Yes, GST usually applies to commercial property. Selling or leasing commercial premises is generally a taxable supply, so a GST registered seller adds 10 percent to the price and a registered buyer or tenant can claim it back. Two concessions, the going concern exemption and the margin scheme, can legally reduce or remove that GST.

For an established business owner, buying or selling the premises you trade from is one of the largest transactions you will ever make, and GST can swing the numbers by tens of thousands of dollars. Get the contract wording right and the sale can be GST free or taxed only on the margin. Get it wrong and you can hand the Australian Taxation Office an extra 10 percent that was avoidable. Mina Baselyous, a Chartered Tax Advisor (CTA), CPA and Registered Tax Agent, has structured commercial property deals for trading businesses across Melbourne. This guide explains when GST applies, how the going concern exemption and the margin scheme work, how to claim input tax credits, how GST works on commercial rent, and the traps that catch owners out.

When does GST apply to a commercial property sale or purchase?

GST applies when the seller is registered, or required to be registered, for GST and sells the property in the course of running an enterprise. The sale is then a taxable supply and 10 percent GST is built into the price. Selling privately owned premises with no enterprise, by contrast, is usually outside the GST system.

The GST rate has been 10 percent since the tax began on 1 July 2000, and on a straightforward taxable sale the GST is one eleventh of the price. Registration is compulsory once your GST turnover reaches the $75,000 threshold, and a one off property sale can itself push you over that line or count as an enterprise in its own right, so a seller who assumes they are not in the GST net can be caught out. The ATO guidance on selling commercial premises and on the $75,000 registration threshold is the place to confirm your position before you sign.

Who bears the GST comes down to the contract. If the price is expressed as GST inclusive, the seller wears it out of the sale proceeds. If the contract says the price is exclusive of GST, or is silent, the buyer can end up paying an extra 10 percent on top. In our experience working with buyers and sellers, the GST clause in the contract of sale matters as much as the price itself.

The going concern exemption: how to sell commercial property GST free

The sale of a going concern is GST free, meaning no GST is added to the price and none is remitted to the ATO. It commonly applies when a commercial property is sold with a tenant and lease already in place, because the leasing enterprise continues uninterrupted. All the legislated conditions must be met, and both parties must agree to it in writing before settlement.

Under the ATO rules on selling a going concern, the supply is GST free only if all of the following apply: the sale is for payment; the purchaser is registered or required to be registered for GST; the buyer and seller agree in writing that the sale is of a going concern; the seller supplies to the buyer everything necessary for the continued operation of the enterprise; and the seller carries on the enterprise until the day of the sale. Miss one condition and the concession fails, turning a supposedly GST free deal into a taxable one.

The most common use is a tenanted investment property: the enterprise is the leasing business, so the property must be sold subject to the existing lease with the tenant remaining. Selling vacant premises you occupied yourself is much harder to structure as a going concern. As Mina Baselyous (CPA, CTA) puts it, the going concern exemption is not a box you tick at settlement, it is a set of conditions you have to engineer into the deal from the first draft of the contract.

Buying through an SMSF or trust: the GST registration trap

This is where the going concern exemption most often comes unstuck. A self-managed super fund or a family trust buys a tenanted commercial property, the contract has the going-concern clause, but the buying entity is not registered for GST. Because the buyer condition is not met, the sale cannot be GST free and the seller must charge GST, despite the clause. The fix is simple but it has to happen before settlement: register the buying entity for GST.

An SMSF or trust that leases commercial property is carrying on a leasing enterprise, so it must register for GST once the rent reaches the $75,000 turnover threshold, and can register voluntarily below it. For a going-concern purchase it generally should, with an effective date on or before settlement. Register the purchase in the name and ABN of the fund or trust itself, not the corporate trustee, which holds an ACN only. If you are buying premises inside super, our guide on buying your business premises through your SMSF covers how the strategy fits together.

The margin scheme: paying GST on the margin, not the full price

The margin scheme lets an eligible seller calculate GST as one eleventh of the margin, that is the sale price less what they originally paid for the property, rather than one eleventh of the whole selling price. On a property that has grown in value, that can cut the GST bill substantially. The scheme can only be used on a taxable sale, and the buyer and seller must agree to it in writing on or before settlement.

