Funding the GST on a commercial property purchase

On a commercial purchase, GST is often the line in the settlement statement that catches buyers out. The bank has approved the purchase, the deposit is paid, and then the numbers show a GST amount on top of the price that nobody has funded. On a $2m factory, that gap can run to six figures.

The good news is that for a GST-registered business buying premises to use, most of that money comes back as a GST credit. The problem is purely timing: the GST is due at settlement, and the credit arrives after your next BAS. That is a textbook job for a short, secured loan with a dated exit.

When does a commercial property purchase include GST?

The ATO says that a seller of commercial premises such as shops, factories or offices is generally liable for GST on the sale. How that reaches you depends on the contract’s GST clause: many commercial contracts add GST to the price.

The main exception is a sale of a going concern. The ATO says that sale is GST-free when it is for payment, the purchaser is registered for GST (or required to be), and both parties agree in writing that it is a going concern. The seller must supply everything needed for the business to continue, and must carry it on until the day of sale. For property, that generally means a tenanted building sold with its leases. The ATO is explicit that a sale of property by itself is not a going concern.

Purchase type	GST on the price?	Can the buyer claim it back?
Fully leased building, going concern conditions met	No, GST-free	Nothing to claim
Vacant premises bought to occupy	Usually yes, per the contract	Yes, if registered, for business use and holding a tax invoice
Seller uses the margin scheme	GST is worked out on the margin	No; the ATO says the purchaser can’t claim it
Buyer not registered for GST	Yes, if the seller is registered	No

For developers, the margin scheme deserves its own read: see GST and the margin scheme for small developers.

How do I get the GST back, and how fast?

The ATO lists the conditions for claiming a GST credit: you are registered for GST, you intend to use the purchase solely or partly in your business, the price included GST, you have paid or are liable to pay, and you hold a tax invoice for purchases over $82.50. The ATO says not to claim until you have the tax invoice, even if that pushes the claim into a later period.

Timing then depends on two settings your accountant controls.

• Accounting method. On a cash basis you claim in the period you pay. On an accruals basis you claim in the first period in which you are invoiced or make any payment.
• Reporting cycle. Monthly BAS is due on the 21st of the following month. Quarterly due dates are 28 October, 28 February, 28 April and 28 July. The ATO says a business can voluntarily move to monthly GST reporting, with the change taking effect from the start of the next quarter.

A purchase that settles early in a monthly period can be on a BAS within weeks. The same purchase on a quarterly cycle can wait much longer. That difference sets the loan term, so plan it before settlement.

Which loan structure fits a GST funding gap?

Your position	Structure that usually fits
Bank funds the GST-exclusive price; you own other property	Caveat or second mortgage over the other property
Bank funds the purchase and consents to a second charge	Second mortgage over the purchased property
Bank is slow or declines	Private first mortgage over the commercial property for the whole price including GST
Small GST amount, tight timing	Same-day caveat loan, possible for $20k–$250k

Because the GST loan is usually short and has a dated government refund as its exit, it is often a small, tidy deal. A caveat or second mortgage still prices above a first mortgage, as the lender stands behind the bank; within that, each loan is priced on security, LVR, term and exit, aiming for the sharpest figure the deal allows.

What does GST funding look like in numbers?

Illustrative example: a Melbourne joinery business agrees to buy a vacant factory for $2.2m plus GST of $220k, to move its workshop in. Its bank will lend against the GST-exclusive price only. The directors own an investment townhouse worth about $900k with $400k owing. Three months before settlement, the accountant moves the business to monthly GST reporting. A $240k caveat loan over the townhouse settles on the purchase date, paying the GST and costs inside the same settlement. The joinery lodges its next monthly BAS claiming the credit, and the loan is repaid from the refund about seven weeks after settlement. Interest was prepaid, so there were no repayments in between.

The loan was small relative to the purchase, short, and tied to a dated government refund.

Who does GST funding suit?

It usually suits:

• GST-registered businesses buying premises to occupy;
• investors buying commercial property as a taxable supply for a leasing enterprise;
• buyers whose bank funds only the GST-exclusive price.

It usually does not suit:

• buyers who are not registered for GST, as there is no credit to repay the loan;
• purchases under the margin scheme, unless there is another clear exit;
• residential purchases, where different GST rules apply.

Our commercial property purchase timeline shows where GST sits among the other steps, and buying commercial property fast covers funding the whole purchase.

What can go wrong, and how is it managed?

• The tax invoice is late. No invoice, no claim. Ask the seller’s solicitor to confirm the tax invoice will be issued at settlement.
• The going concern falls over. A tenant leaves or a lease is excluded, and GST suddenly applies. Keep your solicitor and us informed so the funding can be resized quickly.
• The refund takes longer than planned. Choose a loan term with a buffer beyond the expected BAS date, and capitalise or prepay interest so a delay does not strain cash flow.
• The figures are wrong. Your accountant should confirm the GST amount and the period in which it will be claimed before you sign.

What documents should I prepare?

• The contract of sale, including the GST clause and any going concern or margin scheme terms
• Your accountant’s confirmation of GST registration, accounting method and reporting cycle
• The bank’s approval showing what it will and will not fund
• Photo ID for borrowers, directors and security owners
• Details of any other property offered as security and what is owing on it

Need the GST covered at settlement? Send us the contract price and GST amount and a specialist will confirm the structure.

Key terms

• Going concern: a business sold with everything needed to keep operating; GST-free when the ATO’s conditions are met.
• Taxable supply: a sale on which GST is payable.
• GST credit: GST included in a business purchase that a registered buyer claims back on its BAS.
• Margin scheme: a way of calculating GST on property that stops the buyer claiming a credit.

Settlement date set? See if you qualify

Checking your options leaves no mark on your credit file, because nothing is run when you first enquire. One specialist reads the details, and they are not shopped around to other lenders. Our lending partner fundU lends directly, with no formal valuation required, so a short GST loan can be lined up alongside the main settlement.

Tell us the price, the GST amount, your reporting cycle and the property on offer. Accurate figures get the right answer first time. Also consider the duty position: see funding stamp duty. Start your enquiry now.