Ask an Adviser: How Can I Reduce Capital Gains Tax on My Investment Property While Boosting Super?

Top answer provided by:

Alex Berlee

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Hi Gerhard,

Thank you for your question. Given your situation, careful tax planning will be essential to minimise Capital Gains Tax (CGT) when you sell your investment property. Here are the key considerations and potential strategies to reduce your tax liability.

Capital Gains Tax Overview

Since you and your wife jointly own the property, the capital gain of approximately $400,000 will be split equally, resulting in $200,000 of gross capital gain for each of you. Applying the 50% CGT discount (as you’ve held the property for over 12 months), the net assessable capital gain will be $100,000 each. This amount will be added to your respective taxable incomes in the financial year of sale.

Strategies to Minimise CGT

1. Timing the Sale for Optimal Taxation

If possible, consider structuring the sale in a financial year where you have lower taxable income. Since you plan to retire in two years, selling in the financial year after you stop working could reduce your taxable income and use your lower tax brackets, minimising the tax impact of the capital gain. Please note I wasn't sure from your question whether you were thinking of selling now or in 3 years time.

2. Offsetting Capital Gains with Capital Losses

If you or your wife hold any other assets that have incurred capital losses, selling them in the same financial year can help offset the capital gain, thereby reducing the taxable amount.

3. Maximising Superannuation Contributions

Since your wife has no superannuation balance, she is likely to have significant unused concessional contribution caps. She may be eligible to use the carry-forward concessional contributions rule, which allows individuals with a total super balance below $500,000 to utilise unused concessional cap amounts from the past five years. This means she could potentially contribute a substantial portion of her share of the capital gain into super as a personal deductible contribution, reducing her taxable income accordingly. Concessional contributions are taxed at 15% on entry to the fund, which would be favourable compared to personal tax rates.

To determine her available carry-forward concessional contributions, she can check under MyGov → ATO Online Services → Super → Information → Carry-forward concessional contributions. If this is unclear, obtaining professional advice is recommended before taking action.

Being retired yourself at the time of sale would mean you would have at least the annual concessional contribution limit, and potentially one year of the carry forward as well.

4. Non-Concessional Super Contributions

Beyond concessional contributions, you and your wife may also be eligible to make non-concessional contributions (NCCs), which do not reduce taxable income but help shift funds into a tax-advantaged environment. You both may be able to contribute up to $120,000 per year or utilise the bring-forward rule to contribute up to $360,000 in a single year. These funds can then be transitioned into a retirement pension account, ensuring 0% tax on earnings and withdrawals in retirement.

5. Considering Spousal Super Contributions

While you are still working, you could also consider making a spouse contribution on her behalf, which may provide additional tax benefits, including a spouse tax offset of up to $540 if she has low or no income. The property sale would exclude this strategy in that year.

Summary and Next Steps

To minimise CGT, consider:

- Timing the sale post-retirement to take advantage of lower tax brackets.
- Using capital losses to offset gains where possible.
- Maximising concessional super contributions for your wife and possibly even yourself using carry-forward rules.
- Exploring non-concessional contributions for tax-effective long-term wealth management.
- Considering spousal super contributions for potential tax offset while working but not in the year of the sale.

Before making decisions, I recommend seeking professional financial and tax advice to confirm eligibility and ensure compliance with superannuation and taxation rules. Proper structuring of the sale and reinvestment of proceeds can lead to significant tax savings and a better financial outcome for your retirement.

Best regards,
Alex

 

*Please note that the following is not personal tax advice and should not be relied on. Please consult a registered tax agent to consider your personal circumstances, tax liabilities and specific tax management strategies.

While the Adviser Ratings Website facilitates the question and answer functionality, all such communications are between users and authorised financial advisers, of which Adviser Ratings has no affiliation. Adviser Ratings is not the advice provider and does not provide financial product advice and only provides information that is general in nature.

Article by:

Alex Berlee

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