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Selling your home and CGT

When it comes time to sell your home, you may be wondering if you will need to pay capital gains tax (CGT).

Generally, if you live in the home you are selling you will not have to pay CGT under the main residence exemption.

The ATO considers a dwelling as your main residence if:
– you and your family live in it
– your personal belongings are in it
– it’s the address your mail is delivered to
– it’s your address on the electoral roll, and
– services such as gas and power are connected.

If the home has been used to produce assessable income such as running a business from it, renting it out or flipping it, you may not be entitled to the full main residence exemption from CGT. This means you will have to pay CGT on part of any capital gain made when your sell your home.

For those who use their home to produce income, i.e., renting out part or all of it, you can work out the capital gain that is not exempt by taking into account the following factors:
– proportion of the floor area that is set aside to produce income
– period you use it for this purpose
– whether you’re eligible for the ‘absence’ rule
– whether it was first used to produce income after 20 August 1996.

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Investing in shares vs property in SMSFs

March 19, 2020

Shares and property are two popular investment options for those with a self-managed super fund (SMSF). However, they both have very different attributes and choosing the one that will achieve the best outcome for an SMSF depends on your personal goals and situation.

While the price of shares can vary drastically, property is a relatively stable asset, making it appealing to those who want more security and predictability. Property prices are also negotiable unlike shares, and you can generally borrow money at a lower rate for property purchases.

It may seem hard to find the perfect investment property, but older and undercapitalised properties can be renovated for profit. However, returns from property rentals can be dented due to factors such as land tax, utilities and rates, maintenance and tenancy vacancies.

Shares are more dynamic and volatile than property. One advantage is the accessibility of investing in shares, as you can enter the share market with a few thousand dollars – much less than what you need to invest in a property.

Maintaining a portfolio of quality shares that pay tax-effective dividends may be a good way to fund retirement. With the right portfolio allocation, shares also have the potential to provide a better, stronger income than property rentals, as long as that income is sustainable and increasing.

Property can generally be used as a wealth-creation tool, while shares can create a reliable retirement income. For those who can afford to put more money into investments, it may be a good idea to consider investing and diversifying in both. If you’re unsure about which investment option is right for you, seeking financial advice may be the best option.