Understanding GST When Buying Commercial Property in Victoria: What You Need to Know

by | Feb 23, 2025 | Uncategorized | 0 comments

Buying or selling commercial property in Victoria involves navigating a complex landscape of taxes, particularly Goods and Services Tax (GST).

Coupled with recent stamp duty reform—Victoria’s new Commercial and Industrial Property Tax (CIPT)—property transactions now require even more careful planning. At Tick Box Conveyancing, we understand these complexities and offer clear, actionable advice to make your property journey as smooth as possible.

Why is GST on Commercial Property Complex?

GST on commercial property in Victoria is multifaceted. Both federal GST rules and Victoria’s new CIPT system, which replaced traditional stamp duty from 1 July 2024, significantly impact how property transactions are managed.

This combination introduces layers of complexity, affecting everything from upfront cash flows to long-term financial planning.

Key factors contributing to this complexity include:

  • GST registration status of both buyer and seller
  • Application of exemptions such as going concern sales
  • Margin scheme eligibility
  • The interaction between GST and Victoria’s CIPT regime

Important Considerations for Buyers

GST Registration Status

When buying commercial property, being GST-registered can significantly impact your financial position. Buyers registered for GST and using the property for business purposes can claim back the GST component (input tax credits) paid at settlement. However, claiming these credits requires careful adherence to Australian Taxation Office (ATO) guidelines and ensuring proper documentation, including valid tax invoices (ATO, GST and commercial property).

Purpose of Property Use

Your intended use of the property determines your eligibility to claim GST credits. For example:

  • Commercial or business use: GST credits are claimable.
  • Residential or input-taxed use: GST credits are generally not available.

Understanding these rules and aligning your purchase strategy accordingly is crucial.

Financial Planning and Cash Flow

Paying GST upfront on a commercial property can substantially impact your initial investment. On a $1.1 million property, GST adds an immediate $100,000 cost, which buyers must fund at settlement. Although this amount can later be reclaimed through GST credits, the refund process may take weeks or even months, placing strain on cash flow and financial planning (Commercial Real Estate – GST on Commercial Property).

Entity Structure

The structure you choose (e.g., trust, company, joint venture) can influence your GST obligations. For instance, GST grouping can simplify reporting and consolidate GST liabilities for companies and trusts, potentially reducing administrative burdens (ATO, GST and business structures).

Interaction with CIPT

Victoria’s stamp duty reform introduced CIPT, allowing buyers post-1 July 2024 to choose between paying stamp duty upfront or spreading payments over a 10-year transition period through a Treasury-facilitated loan. How you manage GST directly affects this decision, as GST-exclusive transactions like going concern sales can reduce the overall property valuation, potentially lowering your CIPT liability.

Important Considerations for Sellers

GST Obligations

If you’re selling commercial property and are GST-registered, you must charge GST unless a specific exemption applies. Fulfilling your GST obligations correctly helps you avoid penalties and ensures smooth transactions.

Going Concern GST Exemption

A sale may qualify as GST-free if the property is sold as a going concern. Conditions for this exemption include:

  • The property is fully or partially tenanted
  • The buyer agrees in writing to continue the existing business

Utilising this exemption can significantly reduce transaction costs, benefiting both seller and buyer (ATO, GST and commercial property).

Margin Scheme

Sellers might also utilise the margin scheme to reduce their GST liability. Under this scheme, GST is calculated only on the difference between the property’s original purchase price and the selling price, rather than the full sale amount. This scheme is beneficial if the property’s value has significantly increased since its initial purchase (ATO, GST and the margin scheme).

Contractual Clarity and Adjustments

Your contract must clearly specify whether the price is GST-inclusive or GST-exclusive, as misunderstandings can cause significant financial implications. Additionally, all outgoings such as rent and rates should be adjusted on a GST-exclusive basis to ensure accurate reporting and compliance.

Entity Type Impacts

Different entity structures can affect GST obligations differently. Trusts, companies, and estates may have unique GST reporting and payment requirements, highlighting the need for tailored advice from conveyancing professionals.

GST and CIPT Working Together: Practical Scenario

Imagine Jimmy, who decides to purchase a restaurant property in 2026, after the CIPT implementation. He pays a purchase price of $1.1 million.

  • GST Component: Jimmy needs to pay an additional $100,000 upfront at settlement (10% GST).
  • CIPT Decision: He chooses the 10-year loan transition option for his stamp duty payment, spreading out repayments.

Jimmy, being GST-registered and using the restaurant commercially, can later reclaim the $100,000 GST paid. However, he must initially fund this significant outlay, highlighting the importance of careful financial planning to manage upfront costs effectively.

How Tick Box Conveyancing Can Help

At Tick Box Conveyancing, our expert team guides you through the intricate GST and CIPT landscape with clear, straightforward advice. With over 80 years of combined experience, we:

  • Provide tailored guidance on GST registration and claiming GST credits.
  • Help navigate exemptions like going concern sales and margin schemes.
  • Ensure contracts clearly reflect GST-exclusive or inclusive pricing.
  • Align GST and CIPT strategies for optimal financial outcomes.

Our goal is to simplify these complex processes, empowering you to make informed decisions confidently.

GST on Commercial Property

Understanding GST when buying commercial property in Victoria is essential, particularly given the introduction of the CIPT system. Proper preparation, including accurate financial forecasting and clear contractual documentation, can significantly ease your transaction experience.

By partnering with Tick Box Conveyancing, you’ll benefit from professional, client-focused guidance that prioritises clarity, compliance, and your long-term financial goals.

For more information on Victoria’s stamp duty reform and how it interacts with your GST obligations, explore our detailed guide on Victoria’s commercial stamp duty reform.

Need More Guidance?

Contact Tick Box Conveyancing today. Our expert team is ready to support you through every step of your commercial property transaction journey.