CGT discount

If you are selling a CGT asset, delaying the sale may be worthwhile to qualify for the CGT discount.

CGT assets include land, buildings, shares, rights and options, leases, units in a unit trust, goodwill, contractual rights, licences, foreign currency, cryptocurrency, convertible notes, etc.

Under the discount rules, when you sell or otherwise dispose of an asset (for instance, give the asset away), you can reduce your capital gain by 50% if both of the following apply:

• You owned the asset for at least 12 months, and
• You are an Australian resident for tax purposes.

Regarding the first requirement, you must own the asset for at least 12 months before the ‘CGT event’ (usually a sale) happens. The CGT event is the point at which you make a capital gain or loss. You exclude the day of acquisition and the day of the CGT event when working out if you owned the CGT asset for at least 12 months before the ‘CGT event’ happens.

To be clear:

• If you sell the asset and there is no contract of sale, the CGT event happens at the time of sale.
• If there is a contract to sell the asset, the CGT event happens on the date of the contract, not when you settle. Property sales usually work this way.
• If the asset is lost or destroyed, the CGT event happens when:
  • you first receive an insurance payment or other compensation.
  • if there is no insurance payment or compensation when the loss occurred or was discovered.

You could count an asset’s previous ownership towards your 12-month ownership period if you acquired it:

• through a deceased estate if the asset was acquired by the deceased on or after 20 September 1985
• through a relationship breakdown – you will satisfy the 12-month requirement if the combined period your spouse and you owned the asset was more than 12 months.
• as a rollover replacement for an asset that was lost, destroyed or compulsorily acquired if the period of ownership of the original asset and the replacement asset was at least 12 months.

From 8 May 2012, the full CGT discount is not available for capital gains made by foreign or temporary residents.

Returning to the theme of the article, if you held an asset for 11 months and were upon sale on track to make a capital gain of $30,000, then by delaying the sale by one month, you could reduce that gain to $15,000 by taking advantage of the 50% discount. Note that as well as non-residents, the 50% discount is not available to companies. SMSFs and trusts are both eligible (though the discount is 33% for SMSFs).

Super tax offset

If your spouse is a low-income earner, adding to their superannuation could benefit you financially.

If you’d like to help them by putting money into their super, you might be eligible for a tax offset while potentially creating additional opportunities for both of you.

Eligibility

To be entitled to the spouse contributions tax offset:

• You must make a non-concessional (after-tax) contribution to your spouse’s super. This is a voluntary contribution made using after-tax dollars, which you don’t claim a tax deduction for.
• You must be married or in a de facto relationship.
• You must both be Australian residents.
• The receiving spouse’s income must be $37,000 or less for you to qualify for the full tax offset and less than $40,000 for you to receive a partial tax offset.

Benefits

If eligible, you can generally contribute to your spouse’s super fund and claim an 18% tax offset on up to $3,000 through your tax return.

To be eligible for the maximum tax offset, which works out to be $540, you need to contribute a minimum of $3,000, and your partner’s annual income needs to be $37,000 or less. If their income exceeds $37,000, you’re still eligible for a partial offset. However, once their income reaches $40,000, you’ll no longer be eligible for any offset but can still make contributions on their behalf.

Contribution limits

You can’t contribute more than your partner’s non-concessional contributions cap, which is $110,000 per year for everyone, noting any non-concessional contributions your partner may have already made.

However, if your partner is under 75 and eligible, they (or you) may be able to make up to three years of non-concessional contributions in a single income year under bring-forward rules, which would allow a maximum contribution of up to $330,000.

Another thing to be aware of is that non-concessional contributions can’t be made once someone’s super balance reaches $1.9 million or above as of 30 June 2023. So, you won’t be able to make a spouse contribution if your partner’s balance reaches that amount. There are also restrictions on the ability to trigger bring-forward rules for certain people with large super balances (more than $1.68 million as of 30 June 2023).

Joint tenants and tenants in common

When buying a property with another person, you are given the option of how to be registered on the title of the property with them: joint tenants vs tenants in common. But what is the difference between the two, and is one better than the other? In this article, we explain everything you need to know.