Eligibility is the catch. Under the ATO rules on eligibility to use the margin scheme, you generally cannot use it if you originally bought the property through a sale that was fully taxable and did not itself use the margin scheme. In other words, the history of how you acquired the property determines whether you can pass the margin scheme on when you sell. The calculation of the GST payable then rests on your purchase price or, in some cases, an approved valuation.

The trade off for the buyer is important: when you buy under the margin scheme you cannot claim an input tax credit for the GST included in the purchase price. So the margin scheme suits a sale to a buyer who is not registered or who cannot use the credit anyway, and it is a poor fit where the buyer would otherwise claim the full credit back. Working out whether going concern or the margin scheme gives the better result is exactly the kind of forward planning that proactive tax planning is built around.

Claiming input tax credits when you buy commercial premises

If you buy commercial premises in a taxable sale and you are registered for GST, you can generally claim the GST in the price back as an input tax credit, provided you buy the property to use in your enterprise. On a full taxable purchase the credit is one eleventh of the price, which can be a very large one off refund that materially changes the cash you need at settlement.

Two conditions govern the claim. You must hold a valid tax invoice, and the purchase must relate to your taxable or GST free business activity rather than to making input taxed supplies such as residential rent. There is also a timing point: the credit is claimed in your business activity statement, so the GST is often paid at settlement and recovered weeks later, creating a genuine funding gap you should plan for. Remember too that if the property is bought under the margin scheme, no input tax credit is available at all. The ATO overview of GST and commercial property sets out how these credits work.

GST on commercial rent for landlords and tenants

Leasing commercial premises is a taxable supply, so a GST registered landlord charges 10 percent GST on the rent and outgoings, and a GST registered tenant claims that GST back as an input tax credit. This is the opposite of residential rent, which is input taxed: no GST is charged and the landlord cannot claim credits on the associated costs.

For most business to business leases the GST washes through, the landlord remits it and the tenant reclaims it, so the real cost is neutral. It matters most where one side is not registered. A landlord below the $75,000 threshold who is not registered does not charge GST but also cannot claim credits on the building’s running costs, while a tenant who is not registered wears the GST on the rent as a true cost. The distinction between commercial and residential is also why owners holding property in different structures, for instance through a family trust earning residential rent, face very different GST outcomes, and why the ownership structure should be decided with GST in mind.

The GST traps that catch business owners buying or selling premises

Most GST damage on commercial property is done in the contract, not the tax return. The recurring traps are assuming a going concern applies when a condition is not met, agreeing to the margin scheme too late, buying through a structure that cannot claim the credit, and forgetting that a single price can be quoted GST inclusive or exclusive. Each of these is fixable before signing and expensive afterwards.

• Going concern that quietly fails. The buyer is not registered by settlement, the tenant vacates before completion, or the written agreement is missing. Any one of these turns a GST free sale into a taxable one, often with no price adjustment to cover it.
• Margin scheme agreed too late. The written agreement to apply the margin scheme must be in place on or before settlement. Leaving it to the accountant after the deal has settled is too late, and the concession is lost.
• Buying where you cannot claim the credit. Purchasing in a structure that makes input taxed supplies, or under the margin scheme, means the GST in the price is a permanent cost, not a recoverable credit.
• GST inclusive versus exclusive confusion. A price that looks competitive can carry an extra 10 percent if the contract says GST is payable in addition, so read the GST clause before you fall in love with the number.
• Wrong entity on the contract. The buyer named in the contract should match the entity that will be registered and claim the credit, which ties directly to your overall business structure.

These decisions rarely sit in isolation. If you are weighing whether to hold the premises personally, in a company, in a trust or inside super through the business real property strategy in an SMSF, the GST treatment, stamp duty, income tax and asset protection all interact. That is a conversation to have before you sign a contract of sale, not after. If you hold business premises in your fund, see our guide to improving a commercial property held in an SMSF.

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