Property
Commercial property
Commercial property is real property used for business, such as shops, offices and warehouses, and sales and leases by GST-registered owners are generally taxable, so GST is charged on the price or rent.
Commercial property means land and buildings used for business purposes, for example shops, offices, factories, warehouses and cafes. For GST, the key point is that when a registered owner sells or leases commercial property, the supply is generally taxable. That means GST of 10% is added to the price or rent, and the owner can claim credits on related costs such as repairs, agent fees and management costs.
For a tenant that is registered and uses the premises in its business, rent plus GST is a cost that can be claimed back as an input tax credit, provided there is a tax invoice. This makes the GST on commercial rent largely neutral for the tenant. If the tenant is not registered, or runs an input-taxed business such as a financial services business, the GST is a real cost because they cannot claim it back.
When a landlord is not registered, no GST is charged on the rent, because only registered entities can charge GST. A landlord whose commercial rent is below the threshold may choose to register to claim credits on costs, but then must charge GST to tenants. Many small commercial landlords fall into this decision, and the answer depends on the tenants' ability to claim the GST back.
The sale of commercial property by a registered seller is taxable, and the buyer, if registered and buying for use in its enterprise, can generally claim credits. If the sale is of a going concern, such as a building with a business operating in it, it can be GST-free. The margin scheme can apply to some commercial sales when the seller qualifies. Contracts for commercial property should state clearly whether the price is GST-inclusive or exclusive, and many contracts add the words plus GST if any.
Property that mixes residential and commercial uses, such as a shop with a flat above, may need to be split. The commercial part is taxable and the residential part is generally input-taxed. If the building is used partly for each, the apportionment of credits and GST on any sale will need to be done on a reasonable basis. The rules on this can be complicated, so records of use and areas are worth keeping.
There are also adjustments for changes in use. If a commercial building is later used for residential rent, credits claimed earlier may need to be adjusted. If a landlord claims credits on a building purchase and then starts to lease it for a residential purpose, the ATO expects the adjustment to be made. Conversely a change to taxable use can allow a favourable adjustment.
This is general information only. Because commercial property deals involve large amounts, confirm the GST treatment with the ATO or a registered tax professional before you commit.
Worked example
A registered landlord leases a shop to a registered retailer for $5,000 per month plus GST. GST of $500 is added, so the retailer pays $5,500 per month. Over a quarter, the landlord collects $1,500 of GST and the retailer claims a $1,500 credit. If the landlord pays $2,200 including GST for a roof repair, a credit of $2,200 divided by 11, which is $200, can be claimed.
Practical tips
- Check whether the landlord is registered, as only registered landlords can charge GST on commercial rent.
- State clearly in leases and contracts whether amounts are GST-inclusive or GST-exclusive.
- Keep records if a building has mixed residential and commercial use, so you can apportion GST.