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 payable on the GST-inclusive figure. The difference is not in the asset; it is in the contract.

This guide covers how GST applies to commercial property transactions in Australia, the three principal supply structures (going concern, margin scheme, standard taxable supply), how each one affects the buyer's settlement number, and the contractual mechanics that lock in the treatment before exchange.

GST is a contract decision, not a tax decision. The structure is agreed in the contract of sale; once exchanged, the buyer is bound by it. The buyer-side work happens before signing, not after.

How GST Applies to Commercial Property

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

Three principal structures change the practical outcome for a buyer:

1 Going Concern: When and How

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

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

What the contract must say

The going-concern designation must be in writing in the contract of sale. The contract should also recite the buyer's GST registration status and warrant that registration will be maintained 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 reduces the stamp duty base. In NSW that is roughly $27,500 in saved transfer duty alone. The total saving in cash at settlement can be more than half a million dollars.

2 The Margin Scheme

The margin scheme (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 the full sale price. The buyer cannot claim an input tax credit on a margin-scheme purchase, but the absolute GST amount is reduced.

The scheme applies to property acquired after 1 July 2000, or property acquired before that date if 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 is not eligible to 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 the working capital tied up in GST is reduced.

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. In that case, the margin scheme is worse for the buyer because the GST paid cannot be reclaimed.

3 Standard Taxable Supply

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

The working capital cost matters. On a $5 million purchase, $500,000 of GST is paid at settlement and claimed back 30 to 90 days later, depending on when the BAS is lodged. Bridging finance, an interest cost, and the opportunity cost of locked-up cash are all part of 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 must withhold 1/11 (or 7% under the margin scheme) of the contract price and pay it directly to the ATO at settlement. This does not apply to commercial property in the standard sense, but it is relevant to 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 (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:

6 Practical Buyer-Side Decisions

Register for GST before exchange

If your buying entity is not yet registered, register before signing the contract. Going-concern eligibility requires the buyer to be registered or required to be registered. A late registration creates an audit-trail question that is easier to avoid than fix.

Confirm the vendor's GST treatment in writing

Ask for the vendor's BAS history, GST registration confirmation, and acquisition cost base if margin scheme is proposed. None of these is private commercial information once the contract is on the table; the vendor should provide them as part of standard DD.

Model both outcomes

If the contract is silent on going concern, you have a default standard taxable supply. Model the going-concern outcome and use it as a negotiating lever; a small purchase price increase can be cheaper for the vendor than the stamp duty saving for the buyer.

Lock the treatment in the contract

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

7 Edge Cases

Mixed supplies

A sale combining 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 may be a taxable supply. The apportionment is done on a reasonable basis, typically by floor area or value.

Vendor not registered for GST

If the vendor is not registered and not required to be registered (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 cannot claim a credit because no GST has been paid.

Long-term lease as a going concern

A lease for 50 years or more is treated similarly to 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 GST at settlement and absorbs it as part of 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 (planned lease-up, pre-commitments) can change this 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 include indemnities and warranties addressing this 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.