From 1 July 2017, the off-the-plan concession has changed and become the principal place of residence off-the-plan concession (PPR OTP concession).
The PPR OTP concession is limited to buyers purchasing an off-the-plan property to occupy as their home (principal place of residence) with a dutiable value under a certain threshold.
Here are the answers to some frequently asked questions about the changes to the off-the-plan duty concession.
1. How does the off-the-plan (OTP) duty concession work?
The OTP duty concession applies to land and building purchases or refurbishments of an existing building. It can reduce the "dutiable value" of the property being transferred for duty purposes.
The OTP value is determined by deducting construction or refurbishment costs which occur on or after the contract date from the contract price. This means that for OTP purchases where construction has not commenced, the dutiable value of the property (after applying the OTP concession) will generally reflect the land value only.
Example 1 - An off-the-plan apartment
Paige buys an apartment off-the-plan as her future home. The contract price, before any construction has started, is $620,000. The vendor advises Paige that after signing the contract, $465,000 of her contract price will be spent on constructing her apartment.
This means that after applying the off-the-plan concession, the dutiable value of Paige’s apartment is $155,000 ($620,000 - $465,000).
If some building work has begun at the time of contract, the dutiable value will generally reflect the value of the land and construction work completed at the time of contract.
2. What is the change?
From 1 July 2017, the PPR OTP concession is restricted to buyers purchasing an OTP property to occupy as their home (principal place of residence) with a dutiable value under a certain threshold.
Previously, the OTP concession was available for purchases of all types of property. The change means that the concession is no longer available for OTP purchases of holiday homes, investment properties or commercial properties.
3. How does the new PPR OTP concession work?
The new PPR OTP concession is now limited to the purchase of a principal place of residence (PPR) and is relevant for determining whether a transfer meets the dutiable value threshold for a:
- Principal place of residence concession (dutiable value up to $550,000), or
- First-home buyer duty exemption (dutiable value up to $600,000), or
- First-home buyer duty concession (dutiable value above $600,00 and up to $750,000)
If a transfer is below the relevant dutiable value threshold (after applying the OTP concession), that dutiable value is then used to calculate the duty payable for the purpose of the principal place of residence concession or the proposed first-home buyer duty concession.
No calculation is required if you are eligible for the first-home buyer duty exemption.
The new PPR OTP concession is contingent on a purchaser meeting the residence requirement for the PPR concession or the first-home buyer duty exemption/concession. Failure to meet the residence requirement will result in the transfer being reassessed with the exemption/concession removed.
You are obliged to notify us if a change in circumstances occurs that may result in you failing to meet the residence requirement.
4. I am a first-home buyer. What criteria do I need to meet for the new PPR OTP concession?
- Your new home must have a dutiable value (after the OTP concession is applied) of $750,000 or less,
- All purchasers and their partners must meet the FHOG eligibility criteria, and
- At least one purchaser must use the property as their PPR for a continuous period of 12 months, starting within 12 months of taking possession of the property (normally settlement)
5. This is not my first home purchase. What criteria do I need to meet for the new PPR OTP concession?
- Your new home must have a dutiable value (after the PPR OTP concession is applied) of $550,000 or less,
- You must meet all other criteria for the PPR concession, and
- At least one purchaser must use the property as their PPR for a continuous period of 12 months, starting within 12 months of possession of the property (normally settlement)
6. When did the PPR OTP concession start?
The PPR OTP concession applies to eligible transfers resulting from contracts entered into on or after 1 July 2017.
If you entered into a contract before 1 July 2017 but settled after that date, the previous OTP concession would continue to be available.
7. Does the PPR OTP concession apply to nominations made after 1 July 2017?
The PPR OTP concession only applies to eligible transfers resulting from contracts entered into on or after 1 July 2017. This is because it is the contract date that determines which provisions will apply to a transfer, including where the original purchaser nominates a substitute purchaser.
Accordingly, if there is a nomination under a contract that was entered into before 1 July 2017, the previous OTP concession would apply to the transfer to the substituted purchaser. This will be the case even if the nomination triggers the sub-sale provisions.
8. How does the PPR OTP concession work for non-first home purchasers and non-principal place of residence transactions?
The changes mean that if you enter into a contract to buy, for example, a holiday home or a commercial or investment property off-the-plan on or after 1 July 2017, you must pay duty on the full dutiable value of the property at settlement.
This is because the previous OTP concession no longer applies to reduce the dutiable value of the property.
9. Do the proposed changes affect related parties transactions?
No. The changes do not affect the current approach to related party transactions where the consideration paid for a property is less than market value (inadequate consideration paid).
If you are eligible for the PPR OTP concession, the dutiable value of your transaction is still calculated by determining the higher of the consideration paid (after the revised OTP concession is applied) and the unencumbered value (market value) of the subject property as at the date of the contract.