What are the capital gains tax implications for selling our investment property?

Q.

My wife and I have our first child due in March next year. We have two properties - our principal place of residence and an investment property. Our current house is in both names and has about $150,000 owing against a total value of $350,000; the second, in my wife's name, has $140,000 owing against a total value of $300,000 (my wife has had the investment property for five years). We are thinking of selling the investment property and using the money to pay off our current home and then mid next year buying another larger property. What scenarios can we consider with regards to capital gains tax, the interest on the loans we are paying - she is not planning to go back to work for six months? We currently earn $90,000 a year each.

Your wife will be liable for capital gains tax on the sale of the investment property but if she lived in it at any stage before renting it out there will be an adjustment made to reflect the period of residence. As she has had the property for longer than a year she will be entitled to the 50% discount so you may find, after doing the sums, that there is not a large amount of CGT to be paid if she sells the property in a year when she has no income. Just bear in mind that CGT is calculated on the date the sales contract is signed, not the date of settlement. Talk to your accountant before you sign any contracts.