When you sell commercial property in Australia GST will usually apply because the sale is generally a taxable supply when the vendor is registered or required to be registered for GST. There are two key exceptions that can change the outcome. A sale may be GST free when it qualifies as a going concern and it may attract less GST when the margin scheme is validly applied. Understanding which outcome fits your transaction can save you thousands of dollars and avoid ATO penalties.
What counts as commercial property for GST purposes?
Commercial property covers offices retail shops warehouses factories and other non-residential premises. In GST law these assets are described as real property that is not residential premises. The definition matters because the GST Act treats residential premises differently from commercial ones. The sale of an established residential house is generally input taxed and therefore has no GST. The sale of a brand new residential development can be taxable but only in limited circumstances. By contrast a commercial office tower a strip-mall shop or an empty industrial lot is almost always treated as commercial. If you own a mixed-use building the portion used for residential accommodation can be input taxed while the rest can be taxable. Apportionment rules then apply. For most sellers however commercial means the entire building or lot is used for business activities and the GST rules for commercial property apply in full.
When GST applies to a commercial property sale
GST applies when four conditions line up. First the seller is registered or must register for GST because their current or projected turnover from taxable supplies exceeds seventy five thousand dollars in a twelve-month period. Property developers large and small cross this threshold quickly because a single project often involves millions in sales.
Second the sale occurs in the course or furtherance of an enterprise. The GST Act uses enterprise to describe an activity done in a commercial or business manner. Selling a warehouse that you have leased to tenants for many years fits this description. Even a one-off subdivision and sale of industrial land can be an enterprise if you marketed the land improved the site or undertook activities that look and feel like business.
Third the supply must be connected with Australia. Any land or building on Australian soil meets this condition.
Fourth the supply must not be GST free or input taxed. Commercial property does not fall within the usual input taxed categories. It is also not GST free under normal circumstances. Therefore when the first three conditions are present the sale becomes a taxable supply and GST is payable.
How much GST is payable?
The standard rate of GST is ten per cent. In a typical commercial property contract the sale price is expressed as plus GST or GST will be added. For example if the agreed price for an office suite is one million dollars the contract may state that GST will be added which means an extra one hundred thousand dollars is payable at settlement. The seller then remits that one hundred thousand dollars to the ATO in their next Business Activity Statement.
Sometimes the contract says the purchase price is inclusive of GST. In that case the price already includes the ten per cent and the seller must back-calculate the GST portion before reporting it. Clarity in the contract avoids dispute at settlement. Professional conveyancers and lawyers in every state include a GST clause that specifies whether the price is plus GST inclusive of GST or subject to a going concern arrangement.
When GST may not apply
There are two main pathways that can reduce or remove the GST liability on a sale of commercial property. First a transaction can be GST free when it meets the going concern requirements in the GST Act. Second the margin scheme can be applied which changes the base on which GST is calculated. Both pathways require strict compliance and written agreement between the parties before or at settlement.
Going concern
A going concern sale happens when the vendor sells a business or leasing enterprise that is operating until the day of supply. In property terms this usually means selling a leased building complete with leases property management arrangements and all rights and obligations transferred to the buyer. For the transaction to be GST free the vendor and the purchaser must both be registered or required to be registered for GST. They must agree in writing that the sale is of a going concern. The vendor must supply everything necessary for the continued operation of the enterprise and the enterprise must continue to operate until settlement. If all these elements line up the sale is GST free. That status can be cash-flow friendly for the buyer yet the parties must still record the transaction in their BAS and keep evidence of the written agreement in case the ATO audits the file.
