Finance

GST on Commercial Property in Australia

17 September 2025 7 min read Bold acquisition desk

GST treatment is one of the largest variables in the total cost of a commercial property acquisition. Get it right and a $5 million purchase settles at $5 million plus duty. Get it wrong and the same purchase can attract a $500,000 GST liability on top, with stamp duty then payable on the GST-inclusive figure. The difference is not in the asset. It is in the contract.

Three supply structures are in play: going concern, the margin scheme, and a standard taxable supply. Each lands the buyer on a different settlement number, and each is fixed by the words in the contract of sale, not by anything done after exchange.

GST is a contract decision wearing a tax label. The structure is set in the contract of sale, and once you exchange the buyer is bound to it. All the buyer-side work happens before signing.

How GST Applies to Commercial Property

Most commercial property sales in Australia are taxable supplies for GST purposes where the vendor is registered or required to be registered for GST and sells in the course of an enterprise. The rate is 10%.

Three structures change what the buyer actually pays. A going concern supply is GST-free when the conditions are met: no GST is paid on the purchase and no input tax credit is claimed. The margin scheme charges GST on the vendor's margin, the sale price minus the cost base, rather than on the full sale price; the GST amount falls but the buyer cannot claim an input tax credit. A standard taxable supply carries GST of 10% on the sale price, which the buyer pays at settlement and, if registered, claims back as an input tax credit on the next BAS.

1 Going Concern: When and How

A sale of a going concern is GST-free under section 38-325 of the GST Act where four conditions are met:

The supply is for consideration.
The buyer is registered, or required to be registered, for GST.
The vendor and buyer have agreed in writing that the supply is of a going concern.
The vendor supplies to the buyer all things necessary for the continued operation of the enterprise.

For a tenanted commercial property, the enterprise being supplied is usually the leasing enterprise: the vendor delivers the lease, the tenant in occupation, and any associated agreements such as property management and outgoings recoveries. For an owner-occupied building, going-concern treatment is harder and usually needs a specific structure.

What the contract must say

The going-concern designation has to be in writing in the contract of sale. The contract should also recite the buyer's GST registration status and warrant that registration will hold through to settlement. Special conditions covering what happens if the buyer ceases to be registered, or if the supply is later assessed as not a going concern, are standard buyer-side protections.

Why it matters

On a $5 million tenanted commercial acquisition, going-concern treatment saves $500,000 in GST and shrinks the stamp duty base. In NSW that is roughly $27,500 in saved transfer duty on its own. Total cash saved at settlement can run to more than half a million dollars.

2 The Margin Scheme

The margin scheme, under Division 75 of the GST Act, lets a vendor calculate GST on the difference between the sale price and the vendor's acquisition cost base rather than on the full sale price. The buyer cannot claim an input tax credit on a margin-scheme purchase, but the absolute GST amount is lower.

It applies to property acquired after 1 July 2000, or to property acquired before that date where specific conditions are met. The vendor must elect to apply the scheme in writing, in the contract.

When the margin scheme helps the buyer

Where the buyer is not registered for GST, or cannot claim full input tax credits, the margin scheme is usually the buyer's preferred treatment. The GST liability is lower, the stamp duty base is lower, and less working capital is tied up in GST.

When it does not

A GST-registered buyer who will use the property in a fully taxable enterprise can claim the full GST input tax credit on a standard taxable supply. For that buyer the margin scheme is worse, because the GST paid cannot be reclaimed.

3 Standard Taxable Supply

Where neither going concern nor margin scheme applies, GST is 10% on the sale price. The buyer pays it at settlement and claims it back on the next quarterly Business Activity Statement (BAS), provided the buyer is registered for GST and uses the property for a creditable purpose.

The working capital cost is real. On a $5 million purchase, $500,000 of GST goes out at settlement and comes back 30 to 90 days later, depending on when the BAS is lodged. Bridging finance, its interest cost, and the opportunity cost of the locked-up cash all belong in the buyer's modelling.

4 GST Withholding for Residential Property

GST withholding rules apply to new residential property and potential residential land sales. The buyer of new residential property withholds 1/11 of the contract price, or 7% under the margin scheme, and pays it straight to the ATO at settlement. It does not apply to commercial property in the ordinary sense, but it does reach mixed-use developments and shop-top residential.

5 The Stamp Duty Interaction

Stamp duty is calculated on the GST-inclusive price unless the supply is GST-free, which means going concern. On a standard taxable supply or a margin-scheme transaction, the duty base includes the GST component.

On a $5 million NSW commercial acquisition:

Going concern. Duty on $5,000,000. Duty payable: approximately $249,500.
Standard taxable supply. Duty on $5,500,000 (price plus $500,000 GST). Duty payable: approximately $277,000.
Margin scheme. Duty on the GST-inclusive sale price, where the GST component is the margin-based amount.

6 Practical Buyer-Side Decisions

Register for GST before exchange

If your buying entity is not yet registered, register before you sign. Going-concern eligibility needs the buyer to be registered or required to be registered, and a late registration leaves an audit-trail question that is easier to avoid than to fix.

Confirm the vendor's GST treatment in writing

Ask for the vendor's BAS history, GST registration confirmation, and, where the margin scheme is proposed, the acquisition cost base. None of this is private commercial information once the contract is on the table; the vendor should hand it over as part of standard due diligence.

Model both outcomes

If the contract is silent on going concern, you fall back to a standard taxable supply. Model the going-concern outcome and use it as a negotiating lever: a small lift in the purchase price can cost the vendor less than the stamp duty it saves the buyer.

Lock the treatment in the contract

The GST treatment, the margin scheme election, and the going-concern designation all belong in the contract. A side agreement or an exchange of correspondence does not bind the ATO. The contract is the document that controls the treatment.

7 Edge Cases

Mixed supplies

A sale that combines residential and commercial components is a mixed supply. Each component is treated separately for GST: the residential portion may be input-taxed and the commercial portion a taxable supply. Apportionment is done on a reasonable basis, usually by floor area or value.

Vendor not registered for GST

Where the vendor is not registered and not required to be (a private owner of a single small commercial property below the GST threshold), the sale is not a taxable supply and no GST applies. The buyer claims no credit, because no GST has been paid.

Long-term lease as a going concern

A lease of 50 years or more is treated much like a freehold sale for GST purposes. Going-concern treatment is available on long-term lease grants where the conditions are met.

Frequently Asked Questions

Can I get GST back if I am not registered for GST?

No. Only entities registered for GST can claim input tax credits. A purchaser who is not registered pays the GST at settlement and absorbs it into the cost base.

Does going concern apply to vacant commercial property?

Generally no. Going-concern treatment requires the supply of an enterprise, and a vacant building with no leasing activity is usually not an enterprise. Specific structures, such as a planned lease-up or pre-commitments, can change that in limited cases.

What happens if the ATO disputes going-concern treatment after settlement?

The vendor is liable for the GST as the supplier. The contract should carry indemnities and warranties addressing the risk; standard buyer-side practice is to require a vendor warranty plus a holdback or guarantee covering the GST exposure.

Can I use the margin scheme on a property I bought as a going concern?

No. A purchase as a going concern is GST-free, so there is no margin from the prior acquisition. The vendor's cost base for margin scheme purposes is fixed by reference to how the property was acquired.