Ways to Reduce Taxable Income - Expecting Big Capital Gain Tax

Any ideas on how to reduce taxable income before 30th June? We are expecting big tax bill from capital gain this financial year after selling our investment property. So far we have made concessional pre-tax contribution to super. Thanks!

Comments

  • +45 votes

    Location
    Canberra
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    1 posts

    Nice try ATO ;)

    •  

      Looks like Agent user 32 has ghosted us?

      Last Seen
      01/06/2021

      Just like the ATO, will only contact you, only if they want something from you…

  • +4 votes

    https://www.ozbargain.com.au/user/32

    Member number 32. Holy itunes card taxman.

    •  

      Great deals from:

      • British Virgin Islands
      • Cayman Islands
    • +16 votes

      Member number 32

      Sleeper cell active, 1st comment after 14 years. 👏

  •  

    Do you have any other investments? You could look into selling shares where there is a loss (and don't want to buy back in). Or you can pre pay investment expenses (eg interest, council rates etc) if you have an investment property

    •  

      Can you claim prepaid expenses? Don't they have to be attributed to the year they apply to?

      Also, how do you prepaid interest? You can pay extra on a loan, but the interest isn't charged until it is actually due.

      •  

        You can pay extra on a loan, but the interest isn't charged until it is actually due.

        If it’s an investment cant you simply pay extra on a loan and that’s all reducing taxable income?

        • +3 votes

          No. Only the interest is deductible. Any extra payment you make goes against Principal and not deductible.

      •  

        If its an investment property, fix your rate for (at least) 1 year and tell them you want to prepay interest for 1 year
        That brings forward 1 years worth of interest into this financial year… but obviously it leaves the following year with zero interest. But its a good way if you know your income will drop next year (or if you can find something else to claim next year…. or you keep bringing forward interest every year, either way gives you 365 days to solve it!).

        (disclaimer, this is not financial advice yada yada yada)

  • +9 votes
    1. find an unemployed arts degree graduate
    2. commission them to paint an artwork
    3. find a good friend who is a professional artwork appraise who will appraise said art for a conveniently neat sum equal to your taxable income this year
    4. donate said art to charity
    5. claim the donation as a deduction
    6. pro…bably get audited

    (obvious disclaimer: not my idea)

    •  

      Please tell me this isn't something that actually works…

      •  

        Imma go out on a limb here and say that's not gonna fly…

      • +1 vote

        Probably based on a partial truth. If you skip out steps one and two, and you do happen to own legitimate rare artworks, you can probably have the artwork appraised to give a good number. Who could argue with the value of a one-of-a-kind item?

        Whether this case used this method, we may never know but it can be used as a deductible: https://www.bbc.com/news/business-56911094

    •  

      Not so easy. If the claimed value is above $5K, you may need a valuation by the ATO. You pay for this valuation, and you can get a deduction for the valuation fees. ATO will give you a valuation certificate of what it is worth.

  • +5 votes

    concessional pre-tax contribution to super … if you did not use the full amount of your super cap in previous years, you can carry forward the unused amount. e.g. cap is 25k: in 2019-20 your concessional super contribution was 10k > this year your cap is 40k (25k plus the used cap of 15k from the previous year).

  • -1 vote

    Make sure you use an accountant to calculate the CGT because it is quite complicated, and not as easy as the selling price minus the purchase price.

  • +4 votes

    Take unpaid leave.

    •  

      Or even purchase Annual Leave if your employer allows this.

    •  

      Cost of not accruing super or leave with this strategy needs to be considered.

      • +1 vote

        There's also the cost of not receiving income during that time. Unless you're going to make good use of the extra time off, there's no point reducing your income just so you pay less tax. Let's say you forgo $10000 in income, and therefore pay ~$3250 less tax. Great, you've reduced your tax debt, but you also have $6750 less net income.

        People act like paying tax is going to kill them.

  • +7 votes

    make a generous donation to a tax deductible charity in gratitude of your windfall gain

  •  

    Super is the best option, then there’s little things like … buy some deductible (<$300 per item) home office gear, like printer, desk, chair, monitor, network drive, router, etc, prepay phone or Internet, prepaid subscriptions to relevant journals and/or professional memberships, prepay an accountant to do your tax.

  •  

    If you had this property for more than 12mths, your Capital Gain (after deducting any mortgage) should be divided by at least 4 (since you used "we", I assumed at least 2 owners).

  •  

    I thought you could only offset capital gains against capital losses, not against your general income tax.

    •  

      Capital losses can only be applied against capital gains, not uh "general income" (meaning everything that's not capital).

      "General losses" (meaning any type of expense that's not capital) can be applied to anything, which will include capital gains.

  • +1 vote

    Capitalise any crypto losses,

    then rebuy.

    • +2 votes

      ATO doesn't like wash sales, it's illegal.

      • +2 votes

        I would say bitcoin is substantially different to ETH.

        Sell BIT buy ETH, continue to ride the wave.

      •  

        Wash trading isn't unlawful in unregulated markets. The tax office may not like it but there nothing they can legally do to stop it.

        • +3 votes

          The ATO uses Part IVA (anti-avoidance) to target anything it doesn't like. Wash sales are a CGT matter and absolutely something they can 'stop' (or rather, penalise you if they catch you and decide to prosecute). "Regulated markets" have nothing to do with it.

          All laid out in TR 2008/1: https://www.ato.gov.au/law/view/document?docid=TXR/TR20081/N...

