SMSF Buying a Commercial Property? Don’t Overlook How You’ll Fund the GST

Buying your own commercial business premises through an SMSF is a strategy many business owners dream of. It can provide secure tenure for your company and allow you to pay rent to yourself — your super fund — rather than a landlord.

However, commercial property transactions have a unique hurdle that residential deals don’t: Goods and Services Tax (GST). If you haven’t planned for GST, you could find yourself $100,000 or even $200,000 short on settlement day.

The Two GST Scenarios

Whether or not you pay GST depends entirely on how the property is being sold. Understanding this distinction before you sign anything is critical.

1. Going concern (generally no GST)

A property is sold as a “going concern” if there is an active lease in place at the time of settlement. For example, if you are buying a warehouse that is already tenanted, or if your business is already occupying the building and will continue to do so under a new lease.

Result: the transaction is typically GST-free. There are some rare exceptions to this rule and it’s best to seek independent legal advice so you’re aware of your funding requirements.

2. Vacant possession (GST applies)

If the property is empty and has no lease in place, it is typically sold as a “vacant possession.”

Result: the sale will typically include 10% GST on top of the purchase price.

Quick reference: going concern vs vacant possession

*Please consult your solicitor to confirm

The $200,000 hidden cost: a real example

Imagine you find your dream office space for $2,000,000. You have your 20% deposit ($400,000) and an approved SMSF loan of $1,600,000. What you need to settle depends on whether the property comes with a lease or not.

Example 1: Going Concern 

In the table below, GST does not apply as the commercial property purchase is a going concern – a lease agreement is in place and therefore the property is not vacant.

Example 2: Vacant Possession 

Because the property is vacant, GST typically applies – meaning you need to fund another $200,000 towards the purchase. These funds must be in your SMSF and, when your BAS is lodged, you will receive a GST refund.

Under a vacant possession scenario, your stamp duty bill is now $12,990 higher and you need $763,236 in your SMSF to settle. Most lenders will only lend against the net purchase price ($2M), not the GST – meaning your SMSF needs to find that extra $200,000 in cash on settlement day.

The GST Cash Flow Gap

The good news is that if your SMSF is registered for GST, it can usually claim that $200,000 back from the ATO in its next Business Activity Statement (BAS).

The bad news is the timing. You have to pay the $200,000 at settlement, but you might not receive the refund from the ATO for 30 to 90 days. This is the “GST cash flow gap”, and it catches many buyers off guard.

How to fund the gap

• Fund cash. Having enough liquid cash in the SMSF to cover the GST and wait for the refund.
• GST bridge loan. Some specialist lenders offer short-term bridge loans specifically to cover the GST until the ATO refund arrives — typically repayable within 3–6 months.
• Going concern structure. Working with your solicitor before signing to ensure the contract is structured as a going concern where possible, eliminating the GST liability entirely.

How we help fund GST 

What if you don’t have enough cash in your SMSF to fund the GST? That’s where we help. We’ll work with you to understand your unique circumstances and find a lender who can fund the GST temporarily so you don’t need to find capital or liquidate other superfund assets to cover it.

Some lenders (not all) understand this predicament and offer a specific loan product for these situations. They understand the source of clearance will come from your BAS lodgement refund. In the example below, you only require $563,235 in your SMSF versus $763,236 if you went with a lender that did not offer a GST loan.

Why you need expert help early

GST in commercial property can be tricky, and the stakes are high. If the contract is signed incorrectly, or if your SMSF isn’t registered for GST at the right time, you could lose the ability to claim the refund entirely.

It’s also important to understand that stamp duty is charged on the purchase price plus GST (GST-inclusive), which is why stamp duty is higher under a vacant possession scenario, as shown in the examples above.

Before signing the contract of sale, seek advice from a solicitor who specialises in commercial property purchases and has experience with SMSFs — not just a typical conveyancer. Each state is different: some states require the bare trust to be nominated, whereas others don’t specify. Refer to our FAQs on which legal entity should be executing the contract of sale to avoid unnecessary fees.

Plan your purchase today. Use our SMSF Loan Calculator to model your borrowing power and ensure you factor in the GST cash flow gap in your projections. If you’re buying a commercial space, talk to the experts at SMSF Mecca Finance, we specialise in commercial SMSF loans and can help you navigate the GST requirements with our network of lenders.