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When it comes time to sell your home, you want to save as much as possible of what you have earned by working hard! Here, we will demonstrate ways to reduce expenses on taxes and charges when selling houses.
Before we proceed, there are taxes to consider when selling a house. There are two main taxes that you should know about: Capital Gains Tax (CGT) and Goods and Services Tax (GST).
Capital Gains Tax (CGT) is about the difference between what you paid for your property and what you can sell it for. The cost base comprises the fee payable on purchase and expenses resulting from purchasing, retaining, and selling the property. In such a case, say when you sold a house you had acquired at $500,000 for $700,000, your cash gain was $200,000. But don't worry just yet. You can achieve this by removing outlays associated with the sale, including agent commissions, legal expenses, and stamp duty. In addition, you have occupied that house for more than twelve months as your principal residence. But then again, you could qualify for a 50% CGT disclosure.
Let us discuss Goods and Service Tax (GST), usually at 10% of the price. For most residential property sales that are not new or heavily renovated, you may not have to pay GST unless you're a registered GST entity selling a newly constructed or significantly renovated property as part of your business operations.
So, how can you save money on these taxes when selling your home? Here are some strategies that you can use:
• Sell your home as your main residence:
One of the best ways to reduce your tax bill is by selling your home as your main residence. Doing so allows you to claim the coveted main residence exemption, which means you won't be forking out any Capital Gains Tax (CGT) on your sale. Sounds great, right? To qualify, you must meet certain requirements, such as staying in your home for at least six months after you buy it, not using it to make money, and not having another main residence simultaneously. But there's more: if you only used part of your property as your main residence or rented it out for a while, you can ask for a partial main residence exemption.
• Wait It Out for Over 12 Months:
Here's another trick – hold onto your property for over 12 months before selling it. Why? Because this magical milestone unlocks the 50% CGT discount. This means you'll only be taxed on half of your capital gain, which can substantially affect your tax bill. Remember, this discount is a friend to individuals and trusts but not to companies or super funds.
• Time Your Sale Before June 30:
Let's talk about timing. Selling your home before June 30, which marks the end of the Australian financial year, can be a strategic move. Why? Because it allows you to delay paying tax on your capital gain until the next financial year. This extra time can be a game-changer, giving you room to plan your finances and potentially lowering your current year's taxable income.