold properties for more than 12 months receive a 50% discount on capital gains derived from the sale of investment properties.
• You must reduce the asset's cost base by the amount claimed as a building write-off deduction during ownership. This can be a good thing.
• The six-year rule allows you to exempt from paying capital gains tax for up to six years if you used the asset as your main residence before renting. Therefore, it is important to keep a record of the usage of the property over the ownership period.
• If you build a property for rental purposes and then sell it within five years, GST may attach to the sale proceeds.

Various elements can influence the sale price and related expenses when selling a property in Australia. By appropriately timing the ownership transfer, obtaining the necessary certificates, understanding CGT considerations, and preparing the property for sale, you can optimise your sale price while minimising potential costs. Proper planning and record-keeping are essential for achieving an effective and cost-efficient property sale.

FOR MORE INFORMATION

If you would like to learn more about the topics discussed in this article, please contact your local RSM adviser.