Off-the-Plan in a Post-Reform World: Why Structure Matters More Than Ever

Off-the-Plan in a Post-Reform World: Why Structure Matters More Than Ever

By Graham Chee, CPA, Licensed Real Estate Agent, Mortgage Broker
apartments.sydney / Local Knowledge Pty Ltd

The Reform Landscape: Four Major Shifts, One Compounded Impact

Australia’s property investment landscape has entered a new era. The latest round of reforms—encompassing land tax and council rates, capital gains tax (CGT), negative gearing, and trust taxation—has upended long-held assumptions for investors, SMSF trustees, and developers in the off-the-plan market. It is not simply the effect of any one change, but their compounding impact that makes your investment structure more critical than ever.

• Rates and Land Tax Reform: State governments have recalibrated thresholds and broadened land tax bases. The removal of some concessions for investors, especially in NSW and Victoria, means holding costs are rising, particularly for off-the-plan buyers with delayed settlements.
• Capital Gains Tax (CGT) Changes: Federal reforms have tightened the eligibility for the 50% CGT discount, especially for assets held in trusts or via interposed entities. The “two-year” development window is now under greater scrutiny, with anti-avoidance provisions targeting delayed settlements and complex holding structures.
• Negative Gearing Reform: Restrictions on deductibility for new purchases have fundamentally altered cash flow projections, particularly for apartments. Grandfathering rules add a layer of complexity for those with pre-existing portfolios.
• Trust Taxation Amendments: The ATO’s new view on trust distributions, “Section 100A” guidance, and targeted anti-avoidance rules for discretionary and family trusts now affect not just income splitting, but also CGT consequences and land tax aggregation. Corporate trustees face new compliance tests, and the ‘bucket company’ strategy is under pressure.

For property investors, the message is clear: your structure is now as important as the asset itself.

CGT Changes and Holding Period Strategy: Off-the-Plan Timelines Under the Microscope

Traditionally, off-the-plan buyers factored in the settlement period as part of their CGT ‘ownership’ timeline, aiming to secure the 50% CGT discount after 12 months. The 2024 reforms have changed the calculus:

• CGT Discount Tightening: For contracts entered on or after 1 July 2024, the 50% CGT discount will only apply to properties held in personal names or by certain trusts, with stricter tests on beneficial ownership. Corporate entities remain ineligible.
• Holding Period Clarity: The ATO has clarified that the 12-month holding period starts from the settlement date, not contract date, for off-the-plan purchases. This is a critical distinction, given construction delays and sunset clauses.
• Pre-Completion Flips: Assigning or nominating off-the-plan contracts before settlement will generally be treated as a revenue transaction, not a CGT event, and thus ineligible for the discount.
• Anti-Avoidance Provisions: The government has flagged that schemes designed to artificially extend or shorten holding periods, or to ‘stack’ discounts through trust layering, will be closely scrutinised.

This means that if you are settling on an off-the-plan apartment in 2025, your 12-month CGT clock starts at settlement, not when you paid your deposit. For SMSFs and trusts, the discount may be partially or wholly denied depending on structure and distribution practices.

CPA Insight:
Strategy tip: Buyers seeking to “flip” prior to settlement need to understand the revenue treatment—full marginal rates may apply. For longer-term investors, ensure you document beneficial ownership and settlement milestones for CGT compliance.

Negative Gearing Reform: Cash Flow Modelling for Apartment Investors

Negative gearing has been at the heart of Australian property investment strategy for decades. The 2024 reforms have introduced two key changes:

• Deductibility Restricted to New Builds: Only newly constructed properties (contracted after 1 July 2024) are eligible for full negative gearing. Established apartments lose this benefit, impacting resale values and rental yields.
• Phased-Out Deductibility: Even for new builds, the deductibility of interest and outgoings will be phased out over a five-year period, reducing to 50% after year three and zero after year five for some investors.

For off-the-plan investors specifically:

• Interest on deposits and progress payments may not be deductible prior to settlement, depending on your lender’s arrangements and the ATO’s view of “incurred” expenses.
• Cash flow models must now account for reduced tax offsets in years 3-5, potentially leading to negative cash flow even in buoyant rental markets.
• SMSFs and trusts face further restrictions—see sections below.

As an investor, you must stress test your projections under the new rules, factoring in higher holding costs and lower after-tax returns. The days of “set and forget” negative gearing are over.

CPA Insight:
Modelling tip: Run your numbers for at least three scenarios—full deductibility (years 1-2), phased deductibility (years 3-5), and zero deductibility (post year 5 or for established apartments). Adjust for rising rates and land tax as well.

Trust Structure Implications: Family, Discretionary, and Corporate Trustees

Trusts have long been the vehicle of choice for sophisticated investors, offering asset protection, income splitting, and CGT flexibility. The 2024 reforms, however, have brought a new level of scrutiny and complexity:

• Section 100A and Trust Distributions: The ATO’s guidance has substantially limited the ability to “stream” capital gains and franked dividends to low-tax beneficiaries. Family trust elections are now essential for CGT discount eligibility, but also lock you into a single family group.
• Corporate Trustees: While corporate trustees still offer asset protection, distributions to bucket companies may now attract Division 7A loan issues and loss of CGT discount on some gains.
• Land Tax Aggregation: State revenue offices are increasingly aggregating landholdings across related trusts and companies, removing the “multiple threshold” advantage for apartment investors with diverse portfolios.
• Trust Vesting and Resettlement: Any restructure of trust deeds to comply with new rules may trigger a resettlement, leading to immediate CGT and stamp duty events. Proceed with caution.

