Reducing CGT to put into Super or buying IP's ?

[carlau]

Is it true that you can defer as much CGT into your super fund and collect it at the age of 60 and pay no tax to reduce the amount of CGT owing and say you need to pay over $1mill in CGT.

If I'm 60 of age and I put in say $600,000 into super fund can I withdraw the complete amount anytime I wish or is there a way I can invest those funds into investment properties or does it all need to go into a proper super fund ?

As I would rather try and reduce the CGT by purchasing 2 properties.

So that $600,000 I can deduct from the remaining CGT owing.

 

[trajik]

Hi Carlau,

It depends on if you are an employee or substantially self employed as to if and how you can effectively rollover your CGT into a super fund.

If you're an employee then you can't get a tax deduction for super contributions, but you can salary sacrifice your wage into super. But I doubt that you earn $1mil from your wage, so you won't be able to do much with the $1mil.

If you're employed by your own company or trust then the company could pay an amount into super up to your age based limit of about $100k.

If you're self employed, you can get the same benefit as your company but you only get a 75% deduction for any amounts above $5000. This changes to 100% after 1 July 2007.

You may be able to access any money you put into super after age 60, but of course the super fund must be a properly established super fund, but it can definetly invest in property.

It would seem that you will be paying a fair proprtion of CGT, so the main question is, why do you need to sell this year?

If you can defer or if it is multiple properties, spread it over a few years, then you'll come out better... although it's a nice problem to have.

 

[carlau]

Hi trajik,

The CGT is from a sale of land that will soon be used for residental housing use and the CGT that needs to be paid is well over $1mill from the sale.

Is there a limit on the CGT that you can rollover into your super as I know that from July 2007 the laws will change regarding the amount you can defer from you CGT to your super.

Is there any minimum time that you need to hold your funds in your super before making a withdraw to purchase IP's ?

The contract of sale for the parcel of land is early next year, and settlement in 3 years.

 

[Mry]

Carlau, what gives you the impression that you can rollover your CG into a super fund? Are you under the impression that you are eligible for small business rollover relief?

 

[carlau]

I've heard that you can reduce some of your CGT and add it to your super fund. I'm not a business so I don't no what can be done and cant be done.

I do have appointment with a Taxation Lawyer tomorrow who is going to go over ways of reducing the CGT and what I can and cant do.

Thought I might see what replies I get here before my visit tomorrow with the Taxation Lawyer.

 

[Mry]

I've heard that you can reduce some of your CGT and add it to your super fund. I'm not a business so I don't no what can be done and cant be done.

I do have appointment with a Taxation Lawyer tomorrow who is going to go over ways of reducing the CGT and what I can and cant do.

Thought I might see what replies I get here before my visit tomorrow with the Taxation Lawyer.

You can't 'rollover' CGT into a super fund, but you can offset the CG by making a deductible contribution to a super fund as mentioned by trajik. You need to meet certain conditions though. When you have a CG bill of over $1 million, this will only reduce it by (if you are lucky) about $50,000. Speak to your tax laywer because you are going to need to make sure the sale is handled correctly, and you may need to do additional things after that separate from the sale to reduce your tax bill. This will require someone who can look at your situation and goals in detail to give you good advice.

 

[trajik]

Carlau,

Some of the changes to super from 1 July relate to undeducted contributions, so no tax benefit,

ie; there will be an undeducted contribution limit of $150k per year, or $450k over 3 years.
Deductible contributions will be limited to $50,000 for everyone, except those over 50 will still have access to the $100k for 5 years
Small business rollovers will be extended to $1mil

So, you will need to look at some other strategies to reduce the CGT, apart from super.

There is no minimum time to hold super before you can withdraw it, asssuming you are eligible to access the super.

Is the $1mil the proceeds, the gross capital gain, or the net capital gain?

You will most likely be eligible for at least the 50% discount.

