Strategies for minimising capital gains tax on an investment property (2024)

I have tried to understand the rules for putting a lump sum from the sale of an investment property into superannuation and claiming a tax deduction, so reducing or eliminating Capital Gains Tax (CGT). It is unbelievably complex. I am retired. Any suggestions?

Let’s take it step-by-step.

When you make a taxable capital gain, the amount of that gain, less a 50 per cent discount if you have owned the property for more than a year, is added to your taxable income in the year the sales contract is signed.

It will then be taxed at your marginal tax rate, which may be higher than that if all or part of that gain took you into a higher tax bracket.

Suppose a person earned $35,000 a year and made a taxable capital gain of $30,000 after the discount. $10,000 of that again would be taxed at 19 per cent, which would take them to the next tax threshold of $45,000. In that case, the remaining $20,000 would be taxed at 32.5 per cent. The tax treatment would be the same if you got a wage bonus of $30,000.

However, you can reduce the CGT if you can cut the amount of your taxable income in the year you made the gain.

In this case, if you made a $27,500 tax-deductible concessional super contribution, the entire capital gain on the property would be kept under $37,500, and so reduce substantially the extra tax that would normally be paid.

Just keep in mind that deductible super contributions lose a 15 per cent contribution tax. Also, if you are retired and aged between 67 and 75, you would need to meet the work test – worked at least 40 hours in no more than 30 days – before making the super contribution this financial year.

After a lifetime of self-employment, I am planning to retire at the end of the financial year, just before I turn 70. I have $1.1 million in my super account and want to start a pension fund. In 2017, when I had a self-managed super fund, I adopted a withdrawal-and-recontribution strategy to dilute the taxable component of my super, for the long-term benefit of my children, who will inherit any super balance – my only asset – when I die. Would you recommend I withdraw $330,000 now and then recontribute it as an after-tax contribution before I convert my super to pension mode?

I think that is a good strategy but keep in mind that the withdrawal would be split into the proportion of taxable and non-taxable components currently in your super fund. Also, given the changes in the rules that will take effect from July 1, you could repeat this strategy in three years, provided the rules do not change again, and your total super balance does not exceed the cut-off limits at that time.

Bear in mind that you can avoid the death tax by making tax-free lump sum withdrawals from super, as you are nearing the end of your life.

I am aged 75 and receive a full age pension, plus rent assistance. My son has asked me if I would like to be a beneficiary of his trust fund to the amount of $7000 a year, paid fortnightly. Would this affect my pension? Would I have to pay tax? Would the new super rules apply?

From the information you have given, this would appear to be a distribution from a discretionary family trust, in which case, it would be counted as income by Centrelink for pension purposes, and also form part of your assessable income for tax purposes.

However, if it is a gift, it should have no effect on your pension.

Make sure you clarify what is happening with your son.

I have $200,000 in cash earning little interest that I am going to put towards a renovation or purchase of a new house. However, it won’t be needed for 12-18 months. Can I park this money in my partner’s mortgage offset account for the time being, to significantly reduce interest payments, and redraw it when it is required? Are there any tax or legal aspects I need to consider? The purpose of the loan was to buy the home in which we live and there is no interest of being claimed as a tax deduction.

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I do not see any tax or legal aspects that could affect what you are planning, given the interest on the loan is not tax-deductible and the money is being channelled through an offset account.

It would be a different matter if the interest was tax-deductible and the money was “parked” directly into the loan account. It would then be regarded as a permanent loan reduction, with a consequent loss of tax deductibility.

• Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circ*mstances before making any financial decisions.

Noel Whittaker is the author of Retirement Made Simple and numerous other books on personal finance. Email: noel@noelwhittaker.com.au