Selling an investment property can be financially rewarding, but did you know that in Australia, it often comes with a hefty tax?
The thought of parting ways with a significant portion of your hard-earned profits can be disheartening for any investor.
However, there is good news – there are ways to minimise this tax and retain more of your earnings.
In this article, we will explore a case study of a married couple and how a simple strategy helped them save significantly.
Selling investment property: Case Study
This case study involves married couple Bob and Jane.
Bob and Jane are married and earn $90,000 per annum each. They bought an investment property back in 2013 for $400,000.
They’ve since sold the investment property for $700,000 with a capital gain of $300,000.
Selling investment property capital gains tax: discount
Because Bob and Jane owned the property for over 12 months, they’re eligible for a 50% capital gains tax discount.
And so, that $300k becomes $150k. And then that $150k capital gain is divided between the joint tenants, Bob and Jane, for $75,000 each.
Tax on selling house
The $75,000 is added to their incomes, meaning they go from their highest tax bracket being 34.5% to 39% and most of this capital gain is taxed at 39%.
The outcome is that they’re taxed at quite a high rate.
Sell investment property and put it into super
The couple make a smart choice and each makes a $75,000 super contribution and claim the contribution as a tax deduction.
Super contribution tax rate
Their Super fund will withhold 15% tax; however, they won’t be taxed on the $150,000 at their marginal tax rate.
Super contribution tax rates: savings
Bob and Jane would go from a $55,800 tax bill from the sale of their house to a $22,500 tax bill. That’s a significant tax saving of around $33,000!
(Note: for this size of contribution to be achievable, both of their super balances were below $500,000 and they hadn’t made any additional super contributions over the past 5 years.)
This process is utilising the ‘Catch-up Rule.’
Selling Investment property tax advice
When it comes to selling an investment property, seeking guidance from a financial adviser like Precision Wealth Management can prove to be a wise decision.
Our expertise and experience in debt reduction and financial planning can help you maximise your profits and can save you significantly in the long run.
By receiving personalised advice tailored to your specific situation, we can help you to make informed decisions and avoid costly mistakes.
Don’t hesitate to reach out to Precision Wealth Management today for expert financial assistance when selling your investment property.
DISCLAIMER – The information provided in this blog is general and does not consider your individual financial needs or objectives. It does not constitute personal advice. We recommend seeking out professional and independent financial, legal and tax advice which has been designed for your individual situation before acting on any information contained below.
Precision Wealth Management is a local, privately-owned financial planning firm based on Brisbane’s northside.
Our certified advisors work with each individual client to determine the best wealth creation strategy based on their unique situation.
We strive to stay at the forefront of the industry, and our investment approach is based on decades of research.
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