The application of GST on a commercial property purchase or sale in Queensland is agreed between the parties and recorded in the contract before signing. Where the GST provisions do not correctly reflect the parties intentions, one party may find itself liable for an amount it had not accounted for.
It is always recommended that you obtain advice from your accountant on the GST treatment of your specific transaction. Once that advice is in hand, your agent or solicitor should ensure the contract correctly records it.
The REIQ commercial contract provides five GST options, and only one may be selected. Understanding how each option operates will help you raise the right questions with your accountant before the contract is signed.
Option 1: No GST payable or price includes GST
Under this option, the buyer pays the purchase price and nothing more for GST. If GST is payable on the sale, the seller must account for it out of the price it receives. This is also the default position, so if the GST section is left blank, the contract operates as though this option was selected.
Check with your accountant: Your accountant should confirm whether GST is payable on the sale. This option generally favours the buyer. If the seller expected to receive GST on top of the price, the contract will not entitle them to it.
Option 2: GST in addition to the price
Under this option, the purchase price excludes GST. At settlement, the buyer pays the price plus an amount equal to the GST the seller is liable to pay on the sale.
Check with your accountant: Your accountant should confirm that GST is payable on the sale and whether you can claim it back as an input tax credit. This will depend on whether you are registered for GST and how you intend to use the property.
Option 3: Margin scheme
Under this option, the price includes GST, and the seller calculates that GST using the margin scheme. In broad terms, the margin scheme allows the seller to pay GST on its margin rather than on the full sale price. The buyer does not pay any additional amount for GST.
Check with your accountant: Whether the seller can use the margin scheme is a matter for the seller’s accountant. As a buyer, you should ask your own accountant what a margin scheme purchase means for you, including whether you can claim an input tax credit.
Option 4: Going concern
Under this option, the price does not include GST because both parties agree the property is being sold as a going concern. In simple terms, this means an operating business or enterprise is being handed over as a whole. This option is common where a tenanted investment property is sold with its leases in place.
Check with your accountant: Whether a sale qualifies as a going concern depends on the facts, and simply selecting this option in the contract does not make it one. Your accountant should confirm the position before you sign, and also confirm that the buying entity will be registered for GST by settlement.
Option 5: Farm land
Under this option, the price does not include GST because both parties agree the sale is a supply of farmland for farming. For a sale of freehold land to be GST-free on this basis, two requirements must be met. The land must have been used for a farming business for at least five years immediately before the sale, and the buyer must intend that a farming business will be carried on on the land. The contract reflects this by requiring the seller to warrant the land’s farming history and the buyer to warrant its intended use of the land.
Check with your accountant: Your accountant should confirm that both requirements are met before the contract is signed. As with the going concern option, selecting this option does not of itself make the sale GST-free. The seller should be satisfied that the farming history of the land can be substantiated, and the buyer should be confident of its intention to farm the property, as each party is giving a warranty on which the other relies.
When the GST terms go wrong
The margin scheme, going concern and farm land options each depend on warranties given by each party.
If a warranty given by the seller proves to be incorrect, the buyer may be able to end the contract before settlement or claim compensation. If the going concern or farmland treatment does not apply for another reason, or a warranty given by the buyer proves to be incorrect, the buyer will generally be responsible for the GST.
These remedies sit alongside any other rights the parties may have. The safest course is to make sure the correct option is selected, and confirmed by your accountant, before the contract is signed.
A note on GST withholding
The contract also contains a GST withholding section. The seller must state whether the buyer is required to withhold part of the purchase price and pay it directly to the ATO at settlement. If withholding applies, the contract sets out the forms the buyer must lodge and how the payment is made. Your accountant should confirm whether withholding applies to your transaction.
Speak to us before you sign
The best time to verify the GST position on the purchase of your commercial property is before the contract is signed, while the terms can still be negotiated. Once both parties have signed, the GST terms can only be changed by agreement.
If you are buying or selling commercial property, we recommend speaking with Ardor Legal before you sign anything, whether that is the contract, a heads of agreement, a term sheet, a letter of intent or a confidentiality agreement.
Book a complimentary 15-minute discovery meeting to find out how Ardor Legal can assist with your next commercial transaction.
Frequently Asked Questions (FAQs)
Does the purchase price in a Queensland commercial contract include GST?
It depends on the GST option selected in the REIQ commercial contract. If the box for GST in addition to the price is selected, the buyer pays GST on top of the price at settlement. If the GST section is left blank, the contract treats the price as including any GST, so the buyer pays nothing extra.
What does “going concern” mean in the REIQ commercial contract?
If the going concern option is selected in the REIQ commercial contract, the price does not include GST and both parties agree the property is being sold as an operating business or enterprise. The seller warrants that it will continue to operate the business until settlement, and the buyer warrants that it will be registered for GST at settlement. If the sale turns out not to be a going concern, the buyer will generally have to pay the GST, unless the seller is at fault. Your accountant should confirm how the GST provisions apply to your commercial property purchase or sale before you sign the contract.
Can the GST terms be changed after the REIQ Commercial Contract is signed?
Once a commercial contract is signed, the GST terms can only be changed if both parties agree. That is why the GST selection should be checked with your accountant and lawyer before you sign.
When is GST paid on a Queensland commercial property purchase?
Where the REIQ commercial contract requires the buyer to pay GST in addition to the price, the buyer pays it on the settlement date. The seller must give the buyer a tax invoice where GST is payable on the sale.
