Home buyers in Sydney, Melbourne and Brisbane may find it hard to identify affordable suburbs if they have limited funds. However, they may be able to solve their housing affordability problems by investing in a property in Perth.
The median house price in Sydney is about $1 million and about $830,000 in Melbourne. Meanwhile, the median price in Rockingham is only $425,000 which means that purchasing a property in Perth could be a good strategy to enter the real estate market.
The government has made changes to curb allowances for interstate investment properties but investors can still take advantage of the yield and long-term growth potential of Perth rather than tax deductible holidays.
For those selling their properties to invest in Perth, there are several strategies which can help them minimise their capital gains tax. CGT is based on the net sale price of the property minus your expenses. The gain is added to the title holder’s income to calculate his tax.
You can generally include the following as your expenses: incidental costs such as stamp duty, legal fees, some bank fees, buyers agent fees, advertising and marketing fees; ownership costs such as property searches and inspection costs; improvement costs such as replacing kitchens, bathrooms, flooring, or any other improvements you’ve made on the property such as additional toilet, decking and additional floor space; title costs such as legal fees associated with organising and defending your title on the property, and any pre-rental repairs and maintenance not previously claimed as a tax deduction such as painting prior to letting.
For those selling a property, the costs associated with the sale like agent’s fees, bank fees or styling can reduce the gross selling price.
For those who held a property for more than 12 months, their capital gain can be reduced by 50%. Some even make a loss when selling to negate the need to pay any CGT at all. They can also carry a capital loss into the future to offset against future capital gains.
Keep in mind that the principal place of residence is exempt from CGT.
For those who moved out of their homes to rent it out, the property can be treated as the principal residence for tax purposes for up to six years. If you have purchased another home though, you would need to pay CGT on the sale of one of your properties.
However, you can entirely avoid paying CGT if you buy a property through SMSF.
It is one way to generate profits through residential property while avoiding CGT. If you sell once you retire, you won’t pay CGT but if you sell while you’re still working, you will only be taxed at 15%. If you held the property for more than 12 months, you will be taxed at 10%.
If you like what you are reading, subscribe to our newsletters now at www.chan-naylor.com.au
Disclaimer: This article contains general information; before you make any financial or investment decision you should seek professional advice to take into account your individual objectives, financial situation and individual needs. Click for more detail regarding this disclaimer.
Photo: Flickr; GotCredit