7 Legal Ways to Minimize Capital Gains Tax (CGT)

7 Legal Ways to Minimize Capital Gains Tax (CGT)

What is Capital Gains Tax (CGT)?

Capital Gains Tax (CGT) applies to profits made from selling assets like property, shares, or long-term investments. In Australia, you pay tax on the profit calculated as the sale price minus the original purchase cost (including improvements or ongoing expenses). Here are seven strategies to legally reduce your CGT liability:

1. 50% CGT Discount

Individuals and trusts holding an eligible asset for **at least 12 months** can reduce their taxable capital gain by 50%. This discount incentivizes long-term investing.

Applies to: Personal and trust assets (not companies or super funds). Super funds may claim a 10% discount.

Excludes: Personal-use assets (e.g., your home furniture).

2. Main Residence Exemption (PPOR)

Your primary home (Principal Place of Residence, PPOR) is generally exempt from CGT when sold, provided:

You lived in the property throughout ownership.

You’re an Australian tax resident.

The land is “under 2 hectares”.

The property wasn’t used to generate income (e.g., renting out part of it).

Exceptions:

Partial exemption if part of the home was rented or used for business.

If rented before moving in, CGT applies proportionally to the rental period.

Example: Bill bought a house, lived there for 10 years, and sold it. No CGT applies.

3. The 6-Year Rule for Former Homes

If you move out and rent your former home, you can claim a **CGT exemption for up to 6 years** after leaving.

Conditions:

The property was your PPOR initially.

Only one property can use this exemption at a time.

If sold after 6 years, CGT applies to gains beyond the 6-year period.

Example: Tom lived in his house for 2 years, rented it for 10 years, then sold it. Only 4 years of gains (10-6) are taxable.

Tip: Move back in for 6+ months to reset the 6-year clock.

4. CGT Exemption for Rental Properties

Different from the 6-year rule, this applies to “investment properties”:

No exemption unless the property was your PPOR first.

If never a PPOR, full CGT applies.

5. Small Business CGT Concessions

If your business has “annual turnover under $2 million”or “net assets under $6 million”, you may qualify for:

A “50% CGT discount”.

Exemptions or deferrals when selling business assets.

Key: Consult a tax advisor early due to complex rules.

6. Asset Rollover Provisions

Defer CGT by reinvesting proceeds into a **similar asset** (e.g., selling a rental property to buy another).

Applies to: Business assets or investments.

Conditions: The new asset must be used for the same purpose.

Example: Sarah sells a café and buys a larger one. CGT is deferred until she sells the new café.

7. Retirement Exemption

If aged “55+”, you may exempt up to $500,000 in capital gains from CGT when selling business assets, provided the proceeds fund your retirement.

Conditions:

Assets must be used in a small business.

Funds must be deposited into a retirement account.

Example: John, 60, sells his workshop for $2 million. He uses the money for retirement and pays no CGT.

Final Tips:

Tax laws are complex. Always consult a professional.

Plan ahead to maximize exemptions.

Keep records of purchase costs, improvements, and ownership periods.

Remember: Smart tax planning is key to keeping more of your profits! Share this guide to help others save legally. For personalized advice, contact a tax expert.