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  • Profile photo of j260899jj260899j
    Participant
    @j260899j
    Join Date: 2011
    Post Count: 8

    hi guys,

    i am thinking of selling one of my IP and using the profit to purchase another 2 IP.  If i do this will this exempt me from paying CGT?

    any advice will be much appreciated.

    thanks in advance.

    Profile photo of Rick staRick sta
    Participant
    @rick-sta
    Join Date: 2011
    Post Count: 119

    If you've held the property more than 12 months you should be entitled to a 50% discount. 

    No exemption for investment property unfortunately. 

    Profile photo of Mick CMick C
    Participant
    @shape
    Join Date: 2010
    Post Count: 1,099

    ^ adding on..set up new loan/purchase as interest in advance to absorb most if not all of the CGT 

    Mick C | Shape Home Loans
    http://www.shapehomeloans.com.au/
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    Same Banks. Better Rates. Served With a Passion.

    Profile photo of rhino101rhino101
    Participant
    @rhino101
    Join Date: 2008
    Post Count: 31

    No, pretty sure it doesn't work that way in Australia. I think I heard at one stage that it was a method that is allowable in the US (could be wrong). I think I remember reading about the investment strategy of negating CGT by using the profit to purchase another investment, and constantly upsizing as you go.

    Fairly certain it doesn't apply here. When you sell an item after making a capital gain from the amount you paid, it automatically triggers a CGT event.

    Luckily if you plan it well, make good use of timing and utulise a good accountant you should be able signifigantly reduce the amount of CGT you are liable for. First priority is, as Rick said – hold it for longer than 12 mnths and automatically reduce it by 50%. It can then vary greatly as to how much further you can reduce it, depending on whose name or what structure the property is held in and their tax bracket in the year of sale. If the owner has made other losses that can be utilised or carried forward from previous years you may be able to further reduce it.

    I have found through experience that if you want the maximum tax benefit from any sale of an IP, you need to plan the sale carefully, sometimes well in advance. With good planning you should be able to reduce tax effectively. Don't forget it is a fine line between tax avoidance and tax minimisation. You don't want to be caught on the wrong side.

    The way I look at it is – if I'm paying tax it means i've made profit, which is the whole point of an investment to start with.

    All the best

    Profile photo of Richard TaylorRichard Taylor
    Participant
    @qlds007
    Join Date: 2003
    Post Count: 11,992

    J260 my old china you are referring to Sec 1031 in the US.

    Hate to say it doesn't apply here in Oz and that is why the buying entity is important to consider when starting out.

    Think about the end result and work backwards.

    Cheers

    Yours in Finance

    Richard Taylor | Mortgage Broker helping investors build their wealth thru property
    http://www.mortgagecapitalaustralia.com.au
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    0-40 Properties in a decade with a unencumbered portfolio value in excess of $40M. Ask me for a copy of my API Interview.

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