Key Takeaways
- Commercial property looks attractive because of higher yields, but it carries very different risks to residential property.
- Vacancy, financing and valuation risks are all bigger in commercial property — and so are the tax consequences if things go wrong.
- GST, depreciation, land tax and loan structuring work differently for commercial property, and getting them wrong can be costly.
- The right ownership structure (personal name, trust, company or SMSF) has a major impact on tax outcomes and asset protection.
- Commercial property can be a smart move later in your investment journey — but it needs proper tax planning before you buy, not after.
Why Investors Are Looking at Commercial Property
More property investors are asking about commercial property lately — office space, retail shops, warehouses and industrial units. The appeal is easy to understand: higher rental yields, longer leases, and tenants who often cover the outgoings.
As a registered tax agent and CPA, I’ve sat across the table from plenty of clients who made the jump from residential to commercial property. Some got it right. Others learned expensive lessons — not just about the property itself, but about the tax and structuring decisions that came with it.
Commercial property isn’t simply “residential property with better cash flow.” It’s a different asset class, with different risks — and very different tax rules attached.
The Property Risks Are Real (And They Flow Straight Into Your Tax Return)
Before we get into the tax side, it’s worth understanding why commercial property behaves so differently.
Vacancies last longer. A house might sit empty for a few weeks. A commercial property — especially a specialised office or large retail space — can sit empty for months or years. During that time, you’re still paying rates, insurance, land tax and loan repayments, but with no rental income to offset them at tax time.
It’s tied to the economy, not just population growth. Residential demand is driven by people needing somewhere to live. Commercial demand is driven by businesses needing somewhere to operate. When the economy slows, tenants downsize, close, or simply stop paying — and that income drop hits your tax position immediately.
Finance is stricter. Commercial lenders typically ask for bigger deposits, shorter loan terms, and often balloon payments at the end. That has real tax implications too — how you structure the loan affects what interest you can claim and how.
Valuations move with the tenant. Unlike a house, which is valued on comparable sales, a commercial property is valued largely on its rental income. Lose the tenant, and the property’s value — and your borrowing capacity — can drop overnight.
These aren’t just property risks. Every one of them shows up in your accounts, your BAS, or your tax return sooner or later.
The Tax Traps Most Investors Don’t See Coming
This is where I want to add some real value beyond the general property risks — because this is the part most articles on commercial property skip entirely.
1. GST Is Often Misunderstood
Commercial property transactions are usually subject to GST — unlike most residential property. This affects the purchase price, ongoing rent, and eventually the sale.
If you’re buying a commercial property as a “going concern” (with an existing tenant and lease in place), you may be able to purchase it GST-free — but only if very specific conditions are met. Get this wrong, and you could end up paying GST unnecessarily, or facing an unexpected GST bill down the track.
If you’re registered for GST, you’ll also need to charge GST on commercial rent and lodge regular BAS statements — something residential landlords never have to think about.
2. Depreciation Works Differently (And Better)
Commercial properties often come with far more valuable depreciation opportunities than residential property — think industrial fit-outs, specialised electrical systems, HVAC units, and commercial-grade fixtures.
A proper depreciation schedule, prepared by a qualified quantity surveyor, can make a real difference to your annual tax position. Many investors underclaim here simply because they don’t realise how much commercial-specific plant and equipment can be depreciated.
3. Land Tax Adds Up Faster Than People Expect
Commercial properties are often higher-value assets, and land tax is calculated on unimproved land value — not the building. Depending on your state and how many properties you hold (and how they’re owned), land tax can quietly become one of your biggest annual costs.
This is a big reason why ownership structure matters so much — more on that below.
4. Loan Structuring Affects What You Can Claim
With commercial loans often running 10–15 years with a balloon payment at the end, refinancing becomes a real event — not just a formality. Every time you refinance, restructure debt, or draw down equity, there are tax consequences around interest deductibility that need to be reviewed properly, not assumed.
5. The Wrong Ownership Structure Can Cost You for Years
This is probably the single biggest tax decision in commercial property investing, and it’s the one I see rushed the most.
Should the property be held:
- In your own name?
- In a trust?
- Through a company?
- Inside a self-managed super fund (SMSF)?
Each option has different implications for tax rates, capital gains tax treatment, asset protection, land tax thresholds, and what happens if you want to sell, pass the property on, or bring in a business partner later.
A structure that works well for a residential rental property doesn’t automatically work for a commercial one — especially if the property will be leased to your own business, which brings in a whole separate set of rules around related-party transactions.
6. Selling a Vacant or Underperforming Property Has Tax Consequences Too
If a tenant leaves and the property sits vacant, some investors decide to sell rather than ride it out. Depending on how long you’ve held the property, your entity structure, and whether it was ever used for business purposes, the capital gains tax outcome can vary significantly. This is exactly the kind of decision that benefits from a conversation with your accountant before you list the property — not after settlement.
Who Commercial Property Actually Suits
From what I’ve seen with clients over the years, commercial property tends to work best for investors who:
- Already have an established residential portfolio and equity to work with
- Have moved past the growth phase and want stronger income
- Can comfortably absorb a long vacancy period without financial stress
- Are prepared for the extra complexity — GST, land tax, depreciation, structuring
- Get proper tax and legal advice before purchasing, not after
It’s rarely the right starting point for a first-time investor, and it’s almost never something that should be purchased without a conversation with your accountant first.
The Bottom Line
Commercial property can offer strong yields and long-term income, but it comes with a level of financial and tax complexity that residential property simply doesn’t have. The investors who do well with commercial property aren’t just lucky with tenants — they’ve usually had the right structure and tax planning in place from day one.
If you’re considering a move into commercial property, the best time to speak to a registered tax agent is before you sign anything — not after you’ve already committed.
How AUZ Tax Can Help
At AUZ Tax, our team works with property investors, business owners and startups across Australia to get the structure, GST treatment and tax planning right from the start. Whether you’re weighing up your first commercial purchase or restructuring an existing portfolio, we can walk you through what it actually means for your tax position — in plain English, not jargon.
Frequently Asked Questions
Do I have to pay GST when buying commercial property? Usually, yes — commercial property purchases typically include GST, unless the sale qualifies as a “going concern” and specific conditions are met. This needs to be checked carefully before settlement, not after.
Can I claim depreciation on a commercial property? Yes, and often more than investors expect. Commercial properties frequently include valuable plant, equipment and fit-out items that can be depreciated, in addition to the building itself.
What’s the best ownership structure for commercial property? There’s no single right answer — it depends on your goals, whether the property will be leased to your own business, your income level, and your long-term plans. A trust, company, SMSF or personal ownership each carry different tax and asset protection outcomes.
Is land tax higher on commercial property? Not necessarily higher by rate, but commercial properties are often higher-value, and land tax is based on land value — so the total bill can be significant, especially if you hold multiple properties.
Should I get tax advice before buying commercial property, or after? Before. Many of the biggest tax costs in commercial property investing come from decisions made at purchase — structure, GST treatment and finance setup — that are difficult or expensive to unwind later.