The Complete Guide to GST on Property
We get a lot of questions about GST on property, particularly commercial property, and how to legally reduce it. This guide sets out how GST applies to different types of property, and when it doesn’t.
Do I need to register for GST?
If you buy, sell, lease, or develop property, you may need to register for GST, since these activities can be treated as carried on for profit. You must register if your turnover from these activities is, or is expected to be, $75,000 or more over any rolling 12-month period.
For GST purposes, “property” includes land, land and buildings, an interest in land, a title to land, and a licence to occupy land. What GST applies depends on whether the property is residential or commercial.
Residential property
Residential property covers houses, units and apartments that are occupied or intended to be occupied as a residence. Vacant land generally isn’t treated as residential property.
Existing residential property. Sales are generally input-taxed: no GST is charged on the sale, and you can’t claim GST credits for anything purchased in connection with the sale.
New residential property is different. GST generally does apply, and GST credits can be claimed on related purchases. A property counts as “new” if it:
- Has never been sold as residential premises before, or
- Was created through substantial renovation, or
- Is a new building on the site of a demolished one
A property stops being “new” once it’s been continuously rented out for five years, unless it’s been actively for sale for that whole five-year period, in which case it stays “new.”
The same input-taxed treatment applies to rent on existing (non-new) residential property: no GST on the rent, and no GST credits for related purchases.
Commercial property
Buying
If you buy commercial property for use in a GST-registered business, you can generally claim the GST back. You can’t claim it in full if the seller used the margin scheme, you bought from someone not registered for GST, the sale was GST-free, or you yourself weren’t registered for GST.
Selling
A commercial property sale (a shop or a factory, for instance) is generally taxable, and you charge GST on the sale price. You can claim GST credits on selling costs, such as agent fees. Sellers can also use the margin scheme to calculate GST owed (see below).
Selling as a going concern
If you sell commercial property that’s currently tenanted, together with everything needed to keep the business running, this can qualify as a GST-free “supply of a going concern.” Both parties can still claim GST credits on costs related to the sale, such as legal fees. To qualify, the sale must be for consideration, the buyer must be GST-registered, both parties must agree in writing that it’s a going concern, and the seller must supply everything necessary for the business to continue operating.
Leasing out
If you lease commercial property and you’re GST-registered, GST applies to the rent.
Leasing in
If you lease commercial property for your business and both you and the landlord are GST-registered, you can claim the GST included in the rent.
Property development, construction and renovation
Renovating to sell for profit. If you buy property intending to renovate and sell it for a profit, you need to register for GST on the sale, but generally can’t claim GST credits on the purchase or renovation costs unless you were already registered before you bought.
Building new residential property to sell. You can claim GST credits on construction and related purchase costs, but you must charge GST on the sale.
The margin scheme
Ordinarily, GST payable is 1/11th of the sale price. The margin scheme is an alternative calculation method.
How it works: GST payable = 1/11th of the margin, where margin = sale price minus purchase price.
When you can use it:
- The property was purchased before 1 July 2000, or
- You bought it after 1 July 2000 from a seller who wasn’t registered or required to register for GST, sold you existing (non-new) residential property, sold using the margin scheme themselves, sold it as part of a going concern, or sold GST-free farmland
When you can’t use it: if you originally bought the property paying full GST, with no margin scheme applied at that purchase. In that case, if you paid full GST as part of your business activity, you can generally claim that GST back.
GST on property gets complicated quickly, especially where a margin scheme or going-concern sale is involved. If you’d like help working through a specific transaction, contact us.
