GST on Council Rates for Commercial Property

Buying or selling commercial property in Australia can be an exciting but complex process. One of the most important factors to consider is the Goods and Services Tax (GST).

GST can significantly impact your finances, both as a buyer and seller. Understanding how it applies to your commercial property transaction is crucial for making informed decisions and ensuring you comply with Australian tax laws.

This guide will help you navigate the GST landscape in Australian commercial property:

1. When does GST apply to commercial property transactions?
2. What types of commercial property transactions are subject to GST?
3. Are there any GST concessions or exemptions available?

Whether you’re a seasoned investor, a business owner, or planning to sell a commercial property, this information will help you achieve a smooth and successful transaction.

Understanding Goods and Services Tax (GST) in Australia

Let’s break down the Goods and Services Tax (GST), a 10% tax applied to most goods and services sold across Australia.

You might be wondering, “Who actually pays this tax?” Well, ultimately, it’s us – the consumers. Businesses act as a sort of middleman, collecting the GST and passing it on to the government.

Let’s use a simple example to understand how it works:

1. Buying materials: Imagine you run a business making chairs. When you buy materials like wood and metal, you pay GST on those purchases. For example, if the materials cost $100, you’d also pay $10 GST. A GST calculator can help you work these equations out.
2. Selling your chairs: You then sell these chairs to a retailer. Since the GST is included in the price, you might sell a chair for $200, which includes $20 GST.
3. Claiming your credits: As a registered business, you can claim back the GST you paid on your materials. In our example, you’d claim a credit of $10.
4. Retailer’s role: The retailer then sells your chairs to customers at a higher price, say $300 per chair, which includes $30 GST. They too can claim a credit for the GST they paid you ($20). The retailer then pays the remaining $10 GST to the government.

The GST system ensures that businesses only pay tax on the “value added” at each stage of the production process.

Do You Pay GST on Commercial Property in Australia?

If you’re buying commercial property in Australia, you’re likely wondering about GST. Generally, yes, you’ll need to pay it.

Why?

The Australian Tax Office (ATO) usually considers you a business when you buy, sell, or lease commercial property. Once your business turnover reaches $75,000, you’re on the GST hook.

The Good News: Claiming GST Credits

The good news is that most commercial property buyers can claim GST credits. To do this, you need to:

• Be registered for GST.
• Use the property for your business.
• Have a tax invoice for the purchase.
• Pay GST at settlement.
• Ensure both you and the seller are GST-registered.
• When You Can’t Claim GST Credits

You can’t claim credits if:

• The seller used the Margin Scheme (explained below).
• You bought the property as a GST-free supply (like in a “going concern” sale).
• Always do your due diligence to make sure you can claim those credits!

The GST Margin Scheme

The Margin Scheme is a special rule for some property developers. They can calculate GST based on their profit margin instead of the full sale price. This can lower their GST bill.

Important Note: Not all properties qualify, and both you and the seller must agree to use this scheme.

Learn more about the Margin Scheme in our guide.

When GST Doesn’t Apply: “Going Concern” Sales

Sometimes, GST doesn’t apply. A common example is a “going concern” sale.

What’s a “Going Concern” Sale?

This means you’re buying an entire functioning business, not just the building. You take over everything – the property, equipment, contracts, the whole shebang!

For a GST-free “going concern” sale:

• You and the seller must agree in writing that it’s a “going concern” sale.
• The seller must provide everything needed to run the business.
• Both of you must be registered for GST.
• If it’s a “going concern” sale, the seller doesn’t charge GST, and you don’t pay it.

You can read more in our guide about why all property investors need to know about the GST Margine Scheme. 

Key Takeaways for Australian Commercial Property Investors

Navigating the world of Australian commercial property can be exciting, but it’s crucial to understand your Goods and Services Tax (GST) obligations. Here’s a quick guide to help you:

• GST is generally applicable: Most commercial property transactions in Australia are subject to GST at the standard rate of 10%.
• Registration is essential: If your business turnover reaches or exceeds $75,000, you must register for GST.
• Input Tax Credits: As a registered buyer, you can claim input tax credits on GST paid during property purchases, subject to meeting specific criteria.
• Margin Scheme: This scheme can potentially reduce your GST liability – explore if it’s suitable for your situation.
• Going Concern Sales: Under certain conditions, the sale of a going concern may be GST-free.

Need Expert Guidance?

Understanding GST and other property tax implications can be complex. Our team of experienced Property Tax Specialists is here to help! We provide:

• Expert advice tailored to your specific needs.
• Guidance on navigating the Australian tax landscape.
• Assistance in ensuring compliance with all relevant regulations.
• Strategies to optimise your financial outcomes.

Contact us today for a consultation and let us help you make informed investment decisions.

Disclaimer

This guide provides general information for Australian property buyers and investors. While we strive for accuracy, it’s essential to remember that this is not professional legal, tax, or investment advice. Always consult with qualified professionals for personalized guidance on your specific circumstances.