An Investor's Guide To Off The Plan Apartments

Investors who are looking to purchase a new property often look at buying off the plan. 

Buying off-the-plan generally means you are entering into a contract to purchase a property prior to, or during the construction phase of a property or development. 

There are many benefits involved from buying off-the-plan. Some advantages include:  

• Investors have more time to save, particularly if construction has not yet begun. 
• Investors often find that they will receive a cheaper price for the property or development when compared to buying a property that has already completed construction. This is because capital growth occurs over the construction period.
• If the property market is on the rise, investors only need to put down a deposit to secure ‘today’s price’ for the property. This means no extra payments are required if the market value jumps prior to settlement. 

When considering all of the advantages of purchasing off-the-plan, the benefit most often missed is claiming property depreciation. In order to be eligible for depreciation claims, the property needs to be completed and available to produce an income. This does not necessarily mean that the property has to be generating an income, just as long as the property is available for rent. 

The Australian Taxation Office (ATO) allows property owners to claim depreciation on the structure of any income producing property as well as the plant and equipment assets contained within the property.

Depreciation is considered a non-cash deduction, meaning investors do not need to spend any money on the property to be able to claim it.

Capital works deductions are available for the structure of the building and the items within it that are deemed irremovable. Examples of these items include tiling, bricks, walls and mezzanines.

Depreciation deductions are also available for plant and equipment assets. These are considered assets which can be easily removed from the property for example, carpets, air-conditioners, ovens and blinds. 

Plant and equipment assets found in off-the-plan properties will be new, therefore the starting value of these assets are higher in comparison to items found in older properties.

This results in higher depreciation deductions available to be claim.   

Off-the-plan properties will also entitle their owner to claim the capital works deductions at a 2.5 percent for the full forty years.

While those who choose to invest in older properties can only claim deductions for the remaining depreciable years available. 

Case study

An investor is considering purchasing a property off-the-plan located in Melbourne’s CBD. The investor has contacted a specialist Quantity Surveyor to complete an estimate of the likely depreciation deductions for three different unit types found in a development. 

As the table above shows, the investor is entitled to claim significant deductions in all three scenarios. While a three bedroom unit purchased off-the-plan will entitle its owner to depreciation deductions of $77,054 over five years, the owner of a one or two bedroom unit will still receive significant depreciation deductions of $36,751 and $56,610 respectively over five years. 

It is recommended to consult an Accountant to seek advice when purchasing off-the-plan and to also speak with a specialist Quantity Surveyor to receive an estimate of the likely depreciation deductions available for the property.

BMT Tax Deprecation can provide a depreciation estimate for any property an investor is considering purchasing.

This estimate will assist the investor to crunch the numbers and consider their after tax position once a property has been purchased.