Margin scheme
The margin scheme does not remove GST. It changes the GST calculation so that GST is paid on the margin rather than on the full sale price. The margin is the difference between the sale price and the purchase price or an eligible valuation depending on when the property was originally bought. Suppose you bought a vacant block of industrial land for four hundred thousand dollars five years ago. You improve the site and sell it for one million dollars. Under the standard rule you would pay GST on the full one million dollars. Under the margin scheme you pay GST on the six hundred thousand dollar margin which results in a much lower GST liability. Both parties must agree in writing to apply the margin scheme before settlement. Detailed record keeping is critical because you need to prove the original cost base or valuation. The ATO regularly audits margin scheme transactions and errors can lead to hefty penalties.
What needs to happen for a sale to be a going concern?
The vendor must supply each thing that is necessary to carry on the enterprise. In a leased factory example this includes the land building existing leases security deposits maintenance contracts and any plant and equipment that tenants use. The enterprise cannot pause before settlement. Tenants must still be in place and rent must keep flowing. Both the vendor and the purchaser must be GST registered or required to be registered based on turnover projections. A signed written agreement confirming that the sale is of a going concern must exist before or at the time of supply. Settlement agents often attach a simple clause to the contract but the parties should double check that the wording matches the GST Act requirements. Failure to tick any of these boxes will cause the ATO to treat the sale as taxable which in turn means the vendor owes ten per cent GST that was not factored into the price.
Who pays GST at settlement?
In most commercial property deals the vendor is the one who remits GST to the ATO. The purchaser pays the GST amount to the vendor as part of the settlement funds. The vendor then includes the sale in their BAS for the tax period in which settlement occurs and pays the GST net of any input tax credits. Some property transactions require the purchaser to withhold GST and pay it directly to the ATO. These withholding rules mainly target new residential premises but they can capture certain mixed-use projects. Even when withholding applies the vendor still reports the sale on their BAS using special labels that acknowledge the withheld amount. Good settlement statements spell out exactly which funds move where on settlement day and who has the reporting obligation.
Common mistakes sellers make
Sellers often assume that every commercial sale automatically attracts GST without examining whether a going concern arrangement could apply. Others forget that one-off property sales can push them over the GST turnover threshold. If they should have been registered the ATO can backdate registration and issue assessments that include GST plus penalties and interest. Vendors sometimes believe that the margin scheme removes GST entirely. In reality the scheme only changes the base on which GST is calculated. Another frequent mistake is failing to document the going concern agreement in writing before settlement. Without that evidence the ATO can deny the GST free status even if the transaction substance looked like a going concern.
Worked examples
Example one Standard taxable sale
Maria owns a small office building in Brisbane. Her entity is registered for GST. She sells the building for two million dollars plus GST. The contract states that GST is added to the price. At settlement the purchaser pays Maria two million two hundred thousand dollars. Maria then reports the two hundred thousand dollar GST in her next BAS and remits it to the ATO. The purchaser who is also GST registered claims an input tax credit for the same amount.
Example two Leased warehouse sold as a going concern
Lee Pty Ltd owns a warehouse in Melbourne that is leased to a logistics company. Lee agrees to sell the property for five million dollars. Both Lee and the purchaser are GST registered. They sign a written clause that the sale is of a going concern. The tenant continues to occupy and pay rent up to settlement. No GST is added to the sale price. The purchaser pays five million dollars at settlement and does not claim any input tax credit. Lee reports the GST free sale on the BAS but no GST is payable.
Example three Margin scheme sale
Olivia buys a vacant parcel of industrial land in 2020 for three hundred thousand dollars. She subdivides the land into smaller lots and sells one lot in 2026 for seven hundred thousand dollars. Olivia and the purchaser agree in writing to use the margin scheme. The margin is four hundred thousand dollars. GST on the margin is ten per cent which is forty thousand dollars. Olivia receives seven hundred thousand dollars at settlement then reports forty thousand dollars GST on her BAS. The purchaser cannot claim an input tax credit because GST was calculated under the margin scheme.
