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Hi Julia – a customer friend recommended you. Looking forward to your information.
Basic story
I own property in Lowood Qld 4311 12.08 hectares. I originally purchased this in 1987 for $28,000 with my partner. We built a house for approx. $60,000 here and moved in approx. Mar 1989. We separated in 2002 and divorced and did a property settlement in 2005 where I kept the property and took out a mortgage for approx. $225,000.
I rented the property out in approx. August 2010 for approx. 10 years. During this time I purchased and moved into another property with my partner. We separated in August 2019 and after a property settlement in 2022 I remortgaged the property again for $375,000.
At 54 years of age it was difficult to get a loan considering I was going to be 84 when I paid off the mortgage so my exit strategy was to sell the property.
In 2024 I made up and displayed expression of interest signs for the sale and from that I got 2 serious buyers who made various offers for the whole property and after some thought offers were made on part of the property which was allowing me to keep 20,000m2/5 acres and my home. I entered into a contract for the sale of the remaining land for $1,500,000 on 7/4/25. The local council has approved a 1 to 2 lot subdivision earlier this year and we are in the final stages of compliance with settlement scheduled to happen within the next 5 months.
My tax agent has advised me as per below that I will have a GCT of approx $292,000.
Info that might be helpful or not!
- The property was registered as a primary producer with profit/loss through our tax from approx. 1990 for at least 12 years possibly longer. The accountant that did my tax then is no longer an agent. We bought, bred and sold cattle during this time and had a registered horse stud.
- While the property was rented out from 2010-2020 I claimed the interest on the loan of the value of the property which was $475,000 in January 2010 when I purchased a 2nd property with my 2nd partner. It was claimed as a rental property and all declared through my tax.
- I am 57yrs of age but would consider early retirement if it helped avoid any tax and was possible given my age. Quick question – I have a friend who did this and after 1 year returned to work – is that possible?
I am looking at ways to reduce my capital gain. I have lived on the property over 27 years and I have been working in the same job for over 41 years and paid all of my tax and fought so hard to keep this property through 2 relationship breakdowns and I would love to find a way to avoid losing over 1/4 of my net income to tax.
Let me know if I can provide any more information that will be of assistance or if you have any questions.
Info from my accountant
| Land | |
|---|---|
| CGT Sale Price | $ 1,500,000.00 |
| Purchase Price | $23,113.32 |
| Stamp Duty | $ 396.23 |
| Land Value | $ 28,000.00 |
| Land Sold | 9.98 |
| Legals on Purchase | $ 300.00 |
| Building Cost | $ 60,000.00 |
| Land Kept | 2.11 |
| Legals on Sale | $ 800.00 |
| Total | $ 88,000.00 |
| Total Land | 12.09 |
| Commission on Sale | $ – |
| Holding Costs | $ 174,171.91 |
| Total Cost Base | $ 198,781.45 |
| Capital Gain | $ 1,301,218.55 |
| Discounted Gain | $650,609.27 |
| Estimated Tax | $ 292,774.17 |
| Super Deduction is available up to $125K for 2025FY | |
I can confirm there will still be a capital gain on the land sold this 2025FY.
If the hectares hadn’t been reduced, neither parcel of land will have been eligible for the PPR exemption.
Now, at least the property with the house (not yet sold) will qualify for the exemption for a large period of the ownership time.
You do have the option to reduce the currently estimated capital gains tax of $292K by contributing to your Super Fund.
You have concessional contributions cap available of $104K from prior years unused plus a further $21K for this financial year.
The $125K if put into super, would reduce the capital gain from $650K to $525K, and $125K at 45% tax rate is $56K tax saved in your name.
The $125K would then be taxed at 15% in your Super Fund so an actual tax saving of 30%.
However as you know, these funds would then be in Super until you are eligible to access.
Answer
I would just like to point out the following regarding the advice you received:
- The 15% tax on the money going into super is incorrect as on those calculations you would be over the $250,000 limit so the tax would be at 30%. But I hope to have a much better solution for you.
- The CGT cost base figures do not apportion out the home that you are retaining, for example the building costs of the home cannot apply.
- As the property was purchased before 20th August 1991 you cannot increase the cost base by the holding costs. Reference section 110-25(4) ITAA 1997.
How does no CGT at all sound?
Let’s have a look at the 15 year small business concession:
Subdivision 152-B – Small business 15-year exemption
152-105 15-year exemption for individuals
If you are an individual, you can disregard any * capital gain arising from a * CGT event if all of the following conditions are satisfied:
(a) the basic conditions in Subdivision 152-A are satisfied for the gain;
(b) you continuously owned the * CGT asset for the 15-year period ending just before the CGT event;Note:
Section 152-115 allows for continuation of the period if there is an involuntary disposal of the asset.
