Deferring/Offsetting Capital Gains

Discussion in 'Wealth Creation & Management' started by petey, Jun 5, 2013.

  1. petey

    petey Active Member Silver Stacker

    Joined:
    May 19, 2010
    Messages:
    1,103
    Likes Received:
    7
    Trophy Points:
    38
    Location:
    Andorra
    We will likely be selling a property in a few months for a reasonable sum more than what we paid for it. It was vacant land that we never lived on.

    We would like to use the gain to further invest (not in real estate), but I'm not sure how I can use this to reduce our CGT liability.

    Anyone have pointers or helpful links that I can read?

    Thanks.
     
  2. AngloSaxon

    AngloSaxon Active Member

    Joined:
    Oct 26, 2012
    Messages:
    1,862
    Likes Received:
    2
    Trophy Points:
    38
    Location:
    Sydney
    One strategy you may look at is paying forward/early any capital costs of any new investment to the same value, if possible, of the capital gain. Doing this in the same financial year may negate the capital gain on paper leaving no tax liability.

    Not that this is financial advice, do your own due diligence and get professional advice before you act.
     
  3. petey

    petey Active Member Silver Stacker

    Joined:
    May 19, 2010
    Messages:
    1,103
    Likes Received:
    7
    Trophy Points:
    38
    Location:
    Andorra
    When you say "capital costs", could this include buying into a managed fund?
     
  4. bron suchecki

    bron suchecki Active Member Silver Stacker

    Joined:
    Jul 10, 2009
    Messages:
    1,269
    Likes Received:
    2
    Trophy Points:
    36
    Location:
    Perth, Western Australia
    You can only reduce capital gains against capital losses, not capital costs (ie just buying something). If you have some investments at a loss then consider selling them.
     
  5. trew

    trew Active Member Silver Stacker

    Joined:
    Aug 24, 2011
    Messages:
    3,810
    Likes Received:
    7
    Trophy Points:
    38
    Location:
    Melbern
    In a thread a while ago nonrecourse described selling a property and buying another one with debt and prepaying the interest on the loan for 2 years or something like that so the expense offset the capital gain
    do a search and you might find it.
     
  6. wrcmad

    wrcmad Well-Known Member Silver Stacker

    Joined:
    Jan 2, 2012
    Messages:
    6,360
    Likes Received:
    634
    Trophy Points:
    113
    Location:
    Northern NSW
    This is true, but not the end of the storey...
    CGT is charged at your marginal income tax rate, so if your can reduce your income, and thus your marginal tax rate, you can reduce your CGT bill.
    If you can deduct enough to eliminate your income, you can eliminate your CGT liability.
    So, now it's time for you to get creative. :)

    There are a few possible ways to do this, but much depends on personal circumstances.
    One is deductible super contributions.

    One I have used in the past is prepaid interest, and I reckon it's a cracker cause you can actually make a profit from this strategy.
    I have never had big enough investment loans to prepay enough interest to wipe out my CGT, so I have in the past effectively "purchase" prepaid interest at FYE.
    This involves buying a chunk of long-dated highly leveraged blue chip security instalment warrants in June, and offloading in July. Mac Bank usually has good candidates for this. The right type of warrant can have the future interest payment liability "bundled" into the warrant price. This interest is effectively prepaid when you purchase the warrant. So, if you buy enough of them (and if you choose the right warrant the interest payment component can be up to 80% of the warrant price) you can create a big enough deduction to eliminate your CGT liability.
    Also, if you choose a good dividend payer (like a bank) you can add a dividend payment as cream - with franking credits. If the share price rises while you are holding - more cream. :D
    But, you need to protect yourself in case price falls while you are holding. This is easily achieved using options or CFD's. However, you need to hedge in someone else's name, as there are technicalities regarding risk exposure and deductibility that may apply - ie, you need to hold technical effective risk exposure for this to all work legally.

    Anyways, you have homework to do. :)
     
  7. trew

    trew Active Member Silver Stacker

    Joined:
    Aug 24, 2011
    Messages:
    3,810
    Likes Received:
    7
    Trophy Points:
    38
    Location:
    Melbern
    Oh and if you sell early in the new financial year you've got almost 12 months to set up your strategy
     
  8. petey

    petey Active Member Silver Stacker

    Joined:
    May 19, 2010
    Messages:
    1,103
    Likes Received:
    7
    Trophy Points:
    38
    Location:
    Andorra
    This is the current goal. :D

    I appreciate the (not legal) advice everyone. Hopefully all going well I will have plenty of time to research this topic.
     
  9. AngloSaxon

    AngloSaxon Active Member

    Joined:
    Oct 26, 2012
    Messages:
    1,862
    Likes Received:
    2
    Trophy Points:
    38
    Location:
    Sydney
    That's the sort of thing I had in mind. Shouldn't have explained what I said by capital costs though. Thanks for pointing that out Bron.

    And for outright capital losses if you have some eg Billabong shares you've forgotten about, they're going under, get rid of them and realise the loss in a year when the loss benefits you.
     
  10. AngloSaxon

    AngloSaxon Active Member

    Joined:
    Oct 26, 2012
    Messages:
    1,862
    Likes Received:
    2
    Trophy Points:
    38
    Location:
    Sydney
    No.
     

Share This Page