GST on commercial property in Australia is charged at 10% on the sale price or on rent when the seller or landlord is registered, or required to be registered, for GST. The tax reaches warehouses, offices, retail shops, and most other business premises, and it shapes the contract price, the lease invoice, and the reporting each party owes the ATO. Two structures can reduce or remove the liability: a going concern sale, which is GST-free, and the margin scheme, which calculates GST on the profit margin rather than the full price.
When a Sale Attracts GST
A commercial property sale is a taxable supply when four conditions are all met: the seller provides the property for payment, the sale happens as part of the seller’s business, the property is in Australia, and the seller is registered or required to be registered for GST.1Federal Register of Legislation. A New Tax System (Goods and Services Tax) Act 1999 Where all four apply, GST runs at 10% of the sale price.2Australian Taxation Office. How Australian GST Works A warehouse selling for $1,000,000 GST-exclusive costs the buyer $1,100,000 at settlement.
Registration is mandatory once GST turnover reaches $75,000 a year, or $150,000 for non-profits.3Australian Taxation Office. Registering for GST Turnover is measured on both the current rolling 12 months and the projected 12 months, so businesses near the threshold need to check both. A seller who should have registered but didn’t can still be assessed for the GST plus penalties.
One rule that catches sellers out: the GST-at-settlement withholding regime, which requires buyers to pay GST straight to the ATO, does not cover commercial property. It applies only to new residential premises and potential residential land.4Australian Taxation Office. GST at Settlement On a commercial sale, the buyer pays the seller the full amount including GST, and the seller remits it through the Business Activity Statement.
GST on Commercial Leases
A GST-registered landlord charges 10% GST on the base rent and on any outgoings the tenant covers under the lease, such as insurance, council rates, and maintenance. If monthly rent is $5,000 and outgoings are $500, GST is calculated on the combined $5,500, adding $550 to the invoice.
The lease should say plainly whether the advertised rent is GST-inclusive or GST-exclusive. Ambiguity here is one of the most common lease disputes: a tenant reading “$5,000 per month” with no mention of GST can reasonably assume that figure is all-inclusive, which leaves the landlord absorbing the tax.
For a GST-registered tenant, the GST paid on rent and outgoings is claimable as an input tax credit on their own BAS. Provided both sides are registered and lodging correctly, the tax largely washes through the system without becoming a real cost.
Claiming Input Tax Credits on a Purchase
Buying commercial property for use in a GST-registered business lets you claim a credit for the GST in the purchase price. The credit offsets the GST you collect on your own sales and is claimed in the BAS for the tax period settlement occurs.5Australian Taxation Office. GST and Property You need a valid tax invoice from the seller, and you must lodge the claim within four years of the due date for the relevant activity statement.
The credit is only available to the extent the property is used for making taxable supplies. Buy a building and use it wholly for your own registered business, or lease it commercially, and the full credit is available. If part of the building later shifts to a use that doesn’t produce taxable supplies, the ATO expects an adjustment: this “change in creditable purpose” produces an increasing adjustment on your activity statement, effectively clawing back part of what you claimed.5Australian Taxation Office. GST and Property Adjustments run both ways; a property that starts in private use and later joins your taxable enterprise brings a decreasing adjustment.
The Going Concern Exemption
A sale structured as a going concern is GST-free. The exemption under section 38-325 of the GST Act can spare hundreds of thousands of dollars on a single deal, but the requirements are strict.6AustLII. A New Tax System (Goods and Services Tax) Act – Sect 38.325 – Supply of a Going Concern Three conditions must all be met:
- The sale is for consideration; a gift or no-value transfer does not qualify.
- The buyer is registered or required to be registered for GST at the time of the sale.
- Both parties agree in writing, usually in the contract, that the transaction is a supply of a going concern.
Beyond those, the seller must hand over everything needed for the buyer to keep operating the enterprise without interruption, and must run the business right up to the day of sale.7Australian Taxation Office. Selling a Going Concern For a commercial building, that means selling the property together with its existing leases, tenant agreements, and associated covenants. Selling the property by itself with no operating enterprise attached will not qualify.
Partially Tenanted Buildings
A building doesn’t have to be full. The ATO accepts a partially tenanted building as a going concern where the vacant portion is being actively marketed for lease or is undergoing repairs or refurbishment, and every existing lease and agreement transfers with the sale.7Australian Taxation Office. Selling a Going Concern A half-empty building with no leasing activity and no refurbishment underway is harder to characterise as a functioning enterprise.
If the Exemption Fails
If the ATO later finds the sale didn’t meet the requirements, the transaction reverts to a standard taxable supply. The seller becomes liable for the full GST plus general interest charge from the settlement date. Verifying both parties’ registration on the Australian Business Register before contracts exchange is a non-negotiable step.