 

[carlau]

Hi trajik,

We went to a few small accountants a year ago and after doing the 50/50 split which we are entitled to and taking into accountant the value of the residential house and surrounding 2 Hectares

The Net Capital Gain $1+ million in CGT to be paid.

They went into ways that the CGT can be reduced with super and trusts accounts and more.

I was just reading it would have been better if the land was used to produce income and business: http://www.horwath.com.au/publications/articles/mar_taxfree.asp

 

[The Y-man]

The Net Capital Gain $1+ million in CGT to be paid.

Hi Carlau,

Sorry, I am a bit slow, but is that:

Net Capital Gain of $1+mill, on which CGT will need to be paid

OR

Net Capital Gain, on which $1+mill CGT will need to be paid

?

Cheers,

The Y-man

 

[carlau]

Hi Carlau,

Sorry, I am a bit slow, but is that:

Net Capital Gain of $1+mill, on which CGT will need to be paid

OR

Net Capital Gain, on which $1+mill CGT will need to be paid

?

Cheers,

The Y-man

Hi Y-man,

I'm no expert on CGT I will be the first one to admit that, the $1mill plus I don't want to go into actual figures on the forum but that is the amount of CGT tax that is required to be paid to the ATO with the 50/50 split.

Please excuse my lack of knowledge on this, I will find out alot more after seeing the Taxation Lawyer Friday which I'm looking forward to and then he will go over everything and I will post back.

From what I know and please correct me if I'm wrong the NET CGT is after you have deducted the dwelling and 2 hectares and Stamp Duty and then deduct that from the sale price and then with the remaining amount do the 50/50 split which gives you the NET CGT Amount "Is this right" ?

 

[Bandita]

From what I know and please correct me if I'm wrong the NET CGT is after you have deducted the dwelling and 2 hectares and Stamp Duty and then deduct that from the sale price and then with the remaining amount do the 50/50 split which gives you the NET CGT Amount "Is this right" ?

From what I understand, you're missing one step - as far as you have described will give you the Net Capital Gain - (say $1mil) then the CGT payable is your tax rate (which would be the highest I presume - and presuming no other deductions), 45% of $1mil - or $450,000 CGT payable.

Cheers,
Jen

 

[carlau]

Here is a break down I will just use approx figures and numbers.

Sale Price $7million
Dwelling + Surrounding 2 Hectares - Value $1.5 Million

$7 Mill minus $1.5 Mill = $5.5 Mill

50/50 Split on the $5.5 Million

$2.75 Million (Sorry correction I would require to pay 45% on the $2.75 Mill which I would require to pay $1.237 Mill working on 45% Tax bracket)

 

[Bandita]

Yep, you're correct - although i think it would be 45% of $2.75mil - or $1,237,500 (ignore my last post - i thought you were talking about a capital gain of $1mil)

That's a huge tax bill! Find every expense, loss, you can muster up is my advice! If you have any dud investments, sell them now. And if you have interest/expenses to pay on other investment properties - pay it now in advance, etc, etc.

By the way - I presume you mean by "value of $1.5mil" - that is what you paid for the land and house to begin with? Remember to add in stamp duty, solicitor costs - any and all costs of acquiring the property.

Cheers,
Jen

 

[carlau]

Hi Jen,

The $1.5 Mill is the market Value obtained from a licensed real estate agent which includes the dwelling and surrounding 2 hectares of land. I've had the property for 6 years so I can be exempt from paying any tax on the dwelling and surrounding 2 Hectares of land which the dwelling sits on as I've used it as my main residence.

It is alot of CGT to pay, hopefully the Taxation Lawyer can help me on Friday to reduce that amount.

 

[Bandita]

Hi Jen,

The $1.5 Mill is the market Value obtained from a licensed real estate agent which includes the dwelling and surrounding 2 hectares of land. I've had the property for 6 years so I can be exempt from paying any tax on the dwelling and surrounding 2 Hectares of land which the dwelling sits on as I've used it as my main residence.

It is alot of CGT to pay, hopefully the Taxation Lawyer can help me on Friday to reduce that amount.

