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17 May, 2023
Do retirees pay capital gains tax in Australia?
First Financial Team
They say that after climbing the mountain, you can finally enjoy the view. That sounds a lot like retirement. But if concerns about the tax implications of selling assets while retired are spoiling your serenity, read on.
While yes, retirees in Australia must generally pay capital gains tax (CGT), as there is no age limit over which you are exempt, there are exemptions available when that asset is held within superannuation. We’ll explore that further later.
At First Financial, we can help you devise tax-effective strategies that will help you in your golden years.
How does CGT work?
What is capital gains tax? Tax you pay on the profits made from the sale of your assets. Assets can include real estate (excluding your main residence), shares, foreign currency and more. In contrast, you can use capital losses to reduce taxable gains.
Australians pay tax on their net capital gains, which involves calculating the total capital gains, subtracting any capital losses and subtracting any applicable discounts. For example, there is a 50% CGT discount available for people who own an asset for twelve months or more.
While CGT might sound like its own tax, it actually forms part of your ordinary income and is taxed at marginal tax rates. The net capital gain is added to any other income you’ve earned in the year and then tax according to the ordinary tax scales, known as marginal tax rates.
What about shares and property investments?
Capital gains from shares and property (excluding your primary residence) you own personally are subject to CGT for retirees, unless:
- The asset was purchased prior to September 20, 1985, or
- In the case of property, the property meets conditions for the six year rule (where the property is considered a residence, even if the owner does not live there).
A capital gain is not treated as income for social security income support purposes, so it won’t impact your age pension. However, the aged pension is also considered taxable income, so having a capital gain on top of your age pension entitlements can mean a higher capital gains tax bill.
Before making plans to sell assets once retired, it’s a good idea to consult your trusted Financial Advisor.
What about assets owned inside of Superannuation?
We have good news for retirees wanting to sell shares, real estate or other assets owned or acquired inside of superannuation. Capital Gains Tax does not apply to these profits as long as the assets are sold inside a pension account.
In fact, all investment earnings, in superannuation, in the pension phase are tax exempt. Currently you can start a pension account with up to $1.9M.
There are even CGT benefits available during the accumulation phase of superannuation, which is while you’re still working and contributing to the fund. Once you have held an asset for over a year, the tax rate on capital gains becomes a flat 10%.
Ask your financial advisor
Because retired Australians are eligible for more offsets, they can actually receive more income before paying tax. But navigating taxation strategies is a complex task; that’s why we’re here for you. Even if you can’t avoid capital gains tax, you might be able to reduce it.
At First Financial, our financial advisors have the knowledge and experience to deliver tailored advice based on your specific financial situation. We want you to have the comfortable retirement that you deserve.
Contact us today to discuss your needs. Read more articles on retirement planning and preparation.
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