The Margin Scheme
Under Division 75 of the GST Act, the margin scheme calculates GST as one-eleventh of the margin between the sale price and the original acquisition cost, rather than 10% of the full price.1Federal Register of Legislation. A New Tax System (Goods and Services Tax) Act 1999 On a property bought for $400,000 and sold for $600,000, the margin is $200,000 and GST is $200,000 × 1/11 = $18,182.8Australian Taxation Office. Methods to Calculate the Margin Applying standard GST to the same $600,000 sale (GST-exclusive) would produce $60,000. The saving grows with holding time and appreciation.
Both parties must agree in writing to use the margin scheme before settlement. Without that written agreement, the standard calculation applies. The buyer needs to understand that a margin scheme purchase blocks them from claiming an input tax credit, because the GST is not separately identified on the tax invoice.
Eligibility Depends on the Property’s History
Not every seller can use the scheme. The core disqualifier: if you bought the property through a fully taxable supply and the margin scheme was not used in that earlier sale, you generally cannot use it on resale.9Australian Taxation Office. Eligibility to Use the Margin Scheme The logic is that you already claimed a full input tax credit on purchase, and the ATO won’t let you reduce GST on the way out as well.
Other blocked scenarios include:
- Buying the property GST-free as a going concern where the previous owner had acquired it fully taxable without using the margin scheme; the disqualification passes through.
- Acquiring the property as GST-free farmland from a seller who originally bought it fully taxable; the same chain restriction applies.
- Receiving the property from an associated entity for no payment where that entity had bought it fully taxable without the margin scheme.
The rules trace back through prior owners. Before writing a margin scheme election into a contract, check the acquisition chain supports it. An incorrect election exposes the seller to recalculated GST plus shortfall penalties.
Property Held Before 1 July 2000
Where the property was acquired before GST began on 1 July 2000, there is no purchase price to use as the base. The margin is calculated using a professional valuation as at 1 July 2000. The valuation must meet Australian professional standards for real property valuations, describe the methodology and assumptions in full, and carry a signed declaration from the valuer. Incomplete or non-compliant valuations can lead the ATO to reject the scheme and reassess GST on the full sale price.
Mixed-Use Properties
Where a building holds both commercial space (taxable supplies) and residential space (input-taxed), a full input tax credit is not available on shared costs. The GST Act restricts credits to the portion of an acquisition that relates to taxable supplies and denies credits for the portion tied to input-taxed supplies such as residential rent.5Australian Taxation Office. GST and Property
Apportionment must be “fair and reasonable” in the circumstances. Common approaches split by floor area, by revenue, or by the number of units for each use. No single formula is mandated, but whatever method you choose must be documented and applied consistently. A developer building ground-floor retail with residential above would apportion construction GST credits on relative floor area (or another reasonable measure), claiming only the commercial share.
If the mix later shifts, the change-in-creditable-purpose rules apply and adjustments follow on the BAS. A developer who claims full credits during construction intending to sell commercially, then instead rents units residentially, faces increasing adjustments to repay the overclaimed credits.
Reporting Through Your BAS
GST collected on sales and rent is reported on the Business Activity Statement. Most businesses lodge quarterly; those with turnover above $20 million lodge monthly.10Australian Taxation Office. Business Activity Statements (BAS) Quarterly due dates are 28 October, 28 February, 28 April, and 28 July for the July–September, October–December, January–March, and April–June quarters respectively.11Australian Taxation Office. Due Dates for Lodging and Paying Your BAS Lodging online generally adds two weeks on every quarter except Quarter 2, which already carries a built-in one-month extension. Weekend and public holiday deadlines roll to the next business day, and lodging through a registered tax or BAS agent can extend the deadline further.
Payment goes to the ATO by electronic funds transfer or another approved method once the BAS is lodged. Late payment attracts a general interest charge that accrues daily on the outstanding amount. A single large sale can produce a six-figure GST liability in one quarter, so missing the deadline is costly.
Penalties for Errors and Late Lodgment
Shortfall penalties from incorrect BAS or return reporting scale with culpability:12Australian Taxation Office. Penalties for Making False or Misleading Statements
- Failure to take reasonable care: 25% of the shortfall.
- Recklessness: 50% of the shortfall.
- Intentional disregard: 75% of the shortfall.
These percentages apply to any GST error, whether it involves mischaracterising a taxable supply, misapplying the margin scheme, or missing GST on rent. On a $100,000 shortfall, an intentional disregard penalty adds $75,000 on top of the tax, plus interest from the original due date.
A separate failure-to-lodge penalty applies to overdue BAS. It accrues at one penalty unit for every 28 days (or part thereof) the document is late, up to a maximum of five units.13Australian Taxation Office. Failure to Lodge on Time Penalty A Commonwealth penalty unit is currently $330,14Australian Taxation Office. Penalty Units making the maximum base penalty for a late BAS $1,650, though medium and large withholders face multipliers of 2 or 5. Deliberate tax fraud can attract criminal prosecution, with a maximum of 10 years’ imprisonment under the relevant Criminal Code provisions.15Commonwealth Director of Public Prosecutions. Tax Fraud Prosecutions usually involve vendors who collect GST from buyers and keep it, or developers fabricating going concern arrangements to avoid tax on sales that don’t genuinely qualify.