Hi Carlau,

So this area is your PPOR - but exceeds the laws due to the land size over 2 hectares?

I would be interested to know, and the accountants on this forum would be able to clarify - if you could claim the expenses of holding the excess land? Since you have to pay CGT, I would think that the costs of owning that excess land would be taken off your CG on that portion of the land (presuming you haven't used the land as an income producing asset already and claimed the expenses) - such as: interest on the loan for that portion of the land, stamp duty, land tax, council rates, maintenance, solicitor fees, etc, etc... - again, I have no idea, but since you have to pay tax on it, I would imagine that the costs involved in obtaining/holding that asset would be come off the Capital Gain???

I searched the ATO website, but found very little info on this topic. Hope the accountants on this forum can clarify this!

Cheers,
Jen

 

[DaleGG]

Hi Jen Hi Carlau

This has been discussed in another thread already, but, yes, the holding costs of interest, council rates, slashing etc are all used to reduce the CG subject to tax.

Have fun and good luck, Carlau

Dale

Hi Carlau,

So this area is your PPOR - but exceeds the laws due to the land size over 2 hectares?

I would be interested to know, and the accountants on this forum would be able to clarify - if you could claim the expenses of holding the excess land? Since you have to pay CGT, I would think that the costs of owning that excess land would be taken off your CG on that portion of the land (presuming you haven't used the land as an income producing asset already and claimed the expenses) - such as: interest on the loan for that portion of the land, stamp duty, land tax, council rates, maintenance, solicitor fees, etc, etc... - again, I have no idea, but since you have to pay tax on it, I would imagine that the costs involved in obtaining/holding that asset would be come off the Capital Gain???

I searched the ATO website, but found very little info on this topic. Hope the accountants on this forum can clarify this!

Cheers,
Jen

 

[julia]

You don't seem to have taken into account the original purchase price of the non PPR portion of the land. If you only purchased 6 years ago this should be significant surely? It sounds like a very large piece of land to have such a large portion attributed to the non PPR portion. Or is this because there is a particular part with views or something that makes it special? The 2 hectares has to include the land under the dwelling but other than that you can pick pieces anywhere on the land. The exempt 2 hectares only has to be adjacent to the dwelling not actually connected. If there is not a special part I will assume this is a big block and find it hard to believe that it was just sitting idle for the last 6 years. Is there something you did on it that can be classed as a business? There is a lot in qualifying as an active asset and then accessing the small business exemptions and you would probably not even qualify until 1-7-07 when the rules get easier. But well worth a try as this could mean absolutely no CGT planned correctly. I will explain more if you can answer these questions.

Julia
www.bantacs.com.au

 

[carlau]

Hi julia,

Just got back from the seeing the Taxation Lawyer. We went over everything and he still needs to get back to me today regarding some issues on the CGT that's how complex it is.

There is not alot I can claim and do to reduce the CGT that's one thing. The 2 Hectares of Land we chose, because the dwelling (house) and also there are farm sheds and other improvements we have made that are in that 2 Hectare area that have a far greater value then anywhere on the property.

 

[julia]

Why have you chosen to include the land holding the farm sheds as the exempt part if you paid to put them there? Surely as a development block they have no value in the selling price but can increase the cost base of the non exempt part if they are not included with the dwelling.
I am still interested to know how big this property is but as you built farm sheds I assume you once farmed the property. Please tell me more about this as there may be a way to utilise the small business concessions.

julia
www.bantacs.com.au

 

[carlau]

Hi Julia,

Below is the link to the main thread that I started on the 50 Acres of Land and CGT. Have a read and it will shed more light on this topic.

The reason for the farm sheds was just to keep a tractor inside to keep the property clean. And its part of the 2 Hectares which the House sits on. We never used the property to produce any income it was just private use.

Here is the link, http://www.somersoft.com/forums/showthread.php?t=28653

Want to thank Dale at http://www.gatherumgoss.com/ for all his help and advise and this forum.