Tax planning for off the plan apartment purchasing

There can be significant tax benefits when investors buy an investment property off the plan.

These benefits are greater for new property with more tax depreciation items available.

It is important to have a schedule of inclusions, such as fittings and fixtures on the sale contract, and then commission a depreciation schedule from a reputable provider.

Off the plan buyers can qualify for a 50% CGT discount but the ATO requires that a period of 12 months elapses before the buyer is eligible.

This period begins when the contract has been signed, so provided your settlement period is 12 months or longer (as it will be in most cases) investors could in theory sell along the way, or the day after settlement and still qualify for the generous tax concession.

But be warned the CGT discount only applies if there are changes in the taxpayers circumstances.

Any property bought with the intention of selling it at a profit as soon as it is completed, does not qualify as an investment but as part of a profit-making scheme, so normal income tax would apply.

Ken Raiss, partner at Chan & Naylor Accountants, has pointed out in the past that buying with the intention to sell the sale would still be taxed at marginal tax rates even if you keep it for much longer than 12 months.

If you originally intended to keep the property but decide to sell due to unforeseen circumstances (say, after six months), it is still considered a capital gain but is not subject to the 50% CGT discount.

This means you will still be taxed at your marginal tax rate. This could be advantageous if you have capital losses.