GST and commercial property: a guide for tenants and owners

GST and commercial property at a glance

Short answer: Tenants may pay GST on commercial rent, but rent is tax deductible and the GST component can usually be claimed as a GST credit. No GST is paid on a rental bond unless it is forfeited or part is kept for damage. Owners who lease out commercial property must register for GST once the rental income (their GST turnover) reaches $75,000 a year. Sellers registered for GST usually pay 10% GST to the ATO, buyers can claim the GST in the purchase price if certain conditions are met, and a tenanted property can be sold as a going concern, in which case the buyer may be exempt from GST.

Part 1: Renting commercial property as a tenant

Renting can suit a start-up or a new business because it leaves room to change and grow. Buying commercial property has high upfront costs, so renting frees up money for other parts of the business, such as recruitment or upgrading equipment.

A major advantage is that rent is tax deductible.

Do tenants pay GST on rent?

Tenants may be required to pay GST on their rent. The good news for tenants:

• Rent is a deduction. Business owners can claim rent as a tax deduction, and a tenant renting commercial property can claim most business and office related expenses.
• The GST can be claimed back. The GST component of your rent can be claimed as a GST credit, also known as an input tax credit.

GST on a commercial rental bond

A lease may also require you to pay a bond. The bond is financial security for the lease: it is usually paid at the start of the lease and returned when you move out of the premises.

A tenant does not pay GST on a commercial rental bond unless the amount is forfeited or part of it is withheld for damage to the premises or goods.

If you rent your premises, you can also pay the rent by credit card through B2Bpay while your landlord receives a bank transfer. See pay rent with a credit card.

Part 2: Owning a commercial property

Commercial property can be a lucrative and exciting business decision. Whether you are a commercial landlord or you are looking to buy or sell, it pays to look closely at the GST implications for your own business circumstances.

Registering for GST

The Australian Taxation Office (ATO) requires businesses and enterprises to register for GST if their GST turnover (gross income minus GST) is $75,000 or more. For commercial property, the GST turnover is the rental income.

Most commercial property transactions fall under the ATO's definition of "carrying on an enterprise". As the Australian Government puts it, “an enterprise includes activities done in the form of a business”, and those activities include renting or leasing property. That means investors in commercial property are taxed under the same rules as other businesses.

How to register for GST

1. Get an ABN. You need an Australian business number before you can register for GST. You can apply online through the Australian Business Register website.
2. Register for GST. Once you have an ABN, register for GST online through the ATO Business Portal.
3. Get help if you need it. Your registered tax agent or BAS agent can also handle the process for you.

Selling a commercial property: paying GST

If you are selling a commercial property and you are registered for GST, factor the GST into your selling price.

Vendors are usually liable to pay 10% GST to the ATO after the sale. By including the GST in the price, you can pass that amount on to the ATO without reducing the price you agreed with your buyer.

Buying a commercial property: claiming GST

There is good news for buyers: you can claim a GST credit for the GST included in the purchase price. Certain conditions must be met to claim it back, including:

• Both the seller and the buyer are registered for GST.
• The purchased property is legally defined as "carrying on an enterprise".
• The seller issues a tax invoice for the property.
• The seller has not used the margin scheme to work out the GST included in the price.
• The property was not bought as a GST-free supply.

Commercial property sales usually involve large amounts, so the GST claim will be substantial too. Be prepared for it to take a while: the ATO often pays extra attention when checking and verifying larger claims, so the GST credit may not arrive in the same quarter you lodged the claim.

Leasing and selling a tenanted property

As covered above, owners who lease out commercial property must register for GST once the rental income reaches the $75,000 a year threshold.

Under the ATO's rules, a property that is already tenanted, or partly tenanted, can be sold as a “supply of a going concern”. In that case the buyer may be exempt from GST. Conditions and requirements apply, including:

• The buyer is registered, or required to be registered, for GST.
• Payment has been made for the supply.
• The buyer and the vendor have agreed in writing that the sale is of a going concern.
• The supplier supplies everything needed for the business to keep operating.
• The supplier carries on the business until the day of supply.

The GST issues around commercial property are wide-ranging and can be complicated. Whether you rent commercial space or invest as a landlord or vendor, due diligence is key.