When renting out a property, it is crucial to consider when GST is applicable. To do this, it’s important to understand whether you are providing premises which are residential or commercial for rent.

Residential properties are rented out solely for the purpose of being an individuals’ or families’ dwelling or home. GST is not applicable on residential rent, meaning tenants are not entitled to claim GST credits on the expenses provided, and landlords are not required to collect GST on the rental income. The same is true even if you are currently registered for GST for other business purposes.

Commercial rental premises are considered to be properties that are rented out and used for business or income producing activities, such as hotels, offices, caravan parks or warehouses to name a few. Commercial rental income is subject to GST as is the property when purchased or sold.

Purchasing or Selling a Commercial Rental Property

If you are registered for GST and purchase a commercial rental property, then you will be entitled to claim a GST credit equal to one-eleventh of the purchase price of the property, as well as on any expenses incurred to purchase the property such as legal fees. To qualify for these credits the following must apply:
– It was not a GST-free sale of an operating business
– The margin scheme was not used to calculate the GST

When it comes time to sell the property, you will also be liable for GST, calculated as one-eleventh of the sale price (unless it was a GST-free sale or the margin scheme was used). You will also be entitled to claim GST credits on all GST inclusive expenses related to selling the property, such as legal fees and agents fees.

Renting Out Commercial Premises

When renting out the commercial premises, you are required to be registered for GST where your GST turnover is expected to be $75,000. This means you will be liable to charge and declare GST on the rental income you receive. You will also be entitled to claim GST credits on all GST inclusive purchases and expenses you incur for the property.

If you are unsure about whether or not you should be registered for GST when renting out your property, or need assistance doing so, then please do not hesitate to get in touch with our office and we can assist you in this process.

Related blogs:

Is there any GST when buying a commercial property?
GST withholding on new residential property

Author: Molly Ingham
Email: molly@faj.com.au