Selling a property often results in a significant injection of cash, which if managed well can be a huge accelerator to your wealth building.

With ownership, given the size of the numbers, the difference between doing it well and just doing it can be huge, so taking the smartest steps will pay big dividends here.

In Australia, the long-term growth rate of real estate over the past 150 years has been 6.3% according to Westpac data. This means that the average property in Australia has doubled in value every 11 years.

If you had bought an “average” property in Sydney in 2011 when the median house price was $634,000, based on an average growth rate of 6.3%, today you could sell that property for $1,265,517, which would net you a gain of $631,517.

This is a big change in anyone’s book and a sum of money that can go a long way toward setting up your future financial plans.

But what happens after the sale is crucial.

Assuming the property is an investment, you are unfortunately going to have to pay taxes. On the one hand, this is a good thing because it means that you have made money from your investment.

But you don’t want to pay more than necessary – the more tax you can save, the more money you’ll have to spend on your other goals.

The retirement pension is your friend

Super is an important part of everyone’s wealth, but the tax breaks available through super make it a perfect tool to help lower your tax bill when you sell a property.

Let me illustrate with an example.

A couple earning the average income in Australia of $90,916 would each pay tax on that income of $21,863.

Assuming they bought an “average” investment property in 2011 for $634,000 and sold it today for $1,265,517, the total gain would be $631,517.

Since you’ve held the investment for more than 12 months, a 50% discount is applied to your capital gain to bring it down to $315,758.

Assuming the property is held in common, we again divide the gain into a total taxable capital gain of $157,879 per person.

This amount would then be added to your other income of $90,916, bringing your ATO taxable income to $248,795. The total tax per person would be $87,631, or $175,262 total tax for the couple.

You would still end up with a solid amount of money after paying your taxes, and most people would be happy with the outcome. But it could be much better…

Every taxpayer has the opportunity to make tax-deductible contributions to super. These contributions reduce your ATO taxable income and therefore the amount of tax you pay.

If you earn $90,916, your employer would make mandatory Super Guarantee contributions of $9,456. But the super concessional contribution limit is $27,500, which means you have the option to make an additional $18,044 in tax-deductible contributions in the current fiscal year.

For our couple, contributing at this level would reduce their taxable income to $230,751 and mean their personal tax bill would be $79,150, a reduction of $8,481 per person or $16,692 combined.

But it could get even better…

A few years ago, the government introduced “catch-up” super contributions. If you have less than $500,000 in your super fund and you haven’t contributed up to your full concessional contribution limit in fiscal years since fiscal 2019, you can “catch up” those contributions in fiscal year 2019. exercise in progress.

This means that for someone who had received super contributions of $9,456 each year for the past five fiscal years, the total “unused” contributions would be $82,720.

(For engineers tracking at home, the limit increased from $25,000 to $27,500 in fiscal year 2021/22, making the math a little complicated.)

Going back to our couple, if they each contributed $82,720 to their super fund in the current fiscal year, the total tax payable would be reduced to $49,866 per person, or $99,732 combined.

Comparing this to our starting tax situation of $175,262, this reflects a total personal tax savings of $75,530 for our couple. A significant amount of extra money can be earmarked for wealth building or other financial goals, and highlights the difference between “good” and “great” when it comes to your planning.

The envelope

Selling a property is a big deal, and something that can quickly speed up your money making progress rate, but optimizing your strategy makes a big difference. If you want to make the smartest moves, it’s important to get it right.

The rules are complicated and can be confusing, and there are a number of important considerations that I haven’t covered in detail here. If you go this route, make sure you have a solid plan and consider getting good professional advice to make the most of the opportunity.

Ben Nash is an expert finance commentator, podcaster, financial advisor and the founder of Pivot Wealth, and the author of Amazon’s best-selling book “Get Unstuck: Your guide to Creating a life not limited by money”.

Ben has just launched a series of free online financial education events to help you get ahead financially. You can check all the details and reserve your place here.

Disclaimer: The information in this article is general in nature and does not take into account your personal goals, financial situation or needs. Therefore, you should determine whether the information is appropriate for your situation before acting on it and, if necessary, seek the advice of a financial professional.