Don't miss out on tax benefits for off-the-plan investors

As with all investment property, there are some significant tax benefits when you buy an investment property off-the-plan.

These benefits are greater when property is newer because more tax depreciation items are available.

Those benefits are best when the property is new, so buying off the plan can maximise your available tax deductions.

Be sure to have a schedule of inclusions such as fittings and fixtures on the sale contract, and commission a depreciation schedule from a reputable provider.

As an off the plan buyer you may qualify for a 50% CGT discount. The ATO requires that a period of 12 months elapses before the buyer is eligible, but 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) you could in theory sell your recently purchased property the day after settlement and still qualify for the generous tax concession.

The catch is that the CGT discount only applies if you are forced to sell the property due to changes in circumstances. If you bought the property with the intention of selling it at a profit as soon as it is completed, it 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, points out that if you buy 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.

For great tips on buying off the plan, download Property Observer’s free ebook – 14 tips for buying off the plan: The 2013 guide for investors and owner-occupiers.