Real estate agents own lots of investment properties so we’re familiar with Capital Gains Tax. What you might not know is there’s lots of options to reduce – or even eliminate – the tax bill when we sell our agency or rent roll.
CGT forms part of our income tax regime in Australia and when we sell any asset other than our home, we expect a big chunk of our profit to go to Canberra. So when it’s time to exit your real estate agency, or even cash in part of your rent roll, you’ll need to get good advice on your likely CGT bill.
The 12 month rule will usually allow you to halve your taxable gain. But it gets better (so much better!) for all of us who are “small businesses”.
Let’s say you’ve sold your rent roll for $3m. Many years ago you bought a small rent roll so have a $1m cost base. The 12 month discount will halve the $2m “profit” and add $1m to your assessable income. But if you qualify for the small business concessions you can likely cut another 50% as you’re selling an “active asset”. That is, an asset used in running a business and not just passively earning rent.
Are you a “small business”? If your turnover is under $2m or you have net assets of less than $6m you’re likely to be good. (Get good advice!)
Okay, so on this $3m sale you’re now paying tax on $500,000.
Wait, there’s more! The small business retirement exemption might allow you to ignore that final $500,000 and pay no tax. Zero. Zip!
Morgan Wilson from Creditte Chartered Accountants, specialises in helping real estate agents minimise their tax bills. “The retirement exemption is powerful, but many don’t realise it can also be contributed into superannuation — which means a big tax-free boost to retirement savings.”
There’s a lifetime limit on the retirement exemption and, as you’d expect with the ATO, this is a complex field with lots of eligibility conditions. But Morgan says there’s lots of CGT concession options open to most real estate agents.
“For example, another area often overlooked is how the 15-year exemption works: if you’ve owned the business that long and are over 55, the entire gain can be disregarded. That’s a game-changer for boosting wealth in retirement.”
“One thing that often gets missed when talking about CGT on business sales is that it’s not just about the exemptions — it’s about timing and structure. We see plenty of owners who only start thinking about tax once a deal is on the table, but the real opportunities often come from planning years earlier.”
It often takes months to make the final decision to sell your agency or rent roll. Please make sure you spend some of that time getting accurate advice on your tax position. It could make a huge difference to your bottom line result from the sale.
If you’re considering selling I’d love to have a confidential chat about your rent roll or agency. Please call me on 0423 332 022. Morgan Wilson at Creditte is on 1300 447500.
NB: This is general info only and not tax advice. I’m a business broker who specialises in Queensland real estate agencies and rent rolls. Please discuss your position with an accountant or other qualified tax advisor.