You do not have to pay GST if you’re selling a commercial property that is a taxable activity and:
- both you and the buyer are GST-registered
- you'll continue the taxable activity until the property is transfers to the buyer
- the buyer will continue the operation of the property as a taxable activity.
This type of transaction is zero-rated.
GST and existing tenants
If you're going to sell a commercial property and you're registered for GST the sale will be a taxable supply. This means GST is charged at either 0% or at 15%. The rate you'll use depends if there are existing tenants in the property you're selling.
GST is at 0% when the property has existing tenants
GST is 0% if the commercial property has an existing tenant. A commercial property that has an existing tenant is is a going concern. (The parties in the sale must agree in writing that it is a going concern.)
For a commercial property to sell as a going concern the:
- buyer must be GST-registered
- the existing tenant and the buyer must agree to continue operating with the tenancy.
GST is at 15% when the property has no existing tenants
If the commercial property you’re selling does not have an existing tenant, GST will be payable. You might then put up the price by 15% on account of the GST payable.
Your buyer can claim a GST deduction on the purchase price of an untenanted commercial property. They must acquire it for the main purpose of making taxable supplies and be registered for GST. (This would be the case if you they intended to find another commercial tenant once they purchased the commercial property.)
It's not the same if you claimed a GST deduction when you originally purchased the property. When you've done this you would have to account for GST on the sale.
Taxing income from selling commercial property
Any profits from the sale of commercial or residential land and buildings are income. Tax must be paid on the profits if the property:
- was acquired for the purpose of resale
- was acquired and sold as part of a business of dealing in or developing or erecting buildings on land
- was acquired by a person whose business developing or erecting buildings on land sells the property within 10 years of acquisition
- was acquired by a person who is associated with another person who has a business of dealing in or developing or erecting buildings on land and the property is sold within 10 years of acquisition
- is sold at a profit within 10 years of acquisition and at least 20% of that profit is due to zoning (or possible) zoning changes
- gains arising from the sale of all or part of the property, where the property is developed or subdivided within 10 years of acquisition. Unless the development was to enable the owner to carry on a business on the land, or in order for the owner to reside on the land or to derive rental income from the land
- a major development involving significant expenditure takes place more than 10 years after acquisition (only the development profit is taxed in this case).
Land sales rules
You return GST on all land sales and claim it on all land purchases. You do not have to do this for:
- property used only for making exempt supplies (for example, residential accommodation)
- transactions that are zero-rated (ie charged with GST at 0%).