Do I pay GST on Commercial Property?
Most buyers are told that commercial property attracts GST. That is true, but it is incomplete and the gap between the general rule and the actual circumstances of your purchase is where expensive mistakes happen.
Whether GST applies depends on how the transaction is structured, what the property’s current status is, and whether both parties meet specific criteria. Get it right and you avoid an additional 10% on the purchase price. Get it wrong and on a $1.5 million property, that is $150,000 you were not expecting to pay.
The Going Concern Exemption
If you are purchasing a tenanted commercial property one with an active lease in place and both the buyer and the vendor are registered for GST, the transaction may qualify as a going concern. Under this exemption, GST does not apply to the purchase price.
The key word is may. For the exemption to hold, several conditions need to be satisfied. The property must be sold with everything necessary to continue operating as a going concern. The lease must be current and active, not expired or in holdover in a way that undermines the going concern status. Both parties must be GST-registered at the date of settlement. And the agreement must specifically include a clause stating that the sale is of a going concern. If that clause is missing from the contract, the exemption does not apply by default regardless of whether every other condition is met.
Vacant Commercial Property and GST
If the property is vacant, no tenant, no active lease GST almost always applies. There is no going concern exemption available because there is no ongoing business activity to transfer. The purchase price will attract GST at 10%, and the buyer needs to account for that cost from the outset.
This matters at the offer stage. If you are comparing two properties at $1.4 million and one is tenanted while the other is vacant, the effective cost difference may be $140,000, not because the properties are priced differently, but because the GST treatment is different. That is a significant variable to carry into a negotiation without understanding it.
What to Do Before You Make an Offer
The structure of the transaction, whether it is treated as a going concern, whether GST applies in full, whether the margin scheme is in play, is determined before the contract is signed, not after. Once you have signed a contract that does not include the going concern clause, you cannot simply add it. The vendor does not have to agree. And if settlement proceeds without the exemption, the GST liability falls on the buyer.
Get your accountant and solicitor across the transaction structure before you make an offer. That is not a complex process, it is a conversation about how the deal should be structured, which takes less than an hour if the circumstances are straightforward. The cost of that conversation is negligible. The cost of not having it can materially change the economics of the purchase.
Talk to your accountant before making an offer on commercial property. The GST question is not complicated once you know to ask it, but it is expensive if you do not. Disclaimer: This is not financial advice, we are not financial experts.
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