According to the Australian taxation system, taxation is usually not due on the escalating value of your assets. The only thing you are required to pay taxes on is the capital gain at the time of sell.

If you purchase the property to hold and you keep it for over a year, then you will be eligible to receive a 50% discount on General Capital Gains Tax. If you purchase the property with a plan to sell, then you will be responsible for paying the full marginal tax rate on your profit, regardless of how long you keep the property before selling.

Avoiding Tax Triggers

A number of investors think that the only way to received increased asset value is by selling, however, by selling your property you will trigger several costs and taxes such as:

• Capital Gains Tax
• Income Tax
• When you make your next purchase – loan costs, legal fees, stamp duty, etc. If you buy a new property, the price will include GST as well.

When you have to pay these additional taxes and expenses, you profit is minimized considerably and in some cases, lost completely. Many investors chose to refinance their properties and draw cash against the equity through a credit line. If the credit is use for investment reasons such as funding negative gearing, purchasing a new property, etc, the interest costs on the credit line are tax deductible.

You need to careful analyze if borrowing in such a manner is the right thing for you, including funding capacity. In addition, this should be done before you commit to purchasing any investment property. Be sure that you do all of your homework and are aware of all of the rules and regulations that are involved in buying and selling real estate in Australia.

Sean Rasmussen
Property Options Australia
Property Options Blog © 2006 - 2008

If you enjoyed this post, make sure you subscribe to my RSS feed!