Commercial property transactions are among the highest-stakes entries a bookkeeper will process. A single miscoded commercial sale or purchase can mean tens of thousands of dollars in GST claimed incorrectly, or a legitimate input tax credit lost entirely. Yet the rules in this area are genuinely complex — the going concern concession, the margin scheme, and the input-taxed residential distinction each require specific treatment that cannot be inferred from general GST principles.
This guide is written for bookkeepers whose clients are property investors or developers, and who need to understand what questions to ask, what documentation to collect, and how to code each scenario correctly.
The fundamental question: is the supply taxable?
The starting point is whether the supply of commercial property is a taxable supply. For GST to apply, the supplier must be registered (or required to register) for GST, and the supply must be made in the course of an enterprise.
Commercial property sales are generally taxable supplies where the vendor is GST-registered and the property is used in a commercial enterprise. This is in contrast to residential property, which is input-taxed (broadly) and does not attract GST on the sale price.
However, "commercial" and "residential" are not always obvious:
- A mixed-use building (ground floor retail, upper floors residential) may need to be apportioned
- A property that was commercial but has been converted to residential may have changed its GST character
- Short-term commercial accommodation (hotels, serviced apartments) is taxable; long-term residential leasing is input-taxed
Before coding a property transaction, always establish in writing from the tax agent what the GST character of the property is. This is not a bookkeeping determination — it is a legal question. Your job is to code what the tax agent has confirmed.
Going concern concession
The going concern concession (s.38-325 of the GST Act) allows the sale of a business as a going concern to be treated as a GST-free supply, provided:
- The supply includes everything necessary for the continued operation of the enterprise
- The vendor carries on the enterprise until the date of supply
- The parties agree in writing that the supply is of a going concern
When the going concern concession applies to a commercial property:
- No GST is charged on the sale price
- The vendor does not remit GST on the sale
- The purchaser does not claim an input tax credit on the acquisition
- The GST code for the transaction is GST-free (FRE)
What bookkeepers must collect:
- A copy of the written agreement confirming going concern status (usually in the contract of sale)
- Confirmation from the vendor's tax agent that all conditions are met
- A clear note in the working papers explaining the GST-free treatment
If the going concern concession is applied but the conditions are not met, the ATO may deem the supply to be taxable and assess GST on the full sale price. The consequences of an incorrect going concern classification are significant — flag any uncertainty to the tax agent immediately.
The margin scheme
The margin scheme (Division 75 of the GST Act) is an alternative method for calculating GST on property sales. Under the margin scheme, GST is calculated on the margin (sale price minus acquisition cost) rather than on the full sale price.
The margin scheme is relevant primarily for property developers. It is only available where:
- The purchaser and vendor agree in writing to apply the scheme
- The vendor acquired the property in certain qualifying ways (not as a fully taxable supply with full ITC — the scheme is designed to avoid double-counting)
Example:
- Developer purchases land for $500,000 (no GST, acquired from a residential vendor)
- Developer sells developed lots for $1,200,000
- Under the margin scheme: GST = 1/11 of ($1,200,000 − $500,000) = $63,636
- Without the margin scheme: GST = 1/11 of $1,200,000 = $109,091
For the purchaser under the margin scheme: no ITC is available on the purchase. The purchaser cannot claim back the GST embedded in the margin — this is a feature of the scheme design.
Bookkeeping implications:
- Ensure the contract explicitly states the margin scheme applies
- Code the vendor's GST liability to the correct GST account based on the margin calculation, not 1/11 of the full price
- For the purchaser: code the full purchase price as the cost of the asset with no GST ITC claimed
Input tax credits on commercial property purchase
When a GST-registered entity purchases commercial property as a taxable supply (i.e., the going concern and margin scheme do not apply), the purchaser is entitled to a full input tax credit of 1/11 of the purchase price.
Conditions for the ITC:
- The purchaser must be GST-registered
- The property must be intended for use in making taxable or GST-free supplies (not input-taxed supplies such as residential tenancies)
- A valid tax invoice must be held
Apportionment for mixed use: Where a commercial property will be used partly for taxable purposes and partly for input-taxed purposes (e.g., the purchaser plans to use part of the building for residential letting), the ITC must be apportioned. The ATO accepts several apportionment methods — floor area is common for real property. The apportionment methodology should be agreed with the tax agent before the BAS is lodged.
Luxury car tax / high-value asset rules do not apply to commercial property — there is no equivalent cap on ITCs for real property. However, GST on commercial property purchases is typically lodged as a credit in the BAS period in which settlement occurs.
Residential vs commercial: the line that matters most
The single most important determination in property transaction bookkeeping is residential vs commercial.
Residential property:
- Sale of existing residential premises: input-taxed (no GST, no ITC on the sale proceeds)
- Sale of new residential premises: taxable supply (GST applies on the full price)
- Rental income from long-term residential tenancies: input-taxed (no GST charged on rent, no ITC on associated expenses)
Commercial property:
- Sale: taxable supply (unless going concern or margin scheme applies)
- Rental income: taxable supply (GST charged on rent, ITC claimed on associated expenses)
The residential/commercial distinction is determined by the physical character of the premises, not the zoning or the purchaser's intention. A warehouse used as an artist's live-work studio is still commercial. A residential apartment building used for Airbnb short-term lets may be taxable (short-term commercial accommodation) rather than input-taxed.
Documentation checklist for property transaction clients
For each commercial property transaction, collect and retain:
- Executed contract of sale with GST clause (taxable supply, going concern, or margin scheme as applicable)
- Tax invoice from the vendor (if taxable supply)
- Written agreement confirming going concern or margin scheme (if applicable)
- Tax agent confirmation of GST treatment
- Settlement statement showing final purchase price and any adjustments
- Apportionment calculation (if mixed use)
- Evidence of the purchaser's GST registration
ReconLink's bank reconciliation can flag large settlement transactions for manual review before they are coded, which is a useful safeguard for high-value property deals where a miscoding would have material consequences. Coding a $2 million commercial purchase with an incorrect GST treatment is a mistake that should not survive BAS review — but it happens more often than it should.
Practical advice for bookkeepers
- Never code a commercial property transaction without a tax agent sign-off on the GST treatment. This is not within a bookkeeper's scope to determine unilaterally.
- Collect the contract and settlement statement before coding — not after. The BAS period in which settlement falls must include the correct GST treatment.
- Flag margin scheme transactions separately in your working papers. The GST calculation is non-standard and will confuse a review if it is not explained.
- Keep apportionment records for mixed-use properties and review them annually — a property's use mix can change over time.
Commercial property bookkeeping rewards careful process. The rules are clear once you know them; the challenge is disciplined execution at the transaction level.
This article was last reviewed on 17 November 2026. GST law as it applies to property is subject to legislative and ATO ruling changes — always confirm current guidance at ato.gov.au/property and consult a registered tax agent for advice on specific transactions.