For those with existing apartment portfolios in trusts, a structure review is now urgent. For new acquisitions, careful modelling of income, capital gains flows, and land tax liabilities should inform whether a trust still delivers a net benefit.

CPA Insight:
Restructure tip: Always seek a private ruling before materially varying a trust deed. Consider whether family trust elections (FTEs) or interposed entity elections (IEEs) are necessary for CGT discount continuity.

SMSF + Off-the-Plan: The Trust Tax Changes and Your Fund’s Property Strategy

SMSFs have been active players in the off-the-plan apartment market, particularly since the advent of Limited Recourse Borrowing Arrangements (LRBAs). The new regime introduces several challenges:

• SMSF Deductibility: Negative gearing benefits within SMSFs are now capped at a fund level. Deductions for interest and outgoings are limited, and for some funds, disallowed entirely for properties acquired after 1 July 2024.
• Bare Trust Complexity: LRBAs typically require a bare trust structure. The ATO’s updated position means any variation to the bare trust deed (even to add or remove beneficiaries) can trigger CGT and stamp duty.
• CGT Discount Constriction: The effective CGT discount within SMSFs is now aligned with the standard fund tax rate, with no 50% reduction on gains for off-the-plan properties unless held for more than three years post-settlement (and subject to new limits).
• Related Party Transactions: The scope for SMSFs to acquire apartments from related parties or to “develop and hold” within the fund has been narrowed, with new SIS Act penalties for breaches.

If your SMSF is considering an off-the-plan purchase, timing, deed wording, and compliance must be watertight. SMSFs may still offer tax advantages, especially for high-income professionals, but the margin for error is now razor-thin.

CPA Insight:
SMSF tip: Always coordinate SMSF purchase strategy with your accountant and legal adviser. LRBAs must be structured exactly to ATO requirements—post-contract variations are risky and costly.

Entity Structure Decision Tree: Personal Name vs Company vs Trust vs SMSF

The post-reform world demands a bespoke approach to entity structuring. Here’s a high-level decision guide:

Structure	Key Advantages	Key Pitfalls (Post-Reform)	Best For
Personal Name	Simple, 50% CGT discount, straightforward negative gearing (for new builds)	Land tax exposure, no asset protection, loss of deductibility after 5 years	First-time investors, simple portfolios, high-earning PAYG
Company	Flat 30% tax, asset protection, succession planning	No CGT discount, negative gearing denied, double tax on extraction	Developers, traders, short-term “flip” strategies
Discretionary/Family Trust	Income splitting, asset protection, CGT discount (with FTE)	Section 100A traps, land tax aggregation, resettlement risk, complex compliance	High-net-worth, intergenerational planning, multiple beneficiaries
SMSF	15% concessional tax, retirement planning, asset protection	Strict compliance, borrowing limits, CGT discount limited, costly errors	Professionals, retirement-focused, high super balances

There is no “one size fits all” solution. The right structure depends on your income, investment horizon, family situation, risk profile, and compliance appetite. The interaction of CGT, negative gearing, land tax, and trust rules must be modelled in concert—not in isolation.

Why Your CPA Needs to Be in the Room Before You Sign—Not After Settlement

In this new, more complex regime, structure is not a “set and forget” decision. The point at which you sign the contract is the point at which most tax outcomes are set in stone. Too often, I see investors—especially off-the-plan buyers—consult their accountant after the contract has gone unconditional, or worse, after settlement. By then, your options are severely limited, and costly errors can be permanent.

As a CPA who is also a licensed real estate agent and mortgage broker, my advice is simple: bring your tax adviser into the process before you sign—every time.

• Review the draft contract for trust and SMSF compliance triggers.
• Model the cash flow under all relevant tax scenarios, not just “year one”.
• Confirm the entity and trustee details before exchanging contracts—retrospective changes may trigger CGT or stamp duty.
• Coordinate your borrowing strategy with entity structuring—some lenders will not lend to all trust types, especially post-reform.

ASPIRE Framework in Action:

• Assess: Your current position, objectives, and family situation.
• Structure: Model all relevant entities—personal, trust, company, SMSF—before you contract.
• Plan: Map out your holding period, cash flow, and exit scenarios under new rules.
• Implement: Execute only once the structure is confirmed and compliant.
• Review: Regularly update your structure as rules and your circumstances change.
• Evolve: Stay ahead of further reforms—this is not the last word from Canberra or Macquarie Street.

Conclusion: Structure Is Your Edge in a Post-Reform Market

The off-the-plan apartment market remains a compelling opportunity for investors and SMSF trustees—but only for those who get their structure right from day one. The new tax rules have closed many old loopholes and raised the cost of poor planning. Success now comes to those who treat property investment as a triple-discipline exercise: tax, finance, and property market expertise combined.

At apartments.sydney, our approach is integrated—because your agent, your accountant, and your broker all need to be speaking the same language. Before you sign, ensure your CPA is in the room. In a post-reform world, it’s the only way to protect your wealth and secure your future returns.

For tailored structuring advice, off-the-plan market insights, and cash flow modelling, contact us at apartments.sydney or connect via our digital ecosystem at ding.realestate.