          •  

            @CrowReally: Wash trading applies to the same, or substantially the same, asset within a short period of time of each other.

            Digital assets are an unregulated market. Defi allows investors to be exposed to the gains or losses of an asset without actually owning the asset.

            • +1 vote

              @rektrading: And it's up to you to prove that selling and rebuying your crypto holdings aren't doing the italic bit above.

              Don't forget, the burden of proof is on the taxpayer in these cases. The ATO gets to say "That's a wash sale" and it's a wash sale right up until the point you prove that it isn't. That's how the ATO and Part IVA work.

              Good luck, brave people that follow forum advice!

            •  

              @rektrading:

              within a short period of time of each other

              Define the time period and buy back in after that.

              •  

                @Bystander: That's America. I don't think Australia has a time limit for what is to be considered a wash sale.

                It's pretty hard to legally get around Australia's well worded tax rulings :)

                •  

                  @idjces: Nah.
                  There's plenty of traders who move in and out of the same equities frequently. There has to be some legal boundaries set to provide clarity as to exactly what constitutes a wash sale.

              •  

                @Bystander:

                Define the time period and buy back in after that.

                There is no exact definition, but common sense can be used, based on the examples in the tax ruling.

                For example:

                An investor has suffered a 35% loss on his holding of 0.50 Bitcoin.

                Situation 1:
                The investor sells 0.50 Bitcoin & then after a few hours buys it back again, at almost the same price. This is clearly a wash sale.

                Situation 2:
                The investor sees the Bitcoin price graph starting to move downwards again. The investor sells all the 0.50 Bitcoin (because he fears that it will a lot more). After 4 days, he sees that the downward price movement has stopped, or reversed and he buys the 0.50 Bitcoin back again (because he is feeling reassured), and at a reasonably different price from one at which he sold. This clearly isn't a wash sale.

                •  

                  @vikvance: How about situation 3?
                  The investor sells 0.50 Bitcoin at a 35% loss and then waits 2 months and buys it back again for the same price?

                  Yes, the investor takes on the risk of price movements in the time that they are out of the market but at the same time I would think that this is arguably not a wash sale.

                  • +1 vote

                    @Bystander: There is no predetermined time frame. The wording is essentially "purpose to obtain a tax benefit in the form of a capital loss".

                    It's up to you to prove the tax benefit wasn't the purpose behind your actions

                    •  

                      @idjces: The ATO wouldn't have a snowflakes chance of successfully prosecuting someone in a situation 3 context.

                      It's up to you to prove the tax benefit wasn't the purpose behind your actions

                      That sounds like guilty until proven innocent. Again, very easy to avoid prosecution here.

                      • +1 vote

                        @Bystander: Yes, "guilty until proven innocent" (if you want to word it that way) is exactly how it works - the burden of proof is with the taxpayer.

                        https://www.mondaq.com/australia/income-tax/237462/tax-asses...

                        •  

                          @CrowReally: I'm sticking with "plausible deniability".

                          •  

                            @Bystander: You can phrase it however you like. But per the link I just posted, once the ATO has deemed something to have happened ("Here's your amended assessment, we've decided a wash sale happened and your actual income is $X"), they've done their part. There's no "avoiding prosecution" aspect to it. You now have a new tax assessment to pay.

                            You can't argue they calculated it wrong, or ask how they calculated it, or get them to prove a wash sale happened - the position is now: it's happened, and the only way you're going to overturn that new assessment is if you prove that it wasn't a wash sale.

  • +2 votes

    At the risk of sounding subversive, how about just paying what you owe in recognition of the windfall you made? After the 50 per cent discount and other breaks, you still get a good deal.

  •  

    then theres this…
    https://www.theage.com.au/money/investing/stiff-ato-penaltie...

    Those who hold cryptocurrencies, such as bitcoin, as an investment are likely to receive a “please explain” from the Australian Taxation Office if they fail to declare when they are sold at a profit.

    While the ATO’s treatment of virtual currencies is evolving as transactions become more common, it has made it clear that crypto investment profits are liable for Capital Gains Tax and failure to declare them in annual tax returns could result in stiff financial penalties.

    The ATO has already contacted more than 100,000 taxpayers who have traded cryptocurrency over the past three years, reminding them of their tax obligations and to ensure that any capital gains from trading are included in their 2020-21 tax returns.
    With cryptocurrency prices rocketing and sharemarkets experiencing a major bounce in the past financial year, Adrian Raftery, founder of Mr Taxman, says many taxpayers will have big capital gains to declare in their returns this year.

    Bitcoin, the leading cryptocurrency, was worth about $14,000 at the start of the 2020-21 financial year and is now changing hands for about $49,000.

    •  

      Glad I didn't sell in the last FY because it's going to the moon long term… Right?

      •  

        Moon? na, its Mars now :D

  • +1 vote

    Wash trading isn't unlawful in unregulated markets. People that have five, six or even seven-figure gains may want to take advantage of this to reduce their tax liability.

  •  

    Work expenses, income protection insurance, accountants fee to manage tax…

  •  

    More super contributions if you haven't hit at least the $50k pp you can use with carry forwards from the last tax year.

  •  

    do have any a company structure ABN by any chance? if yes, buy a car and do 100% instant offset on depreciation. would save you around 15k in tax..

    Not for people on TFN

    •  

      Spend $50k to save $15k. Only works if you actually need or want to buy a car.