What is Joint Tenants?

Joint tenants (also known as joint proprietors) means you own 100% of the property jointly with the people registered as joint tenants with you.

Practically this means:

• When joint tenants die, the surviving owner(s) automatically become entitled to be registered as the sole owner(s) of the whole of the interest in the property. This means that any property owned in joint tenancy do not form part of a deceased’s estate, rather their interest automatically goes to the surviving owner(s). This is called “the right of survivorship”.
• You even split the property’s profits, losses, and risks.
• You cannot have an uneven share of the property. All joint tenants own the property 100% jointly. For tax purposes, the shares are even.

What is Tenants in Common?

Tenants in common means you have a defined ownership share of a property title. This can be 50-50, 60-40, 99-1 or any other combination.

Practically this means:

• On the death of either of the owners, the deceased’s interest in the property passes to his or her beneficiary (not necessarily the surviving owner on the title). The beneficiary is dictated by the deceased’s Will or if they do not have a Will by State law.
• The defined ownership share splits the property’s profits, losses, and risks.

 

Can you do both Tenants in Common and Joint Tenants at the Same Time?

Yes, you can if you have three or more owners on the title. For example, persons A and B hold a 50% share of the property as tenants in common jointly, while person C holds their 50% share as a tenant in common individually.

Practically this means:

• On the death of either person A or B, who holds their 50% share jointly, the survivor of A or B will get the full interest of the deceased share. Person C will not have any claim to this share as they did not hold that 50% share jointly.
• If Person C passes away, Persons A and B will have no automatic interest in Person C’s share of the property. Rather, person C’s share in the property will go to their beneficiary in accordance with their Will or State law if no Will exists.

Touch base with us if you would like more advice about the ownership structure you should adopt when acquiring property.

Superannuation downsizer

Are you looking to boost your superannuation balance as you near retirement?

Put simply, the intention of the downsizer contribution rules is to allow older Aussies to sell their current home and use the proceeds to contribute to their super account.

Starting 1 January 2023, new rules have lowered the minimum eligibility age to allow people aged 55 and over to access downsizer contributions. Originally, the minimum age was 65, but this has progressively been lowered to age 55.

The lower age limit (55 years) is based on your age when you make the contribution, and there is no upper age limit. Normally, once you reach age 75, the super rules prevent you from making voluntary contributions, so a downsizer contribution presents a rare opportunity to top up your super.

There is no work test requirement to make a downsizer contribution. In fact, there is no requirement for you to have ever been in paid employment. However, you can’t claim a tax deduction for a downsizer contribution.

Contribution limits

Under the downsizer rules, you are allowed to contribute up to $300,000 ($600,000 for a couple) from the sale proceeds of your eligible family home.

The contribution limit is the lesser of $300,000 and the gross actual sale proceeds. This means if you gift your home to a family member and the sale proceeds are $0, you cannot make a contribution.

Any debt or remaining mortgage on the property does not impact the amount you are permitted to contribute to your super account.

Eligible homes

While the downsizer rules are generous, ensuring your home is eligible before you sell is essential.

The key criteria are:

• You must have owned your property for a continuous period of at least 10 years. This is usually measured from the date of your original settlement when you purchased the property to the settlement date when you sell it.
• The property being sold must be your family home (main residence) at the time of the sale, or it must be partially exempt from capital gains tax (CGT) under the main residence exemption.
• The home you sell must be in Australia.

Some types of property are not eligible under the downsizer rules. These include an investment property you have not lived in, caravans, houseboats and other mobile homes. Vacant blocks of land are also ineligible.

If you sell your home and want to make a downsizer contribution, you are not required to buy a new home with any sale proceeds. That is, there’s no requirement to buy a cheaper or smaller home after making your downsizer contribution, so you can even decide to purchase a more expensive replacement home.

Caution

The costs involved in selling a family home can be substantial. If you purchase another home, sales commissions, moving costs, stamp duty, and land taxes mount up, so think carefully before deciding to downsize. Remember, selling a large home and downsizing to a smaller property does not always release much excess capital (particularly in a capital city), so do careful calculations on how much you will have left to contribute to super before selling.