How does GST work when buying commercial property?

If the vendor is registered for GST and the property is commercial, the sale is a taxable supply. The contract will state whether the price is inclusive or exclusive of GST, and it matters: a $2,000,000 plus GST purchase costs $2,200,000 at settlement. Residential property is input taxed and does not attract GST, which is why mixed-use buildings need the residential and commercial components apportioned.

Where the property is sold with a lease in place, the vendor and buyer are both registered for GST, the buyer takes on the lease, and the contract states the sale is a going concern, no GST is payable. This is the standard structure for leased commercial property. Vacant property or property being sold to the tenant who occupies it generally does not qualify, and if the exemption is claimed incorrectly the buyer can be liable for the GST later. The margin scheme is the other option, mainly for new or subdivided property, and it reduces rather than removes the GST.

Lenders lend against the value of the property, which is assessed exclusive of GST. So on a $2,000,000 property with 10 per cent GST, a 70 per cent LVR loan is $1,400,000, and the buyer needs $600,000 deposit plus $200,000 GST plus costs. Some lenders offer a GST bridging facility for the $200,000, repaid when the input tax credit is refunded, at a higher rate for a short term. Otherwise the buyer funds it. Stamp duty is calculated on the GST-inclusive price in most states, which adds to the cost.

An SMSF buying commercial property with rent above the GST registration threshold must register, and can then claim the input tax credit on the purchase. Trusts and companies follow the same rules. Buying as an unregistered individual means the GST is a permanent cost, which is why almost every commercial purchase is made through a registered entity. Get the GST position confirmed with your accountant before contracts are exchanged.