What are the tax implications when selling commercial property?

GST is a major consideration for any commercial property purchase.
GST is a major consideration for any commercial property purchase.

They say the only certainties in life are death and taxes, and it’s a maxim that’s especially true when it comes to selling commercial property.

If you have a commercial property for sale, understanding the tax implications is vital.

Generally speaking, when selling commercial property, you’ll have to pay:

  • Capital gains tax
  • GST

How much you’ll be required to pay depends on the type of entity that owns the property, which is why it’s crucial to get the entity correct when purchasing.

Here are a few other key things you should know.

What is capitals gains tax?

Capital gains tax is the tax that you pay when you make a profit on the sale of an asset, such as property, shares or a business.

The amount of tax you’ll pay depends on what type of entity is selling the commercial property.

Do I have to pay capital gains tax when selling commercial property?

Braden Johnston, director of accounting for Rising Tide, a financial planning and mortgage broking firm in Melbourne’s Docklands, says how much capital gains tax you pay will depend on what type of entity owns the property.

“The exact amount payable will depend on whether the entity can access the various capital gain concessions available, as well as that entity’s tax rate. For example, having a property in a company versus in a trust can have a huge impact on the amount of tax you pay,” Johnston explains.

How much will I have to pay?

In a simple scenario where a property is purchased for $1 million (including stamp duty) and is later sold for $2 million, taxes will be applied in the following ways:

Owned by a companyOwned by an individualOwned by a trust with four beneficiaries
Cost base$1,000,000$1,000,000$1,000,000
Sale price$2,000,000$2,000,000$2,000,000
Gain on sale$1,000,000$1,000,000$1,000,000
General capital gains tax discount (%) –50%50%
General capital gains tax discount ($) –$500,000$500,000
Taxable income$1,000,000$500,000$500,000 ($125,000 for each beneficiary)
Tax payable$275,000$208,156$145,184 ($36,296 for each beneficiary)
Tax rate on gain, assuming no other income27.5%20.82%14.52%

This is before any small business concessions, which could potentially reduce that tax down to zero, depending on the structure.

Do I have to pay GST when selling commercial property?

If the property is vacant, with no lease in place, then there generally needs to be GST added to the purchase price, Johnston says.

“The vendor would then pay that to the ATO, and the purchaser would claim it back if they are registered for GST.”

How much stamp duty should I pay when selling a property?

Stamp duty is a state-based tax that is applied when a property is sold. The person who buys the property has to pay the tax, not the seller.