CGT and Off-the-Plan Property Purchases

Buying a property off the plan can be an attractive option, but it comes with unique capital gains tax (CGT) implications. Because settlement may take place months—or even years—after signing the initial contract, it’s important to understand how CGT rules apply.

When Is the Property Acquired for CGT Purposes?

For CGT purposes, the acquisition date of an off-the-plan property is the date you sign the contract, not the date of settlement.

This means:

• The property is taken to be acquired in the income year the contract is signed.
• Even if settlement happens years later, the acquisition date is locked in at the contract signing.

Practical Consequences of This Rule

1. Meeting the 12-Month Rule for the CGT Discount

If the property is not your CGT-exempt main residence, you may be eligible for the 50% CGT discount. The 12-month holding period starts from the contract date—giving you ample time to qualify, even if you sell within 12 months of settlement.

2. Timing of Capital Gains or Losses

Capital gains or losses are recognised in the income year you enter the sale contract—not the year of settlement.

  Example:

• You sell the property in 2023 (enter a contract of sale)
• Settlement occurs in 2025
• The capital gain or loss is attributed to the 2023 income year

This rule applies even if you sell before the original off-the-plan contract has itself settled.

Commissioner’s Administrative Approach

While the law says gains arise in the year of the sale contract, the ATO applies a practical concession. You don’t need to include the gain in your tax return until settlement proceeds are received. At that point, you amend the relevant prior year’s tax return.

CGT Exemption for Your Home

If your off-the-plan purchase is intended to become your main residence, you may be eligible for the building concession. This allows the property to qualify for the main residence CGT exemption once construction is complete and you move in, provided you meet the conditions.

Off-the-Plan vs Option Agreements

It’s important not to confuse off-the-plan purchases with option agreements. These are treated as separate legal transactions for CGT purposes. Only when an option is exercised does it merge into the main property transaction, with different tax consequences.

Final Thoughts

The CGT rules for off-the-plan property purchases can be complex, especially with timing differences between contract and settlement. Understanding the acquisition date, discount eligibility, and reporting obligations is key to avoiding mistakes.

Need advice on CGT for your off-the-plan property? Contact us today to ensure you apply the rules correctly and make the most of available concessions.