(c) if the CGT asset is a * share in a company or an interest in a trust – the company or trust had a * significant individual for a total of at least 15 years (even if the 15 years was not continuous and it was not always the same significant individual) during which you owned the CGT asset;
(i) you are 55 or over at the time of the CGT event and the event happens in connection with your retirement; or
(ii) you are permanently incapacitated at the time of the CGT event.
In connection with retirement – There is not a public ruling defining this. Here is what the ATO say on this page https://www.ato.gov.au/forms-and-instructions/advanced-guide-to-cgt-concessions-for-small-business-2011/small-business-15-year-exemption
“In connection with an individual’s retirement
Whether a CGT event happens in connection with an individual’s retirement depends on the particular circumstances of each case. There would need to be at least a significant reduction in the number of hours the individual works or a significant change in the nature of their present activities to be regarded as a retirement. However, it is not necessary for there to be a permanent and everlasting retirement from the workforce. The following examples provide a guide as to the likely scope of the term.
Example
A small business operator, over 55 years old, sells his business. Under the terms of the sale, he agrees to be employed by the new owner for a few hours each week for two years. The sale of the business would be in connection with the small business operator’s retirement. He has permanently or indefinitely ceased being self-employed and has commenced gainful employment on a much reduced scale with another party, although still performing similar activities.
Example
A small business operator and spouse are both pharmacists, are both over 55 years old and carry on business through two pharmacies. They sell one (and make a capital gain) and, accordingly, reduce their working hours from 60 hours a week each to 45 and 35 hours a week respectively. There has been some change to their present activities in terms of hours worked and location. But there has not been a significant reduction in the number of hours or a significant change in the nature of their activities and, therefore, there has been no ‘retirement’.
If, on the other hand, one spouse reduced their hours to nil (stopped working), there would be a significant reduction in the number of hours that spouse was engaged in the business activities. The sale would, therefore, be in connection with the retirement of that spouse.
A CGT event may be ‘in connection with your retirement’ even if it occurs at some time before retirement. Whether particular cases satisfy the conditions depends very much on the facts of each case.
Example
A small business operator, over 55 years old, sells some business assets as part of a wind-down in business activity ahead of selling the business. Within six months, she sells the business and ends her present activities. If it can be shown that the earlier CGT event was integral to the business operator’s plan to cease her activities and retire, the CGT event may be accepted as happening in connection with retirement.
Similarly, the words ‘in connection with’ can apply where the CGT event occurs sometime after retirement. Again, this type of case would depend on its own particular facts and cases would need to be considered on a case-by-case basis.
Example
A small business operator ‘retires’ and his children take over the running of the business. Within six months, they sell some business assets and make a capital gain. Several reasons may have prompted the sale of the assets. If there is no relevant connection with the small business operator’s business, the requirement would not be satisfied. However, if it can be shown that the reason for the disposal of the assets is connected to retirement and the later sale is integral to the small business operator’s retirement plan, the sale may be accepted as happening in connection with retirement.”
Unfortunately as this is only an extract from the ATO web site it is not binding on them like a public ruling would be and the legislation does not define in connection with retirement. I don’t know enough about your circumstances to be specific about what would work for you. Though it should be noted that a significant reduction in working hours is all that is required. This private ruling makes that clear https://www.ato.gov.au/law/view/document?src=ws&pit=99991231235958&arc=false&start=1&pageSize=10&total=89&num=4&docid=EV%2F1052117414776&dc=false&stype=find&tm=phrase-basic-In%20connection%20with%20Retirement
While this is also not binding on the ATO unless you are the taxpayer who applied for the private ruling, I have confidence that a significant reduction in your work hours is all you will need to qualify for this wonderful concession. Certainly, reducing your hours will completely work for you. If you are not keen to retire there are other CGT small business concessions that we can use that are very generous and may even give you as good a result once we crunch the numbers. I will get to them in a while. Back to the 15 year rule, you are already over 55 and have owned the property for more than 15 years, 12 of which you operated a business from it so the rest of the conditions are met. It does not matter that you stopped using the property in your business a long time before you retired. Just that the sale occurred in connection with your retirement.
Of course, of those 12 years that it was used in a business half of it was owned by your spouse. So we have to look at this as if the property is two separate assets. The half you have always owned is fine, it is covered by the above.
The tax treatment of the half owned by your spouse turns on how it was transferred to you. In December 2006 the sorts of agreements that were covered by the marriage breakdown rollover were widened but unfortunately for you your agreement was before that time so for any of the following to apply, the agreement must have been:
- a court order or maintenance agreement under the Family Law Act or a corresponding foreign law; or
- a court order under a state, territory or foreign law relating to de facto marriage breakdowns.
