Updated 28 October 2026
What Property Buyers Need to Know About the Contract for Sale #14: What are the GST implications for property purchase?
What are the GST implications of buying property?
GST does not apply to every property purchase. The outcome depends on the property, the seller’s enterprise and registration status, any applicable exemption, and the contract. Buyers should establish whether the price includes GST, whether additional GST can be recovered, and whether settlement withholding applies before committing.
Under the GST Act, the supplier generally owes GST on a taxable supply. A contract may require the purchaser to reimburse that amount. Those are separate questions: tax liability and contractual cost allocation.
| Transaction |
Usual starting point |
What needs checking |
| Existing residential premises |
Sales and ordinary residential rent are generally input taxed. |
GST credits are generally unavailable for related expenditure. |
| New residential premises |
A sale may be taxable. |
The seller’s enterprise, registration and statutory exceptions. |
| Commercial property or vacant land |
A sale may be taxable if the basic GST conditions are met. |
Possible going-concern treatment or other exceptions; a private sale is not automatically taxable. |
| Farmland |
A qualifying sale can be GST-free. |
A farming business carried on for the preceding five years and the recipient’s intention that a farming business continue on the land. |
When must a purchaser or lessee register for GST?
Buying a business or signing a commercial lease does not automatically require GST registration. Registration generally becomes compulsory when an enterprise’s GST turnover reaches $75,000, or $150,000 for a non-profit organisation. Special rules can apply. GST turnover concerns sales, rather than profit or the purchase price paid.
Both current and projected turnover matter. Apply within 21 days after becoming required to register. Voluntary registration may be available below the threshold, but brings reporting obligations.
A newly established purchasing company should have its position assessed before settlement. The seller’s registration does not transfer with the business, and a director’s personal registration does not establish the company’s status.
What GST oversight does Christine see in business purchases and leases?
In my dealings with business purchases and leases, GST registration is a recurring oversight. Purchasers and lessees can concentrate on the price, rent and handover while assuming the registration position has already been checked. I recommend confirming the correct entity, its GST status and the relevant date early.
An ABN alone does not establish GST registration. Start with ABN Lookup, then obtain confirmation from the accountant where the position or effective date needs clarification. For a trust or company structure, match the registration to the entity actually acquiring the business or taking the lease.
The practical issue is coordination: the lawyer reviews the contract and lease, while the accountant confirms the tax position. Leaving either check until settlement can expose a funding gap or an obligation the client did not budget for.
When is a business or property sale a GST-free going concern?
A sale can qualify as a GST-free going concern when the statutory conditions are satisfied. The recipient must be registered or required to be registered for GST. There must also be consideration, written agreement and a genuine transfer of an operating enterprise with everything necessary for its continued operation.
- Identify the enterprise being transferred and the assets, rights and arrangements necessary to continue it.
- Ensure the supplier carries on that enterprise until the day of supply.
- Document the parties’ going-concern agreement and verify the recipient’s position at the relevant date.
Where premises are essential, a suitable lease assignment or new lease may be critical. Coordinate landlord consent with the business settlement. Simply granting a lease, or ticking a going-concern box, does not establish eligibility. Where relying on registration, its effective date must be on or before the supply date.
Does a commercial tenant pay GST if it is not registered?
A commercial tenant can be required by its lease to pay GST on taxable rent even if the tenant is not GST-registered. The landlord’s tax position determines whether its supply is taxable. The tenant’s registration and use of the premises determine whether it can recover eligible GST through credits.
For illustration, annual rent of $60,000 plus GST means payments totalling $66,000 before outgoings. A tenant neither registered nor required to register cannot claim ordinary GST credits. Registration does not make private expenditure or expenditure relating to input-taxed supplies automatically creditable.
Review commercial and retail lease provisions covering rent, outgoings, incentives and GST together.
What happens if GST registration or the contract treatment is wrong?
An incorrect GST assumption can change the amount needed to complete a purchase and the ongoing cost of operating a business. If going-concern treatment fails, the seller may owe GST and the contract may pass that cost to the buyer. Liability depends on the facts and contractual wording.
Check GST warranties, additional-payment clauses and indemnities before signing. An inclusive price differs from a price plus GST: for an ordinary fully taxable supply, GST is one-eleventh of the inclusive price, or 10% of the exclusive price.
If registration was compulsory but overlooked, GST on taxable business sales may be payable from the required registration date, even where customers were not charged separately. Outstanding reporting, interest and penalties may follow. Obtain advice promptly; retrospective registration is not a guaranteed cure for every transaction problem.
Can buyers claim GST credits under the margin scheme?
A purchaser cannot claim a GST credit for a property acquired under the margin scheme. Registration alone does not change this rule. For other taxable acquisitions, credits depend on the statutory requirements, including the purchaser’s registration position, creditable business use and the necessary documentation. Mixed use may require apportionment.
The margin scheme calculates the seller’s GST using a statutory margin, which is not simply accounting profit. Eligibility and the property’s acquisition history matter. Written agreement is generally required by settlement, although the Commissioner can allow further time.
Buying a home for private use or ordinary residential letting does not create a purchase GST credit merely because the buyer operates another GST-registered business.
What does the MBI Properties decision show about later GST liabilities?
The High Court’s decision in MBI Properties shows that a GST-free going-concern acquisition does not resolve every subsequent GST consequence. A purchaser’s intended supplies can trigger an increasing adjustment under Division 135. Intended use must therefore be examined separately from the GST classification of the purchase itself.
In Commissioner of Taxation v MBI Properties Pty Ltd [2014] HCA 49, MBI acquired three apartments in a hotel complex, each subject to an existing lease to the hotel operator. The acquisitions were GST-free going concerns.
The Court held that MBI’s continuing provision of use and occupation constituted supplies. Those particular supplies were input-taxed residential leasing supplies, producing an increasing adjustment under section 135-5. This was not a ruling that ordinary commercial rent is input taxed or that the original going-concern treatment failed.
When must a property purchaser withhold GST at settlement?
Purchasers of certain new residential premises or potential residential land must withhold an amount from the purchase price and pay it to the ATO. This can apply to private homebuyers who are not GST-registered. The obligation is a collection mechanism and does not itself entitle the purchaser to a credit.
The seller’s notification, the applicable exceptions, the amount and the required forms should be checked before settlement. Withholding is generally one-eleventh of the contract price, or 7% where the margin scheme applies, with special rules for some transactions. It is paid from the price, not added as a second GST charge.
What should buyers and lessees check before signing?
Before signing, have a lawyer check the contract or lease and an accountant confirm the GST treatment for the actual transaction. Resolve registration, pricing and funding assumptions together. A business purchase should also be coordinated with the premises arrangements so that settlement delivers the enterprise the purchaser expects to operate.
- Confirm the parties’ legal identities, ABNs, GST status and relevant effective dates.
- Check whether the price and rent include GST and who bears any additional liability.
- Verify going-concern conditions, margin-scheme treatment and any settlement withholding.
- Budget for GST timing, credit restrictions, lease outgoings and working capital.
CM Lawyers assists with property purchases, business purchases and leases. Contact Christine and the team before committing so the documents and tax assumptions can be reviewed together.
General information only. Always have the transaction checked by a lawyer and obtain accounting or tax advice appropriate to your circumstances.
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