The 2026–27 Federal Budget changed the tax rules for property investors. However, most new limits apply to residential property. Commercial assets still offer several key tax breaks. These include negative gearing, GST credits and depreciation.
For buyers looking at new commercial property tax benefits, the type of property matters. So do its use, ownership structure and lease. Small businesses, SMSFs and commercial property investors will all face different rules.
This guide covers the latest federal budget changes and the main tax benefits. It also explains tax depreciation, GST, capital gains tax, and the records owners should keep.
How the Federal Budget Changed Commercial Property’s Appeal
The Federal Budget limited negative gearing for some established homes, but it did not place the same limit on commercial property as expected. Owners may still use valid losses to offset other assessable income under a well-managed commercial asset.
This has made commercial assets more appealing to some investors. Buyers are now looking at shops, offices, warehouses and other similar property types in the commercial sector. Each asset offers a different mix of rent, risk and long-term growth.
Tax benefits do not make every property a good investment. Buyers still need to check the tenant, lease and rent. Local demand, loan costs and vacancy periods will also affect performance.
What Are the New Commercial Property Tax Benefits?
New commercial property tax benefits will reduce an owner’s tax liability in the right case. The result depends on which rules apply to the asset. Its use, lease, ownership structure and GST status all matter.
Key tax benefits include:
- Negative gearing on valid commercial property losses
- Capital works deductions for eligible building costs
- Depreciation on plant, equipment and fit-out assets
- A $20,000 instant asset write-off for certain small business assets where the relevant rules apply
- Tax deductions for loan interest and property management fees
- Claims for insurance, repairs and maintenance expenses
- GST credits on eligible purchases and running costs
- Duty relief for some later transactions in Victoria
- Small business CGT concessions for an eligible active asset
Owners need to separate direct deductions from costs claimed over time. Good records will support each claim. This step is crucial if an owner wants to maximise the available tax benefits.
A tax depreciation schedule will also reduce the risk of missed claims. It sets out what the owner will claim and when each claim applies.
Depreciation Benefits for Commercial Property Investors
New buildings often provide larger depreciation benefits. Their structures and assets have more value left to claim. This will improve yearly cash flow and the overall performance of a portfolio.
Owners will generally claim eligible building work at 2.5 per cent a year. These capital works deductions will run for up to 40 years. The building work and ownership details must still qualify.
Plant & equipment and commercial fit-out items follow other rules. Each claim depends on the asset’s effective life. A commercial tax depreciation schedule will list each item and show the yearly deduction.
Depreciation Category | Common Examples | General Tax Treatment |
|---|---|---|
Capital works | Walls, roofs and concrete floors | Claim 2.5% a year for up to 40 years |
Plant and equipment | Air conditioners, alarms and loose flooring | Claim over the asset’s effective life |
Commercial fit-out | Counters, shelves and office walls | Rules depend on the item, owner and lease |
Instant asset write-off | Valid assets bought by a small business | A direct claim will apply where the relevant rules are met |
Later improvements | Extensions, upgrades and new fittings | Claim over time under the relevant rules |
Deductions That Reduce Tax Liability
A commercial property owner or business owner will claim costs linked to rent or business income. These tax deductions reduce taxable income a private costs and capital improvements follow different rules. The ability to claim deductions is not always straightforward, which is why getting expert advice is vital during tax time.
Expense | General Tax Treatment | Important Consideration |
|---|---|---|
Property management fees | Usually claimed in the financial year paid | Fees must relate to the property |
Insurance premiums | Usually deductible when linked to rent | Private cover is not deductible |
Repairs and maintenance expenses | Often deductible when they fix wear or damage | An upgrade is a capital cost |
Council rates and outgoings | Usually deductible when paid by the owner | Check which costs the tenant pays |
Accounting and lease costs | Rules depend on the purpose | Some costs form part of the CGT cost base |
GST Credits on a Commercial Property Purchase
Many commercial property transactions include GST. A registered buyer will claim GST credits on valid costs when the rules are met. The site must support a taxable business use.