Basically, the agreement has to be stamped by the courts. If you pass this test then you can treat that half of the property that was owned by your spouse as owned by you right back to when it was originally purchased and deem it to be used by you in the same way that your spouse used it, ie in a business for 12 years.
Section 152-45 ITAA 1997
Marriage or relationship breakdowns
(2) If you were the transferee of a * CGT asset for which there has been a roll – over under Subdivision 126 – A, then you may choose that the active asset test in section 152 – 35 applies as if:
(a) you had acquired the asset when the transferor acquired the asset; and
(b) the asset had been an * active asset of yours at all times when the asset was an active asset of the transferor; and
(c) the asset had not been an active asset of yours at all times when the asset was not an active asset of the transferor.
Now don’t worry about not being able to find your previous tax agent the ATO will have copies of your tax returns.
If your agreement was not stamped by the courts consider going for an ATO ruling. You see after December 2006 just about all agreements entered into on dissolution of a relationship are covered by the rollover. A literal reading of the legislation does not make the date distinction you have to read the history notes to realise. So you could end up with a ruling saying your agreement does qualify for the rollover.
If the rollover does not apply it means that half you received from your spouse starts with the cost base of the market value in 2005 when you entered into the agreement. No Small Business CGT concessions on that half but only pay the CGT on the gain since then.
Nevertheless, I am assuming the order was stamped by the courts so the rollover does apply so both halves are treated the same. You can elect to apply the 15 year small business concession if sold in connection with your retirement and all the capital gain will be completely tax free.
Now let’s look at the situation if you decide not to retire. There are other CGT concessions that can still apply simply because it has been used in a business. They would work like this:
| Assume capital gain of around $1.4 M considering items not included in the cost base mentioned at the start of this email | $1,400,000 |
| Reduce by 50% CGT discount | $700,000 |
| Reduce by 50% CGT active asset discount | $350,000 |
| Gain | $350,000 |
| Reduce by retirement exemption Up to a maximum of $500,000 | $350,000 |
| Taxable capital gain | 0 |
So still zero CGT, no need to retire. Don’t let the word retirement exemption concern you. It is a very poorly labelled concession. The relevant points are that you put the money into super if you are under 55 years of age otherwise you don’t have to but please consider this.
If you are looking to maximise the amount you can put into super the 15 year exemption is the best, you can put the whole lot in. Using the retirement exemption will mean you can only put $350,000 into super.
Note there is a special small business superannuation contribution cap that does not affect the other caps. The funds are not taxed going into the fund. To qualify you need to make the contribution or before the later of:
- The day you lodge your income tax return for the income year in which the relevant CGT event happened
- 30 days after you received capital proceeds
While you will not be able to claim a deduction for the contribution that is not really necessary because you have no extra taxable income thanks to the 15 year CGT concession. The small business superannuation cap is over and above your normal caps so you might like to talk to a financial planner about utilising some of that $125k unused cap you have to offset the tax on your wages to date, living off some of the sale proceeds instead.
Now regarding the area that is your main residence section 118-178 was amended as part of those changes in December 2006. But as your agreement was 2005 they don’t apply to you. In your case you only need to consider how you have used your spouse’s half of the house after it became yours. That is the half you received from your spouse. So two separate assets here. Duplicate the attached spreadsheet and keep the necessary CGT records for each half as there is going to be some CGT exposure if you sell it.
I realise this is complex but it is the nuances that give you the tax benefits. I also think that by mentioning your willingness to retire you already have a good grasp of the issues and this information should just square away the uncertainties. There is a lot of money at stake in getting this right. Please get professional advice in preparing your tax return for the year you sell and keep this information as a note in your CGT records for your home.
In short I feel the 15 year concession means that there is no CGT payable on the portion of the land you are about to sell, if you significantly reduce your work hours. If you don’t reduce your work hours we can’t use the 15 year concession but we can use the other small business concessions which will still result in zero tax just less that you will be able to put into super. Though at your young age there are other strategies you can use to slowly get all the funds into super. Also if you don’t use the 15 year exemption you have to absorb any capital losses you have available.
Don’t forget that there is a risk that half of the property won’t get these concessions if your agreement was not stamped by the courts.
I am so glad you asked BAN TACS because this information has reduced your tax bill from $292k to zero! And thank you very much for allowing your Q&A to be published so we can get the word out there with practical examples.
Please note this answer is limited by the information you have provided and should not be relied upon without further professional advice on your particular circumstances.
