CGT and off-the-plan property purchases: Key Considerations
If you buy a property through an off-the-plan purchase, there are important CGT issues to consider.
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Acquisition Date and CGT Discount
For CGT and off-the-plan property purchases, the property is considered acquired when the contract is signed, not when settlement occurs. This distinction is critical because settlement may be delayed for months or even years.
From a tax perspective, the acquisition date determines whether you are eligible for the 50% CGT discount. The 12-month holding rule is measured from the contract date, not settlement. This means you may qualify for the discount even if you sell the property within 12 months after settlement. For investors, this rule provides clarity on how long the property has been “held” for CGT purposes, despite delays in construction or settlement.
Timing of Capital Gains and ATO Concessions
Another key aspect of CGT and off-the-plan property purchases is the timing of capital gains. A capital gain or loss arises in the income year in which the sale contract is signed, not the year settlement occurs. For example, if you sign a sale contract in the 2023 income year but settlement is in 2025, the gain belongs to the 2023 year.
Recognising a gain before cash is received would normally be impractical. To address this, the Commissioner of Taxation has a generous policy: you only need to declare the gain once settlement proceeds are received. At that stage, the earlier return can be amended. This concession makes compliance more practical but still requires careful record-keeping.
Main Residence Exemption and Building Concession
Where an off-the-plan property is intended to become your home, you may be able to claim the main residence exemption. However, this depends on meeting the “building concession” requirements.
In practice, you generally need to move in as soon as practicable after construction finishes and occupy the property as your principal residence for at least three months. If these conditions are met, the property can eventually be treated as CGT-exempt, even though the contract and settlement occurred years apart. Failure to meet these requirements may mean the property is treated as an investment asset, triggering capital gains when sold.
Options Versus Off-the-Plan Purchases
It’s important to distinguish between off-the-plan property purchases and option agreements. An option is treated as a separate legal transaction with its own CGT consequences.
If the option is exercised, the transaction merges into the property purchase and CGT rules apply as if it were a single contract. If the option is sold or lapses, different CGT rules apply to that event. Understanding the distinction is vital for structuring investments correctly and avoiding unexpected tax liabilities.
For more details, see the ATO’s capital gains tax and property guidance.
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