Before buying, investors should check:
- Whether the sale price includes GST
- Whether the buyer and seller have GST registration
- Whether the property will earn taxable commercial rent
- Whether the sale is a GST-free going concern
- Whether part of the site earns input-taxed income
- When to report GST credits on the business activity statement
- How deferred rent will affect the landlord’s GST liability
Input-taxed supplies do not give rise to GST credits. Buyers should check the sale contract before completion. They should also confirm each return date and the reporting cycle.
An incorrect GST assumption will lead to a large tax bill. Buyers should confirm the treatment before they sign the contract, not after the sale.
Capital Gains Tax After the Federal Budget
The new capital gains tax rules also cover commercial property. From 1 July 2027, cost base indexation will apply to affected investors. It will replace the current 50 per cent CGT discount under the new rules.
The purchase date and sale date will shape the capital gain. The property’s use and ownership structure will also affect the result. Investors should review these dates before the property is sold.
Until the new rules apply, eligible individuals who hold an asset for more than 12 months will generally qualify for the 50 per cent CGT discount. SMSFs generally receive a 33 per cent CGT discount after 12 months.
Companies cannot claim the individual CGT discount. A company includes the gain in its taxable income. The full company tax rate is 30 per cent, although a lower rate will apply to some base-rate entities.
Some small businesses will qualify for separate CGT concessions. The property must meet the active asset rules, and the business must pass the relevant tests. The $10 million turnover threshold used for some small business tax measures is not a general active asset CGT threshold.
Capital works deductions will reduce the property’s cost base. Depreciating assets receive separate tax treatment. Owners should keep all purchase, upgrade and sale records. These documents support the final CGT calculation.
Why Commercial Property Is an Attractive Option for Property Investors
Commercial property kept negative gearing under the new housing rules. It will also offer higher rent and longer leases in many cases. Tenants often pay some property outgoings as well.
Some commercial property owners and landlords previously received temporary land tax relief when they supported eligible tenants. This included a 25% land tax rebate or reduction. At the time, owners could also defer 2020 land tax payments until 31 March 2021.
That relief only applied to property with an eligible tenant. A commercial tenant generally needed an annual turnover below AUD 50 million. Applications closed on 30 June 2020, so these measures are not current tax benefits.
Current land tax rules vary between states and territories. Owners should check the rate, threshold and applicable concessions where they buy. Negotiating rent relief or changing a lease will also have tax implications.
Commercial property still carries real risks. A buyer will often need a larger deposit. A vacant site will also take longer to lease than many homes. Buyers should review the tenant, lease, site and market before making an offer.
Tax depreciation improves the after-tax result from an investment. It turns valid building and fit-out costs into yearly deductions. A detailed schedule will help investors maximise each claim and improve cash flow during ownership.
Investment Feature | Potential Benefit | Key Consideration |
|---|---|---|
Negative gearing | Valid losses will reduce other assessable income | Results depend on ownership and income |
Longer leases | Rent will remain stable for longer | A weak tenant raises income risk |
Higher rental yields | Rent will exceed returns from many homes in some markets | Results vary by site and asset type |
Tenant-paid outgoings | The owner will pay fewer running costs | The lease must list each cost |
GST credits | Valid buyers will recover GST on taxable costs | GST status and use affect the claim |
Commercial depreciation | Deductions lower taxable income | The schedule must list each asset |
Maximise New Commercial Property Tax Benefits
Investors should review the ownership structure before they buy. They should also check GST, likely deductions and state taxation changes. Good records should cover the purchase, lease and later work.
Victoria introduced its Commercial and Industrial Property Tax reform on 1 July 2024. Eligible commercial and industrial property will generally pay stamp duty on the entry transaction. Later qualifying sales will then receive relief from stamp duty and landholder duty.
The site enters a 10-year transition period after the first eligible transaction. The new 1% annual charge applies after that period. This industrial property tax is separate from existing land tax arrangements.
The reform will remove the high upfront stamp duty from later qualifying sales. This will reduce acquisition costs for future buyers and support businesses that want to expand. Eligible purchasers will also access a government-facilitated loan for the final duty payment where they meet the loan rules.
A professional schedule will list eligible capital works, plant, equipment and fit-out assets. It will show what the owner will claim each financial year. Advice from an experienced team will also help owners review the services they need before and after purchase.
Duo Tax prepares ATO-compliant schedules for commercial property investors. Get a free quote today or call Duo Tax on 1300 185 498.
