Most residential property transactions in Victoria are exempt from GST. Most commercial property transactions attract 10% GST. The line between the two is more complex than it sounds: new-build residential is taxable, commercial-residential accommodation has its own rules, the margin scheme can apply, and the GST withholding obligations on buyers were tightened in 2018. Get GST treatment wrong on a commercial purchase and you can face an unexpected $50,000+ tax bill plus penalty interest.
This guide covers when GST applies to Victorian property, the margin scheme, and the buyer-side GST withholding for new residential property purchases.
The basic categories
| Property category | GST treatment | Buyer impact |
|---|---|---|
| Existing residential dwelling | Input-taxed (no GST) | No GST in price |
| New residential dwelling (under 5 yrs) | Taxable supply (GST applies) | 7% GST withholding by buyer |
| Vacant residential land (developer) | Taxable supply | 7% GST withholding |
| Commercial property (any) | Taxable supply | 10% GST in price (or margin scheme) |
| Commercial residential (hotel, motel) | Taxable supply | 10% GST in price |
| Going concern (with tenant) | GST-free if both parties registered | No GST if conditions met |
The buyer-side GST withholding (residential)
Since 1 July 2018, buyers of new residential property and residential vacant land must withhold 7% (or 1/11 if margin scheme applies) of the purchase price and remit it directly to the ATO at settlement. This was introduced after several high-profile GST collection failures by developers.
Mechanics:
- Vendor provides a notice (Form NAT 73869) advising whether GST applies
- If GST applies, buyer withholds 7% of contract price
- Buyer remits to ATO within prescribed time
- Vendor reconciles in their next BAS
Buyer responsibility: if you fail to withhold, you may be personally liable for the GST. Your conveyancer typically handles this — but verify.
The margin scheme
Under the margin scheme (Division 75 of the GST Act), GST is calculated on the “margin” — the difference between sale price and the property’s acquisition cost — rather than on the full sale price. The vendor pays GST equal to 1/11 of the margin (about 9%), reducing the GST cost.
Example: vendor bought commercial property for $1m, sells for $1.5m. Margin = $500,000. GST = $500,000 × 1/11 = $45,455.
Compared to standard GST on full sale: $1,500,000 × 10% = $150,000. Margin scheme saves vendor $104,545.
Buyer impact: if the vendor uses margin scheme:
- Buyer cannot claim input tax credit on the GST
- Buyer’s GST withholding obligation may differ (1/11 of price for residential)
- Margin scheme must be agreed in writing in the contract
When GST is excluded — residential exemption
Existing residential dwellings (occupied at any time as a dwelling for at least 5 years) are input-taxed under section 40-65 of the A New Tax System (Goods and Services Tax) Act 1999. This means:
- No GST in the sale price
- Vendor cannot claim input tax credits on costs
- Most second-hand homes fall here
For a property to qualify as “new residential” (and therefore taxable):
- The property has not been previously sold as a residential dwelling
- The property has been substantially renovated
- New buildings replacing demolished ones
Going concern — the GST-free option
A commercial property sold as a “going concern” (typically with existing tenant) can be GST-free under section 38-325 of the GST Act. Conditions:
- Vendor and buyer must both be registered for GST
- Both parties agree in writing the supply is a going concern
- Vendor supplies all things necessary for continued operation
- Vendor carries on the enterprise until day of supply
This is a significant saving on commercial purchases — typically 10% of the price ($100,000+ on a $1m commercial property).
Stamp duty interaction
Stamp duty is calculated on the dutiable value of the property, which includes any GST in the price. So a commercial property sold for $1.1m including GST has stamp duty calculated on $1.1m, not the GST-exclusive $1m.
Going-concern transactions: stamp duty calculated on the GST-free price.
Buyer due diligence on GST
- Check the contract for GST treatment. The contract should specify whether the price is GST-inclusive, GST-exclusive, GST-free (going concern), or input-taxed.
- Confirm vendor GST registration. For commercial purchases, vendor must be registered for GST.
- Margin scheme agreement. If margin scheme applies, confirm written agreement in the contract.
- Going concern documentation. Need written agreement and evidence of GST registration.
- For new residential — withholding notice. Vendor must provide Form NAT 73869.
- Advice from accountant. For commercial purchases over $1m, specialist tax advice is essential.
Ready to check your contract? Upload your Section 32 or Contract of Sale at precontractreview.com for a pre-contract check — typically in just a few minutes.