Comparison of GST outcomes
| Transaction type | GST added to price | GST base | Can purchaser claim input tax credit |
|---|---|---|---|
| Standard taxable sale | Yes unless price is stated as inclusive | Full sale price | Yes if purchaser is GST registered and uses the property to make taxable supplies |
| Going concern | No the sale is GST free | Not applicable | No input tax credit because no GST was paid |
| Margin scheme | Usually included in negotiated price and not separately itemised | Margin between sale price and cost base | No input tax credit because GST is calculated on margin |
Settlement and BAS implications
Every GST outcome flows through to the settlement statement and the BAS. In a standard taxable sale the vendor usually issues a tax invoice and collects the GST. In a going concern the contract must record that the supply is GST free and the vendor reports the sale at label G3 on the BAS as GST free sales. Under the margin scheme the vendor cannot issue a tax invoice that shows the amount of GST payable. Instead the invoice must state that the margin scheme applies. Vendors must keep records for at least five years and longer if the property forms part of a development with extended time frames.
What the ATO says
ATO public ruling GSTR 2002/5 sets out the conditions for a GST free going concern. Ruling GSTR 2000/7 explains the margin scheme. Current ATO compliance programs pay close attention to property transactions because GST on real property represents a major revenue source. The ATO encourages voluntary disclosure when errors occur and usually reduces penalties for honest mistakes that are quickly corrected. Sellers who fail to register for GST when required may face administrative penalties of up to seventy five per cent of the shortfall plus the general interest charge.
The decision pathway in plain words
First ask whether the seller is or should be GST registered. If the answer is no and the turnover threshold is not met GST does not apply. If the answer is yes then consider whether the sale is a going concern. If it is a genuine going concern the sale can be GST free. If it is not then test whether the margin scheme can apply. If eligible the GST is calculated on the margin. If none of these pathways fit the sale is a standard taxable supply and ten per cent GST applies to the full price.
When to get professional advice
Commercial property deals often involve millions of dollars and small wording errors can trigger large tax bills. Professional advice from a commercial lawyer accountant or experienced conveyancer can confirm whether the going concern provisions or the margin scheme suit your facts. Advisers can draft contract clauses that satisfy both the GST Act and state conveyancing rules and can model different price scenarios so that cash flow surprises do not occur at settlement.
Frequently asked questions
Does GST always apply when you sell commercial property in Australia
No. GST usually applies when the seller is registered or required to register and the sale is a taxable supply. A sale that qualifies as a going concern is GST free and the margin scheme can reduce the GST amount.
How much GST is payable on a commercial property sale
The standard GST rate is ten per cent. If the margin scheme applies GST is ten per cent of the margin rather than ten per cent of the full sale price.
Can you sell commercial property without GST
Yes. A sale can be GST free when it meets the legal conditions for a going concern. Both parties must be GST registered and must agree in writing.
Does the buyer pay GST at settlement
The buyer pays the purchase price including any GST to the vendor. The vendor then remits the GST to the ATO unless purchaser withholding rules apply.
Is a leased commercial property more likely to be GST free
A leased property can be GST free if the transaction meets all going concern requirements. Leases alone do not guarantee GST free status. The written agreement and the continuation of the enterprise until settlement are essential.
Does the margin scheme remove GST completely
No. It changes the base on which GST is calculated. GST is still payable but only on the margin between sale price and eligible cost base.
Do I need to register for GST if I only sell property once
Possibly. The ATO considers whether the one-off sale is an enterprise and whether the turnover threshold is met. Seek advice if the sale price plus any other taxable supplies exceeds seventy five thousand dollars.
Do I still report the sale in my BAS if GST is withheld at settlement
Yes. You must report the sale in your BAS even if the purchaser withholds GST and pays it directly to the ATO.
Final thoughts
Selling commercial property involves more than negotiating the price and signing a contract. GST can add or remove a significant amount from the settlement figure. By confirming registration status testing for going concern treatment and evaluating the margin scheme you can structure the deal in a tax efficient way while staying inside ATO rules. Keep detailed records seek timely advice and document every agreement so that the GST outcome you expect is the one the ATO accepts.
