GST on property deals: going concerns and the margin scheme explained

Why a lender cares about GST

Get the GST treatment wrong on a property deal and the amount of cash needed on settlement day can swing by tens of thousands of dollars. The rules are technical and every transaction needs a tax adviser’s sign-off, but owners and developers still benefit from knowing the three main outcomes before they sign. Treat what follows as general background drawn from ATO guidance, not as tax advice for your deal.

Outcome one: the sale is taxable

Picture a GST-registered company that owns a strip of shops as part of its business and decides to sell. In most cases that sale is taxable. GST is calculated on the price, so the contract needs to say plainly whether the figure already includes GST or whether GST is added on top. If the buyer is registered and is buying for its own business, it can usually recover that GST as a credit on its next activity statement. The problem is the gap in between: the GST comes out of the buyer’s pocket at settlement, and the refund only arrives after the following BAS is processed.

Outcome two: no GST because it is a going concern

Now imagine a factory with a tenant on a long lease, sold together with that lease. If the deal satisfies the ATO’s going concern rules, the sale can be GST-free. In plain terms, the buyer has to receive everything required to keep the business operating, the seller has to keep operating it right up to settlement day, the buyer has to be registered for GST, and the parties have to agree in writing that it is a going concern sale. With a tenanted building, the business being sold is usually the leasing activity itself, so the tenancy normally has to stay in place until settlement. The ATO’s guidance, linked below, works through the tests with examples.

The danger is a deal that looks like a going concern at exchange but fails on the day. If the tenant moves out before settlement, for instance, GST may suddenly be payable on top of the price.

Outcome three: GST on the margin

Developers selling new apartments or house-and-land packages often use the margin scheme. Rather than charging GST on the whole sale price, the seller works it out on the margin, which in rough terms is the sale price less what the seller paid for the property or an approved valuation of it. The scheme is only available if the seller acquired the property in a way that qualifies, and both parties must agree in writing to apply it. One consequence buyers often miss: if you buy under the margin scheme, you generally cannot claim any GST credit.

Homes are different again

A sale of an established home is generally input taxed, so no GST is charged. New homes sold by a developer are normally taxable, sometimes using the margin scheme. Developers should build GST into their price lists and their forecasts of net sale proceeds.

What each outcome means for cash

Treatment	Cash effect for a registered buyer
Taxable supply	Pay GST at settlement, claim credit later
Going concern	No GST at settlement if conditions met
Margin scheme	GST included in price, generally no credit

On a taxable commercial purchase, the GST due at settlement is short-lived money, but often a large amount. A short-term secured loan can carry it until the credit comes back. See GST on commercial property.

Once your adviser has confirmed the treatment, ask about funding GST at settlement.

Developers with stock to sell

When completed units are sold, the developer must hand the GST from each sale to the ATO. If that stock is financed, the amount released to the lender from each settlement has to leave room for the GST, so the developer and lender agree release figures that cover the tax bill. See residual stock loans.

Illustrative example

Illustrative only. A Brisbane investor buys an empty warehouse from a registered seller. With no tenant, there is no leasing business to transfer, so the going concern route is not available and GST is added to the price. The investor’s bank lends against the price excluding GST. A short caveat loan over the investor’s home covers the GST at settlement, and it is repaid once the next BAS is lodged and the credit is refunded.

Questions to answer before you exchange

• Is the seller registered, and is this a taxable sale, a going concern or a margin scheme sale?
• Does the price include GST, or is GST added?
• Is the buyer registered and able to claim a credit?
• When is the credit likely to be refunded?
• In this state, is duty calculated on the GST-inclusive price?

Check registration early

Much of the outcome turns on whether each side is registered for GST and whether the property is being bought for a business. A buyer who is not registered, or who registers too late, may lose the credit altogether. Confirm both parties’ status well ahead of settlement, and get advice if you are close to the registration threshold or buying through a newly set up entity.

Getting the refund sooner

A business that expects a large credit may receive it faster by switching from quarterly to monthly GST reporting. Talk to your accountant first, because the change affects ongoing compliance as well as how soon this refund lands, and that in turn sets the term of any loan covering the GST.

Confirm the treatment, then solve the timing

GST on a property purchase is often money you will get back, but it still has to be paid on the day. Once your adviser has settled the treatment, send us the purchase details, the GST figure, the settlement date and the property you can offer as security. Your first enquiry involves no credit check, your details stay with our team, and a firm answer on GST lets us size the loan precisely. Start your enquiry.