Commercial property — offices, retail premises, industrial buildings, and warehouses — is taxed quite differently from residential property in New Zealand. Understanding GST on purchase and sale, depreciation on buildings and fitout, and the deductibility rules helps you structure commercial property investments correctly.
Commercial property is GST-registered territory — sale of commercial property between two GST-registered parties is zero-rated (no GST changes hands). Rental income from commercial property is subject to GST (15%) if your turnover exceeds $60,000. Unlike residential rental, the bright-line test does not generally apply to commercial property. Building depreciation was reintroduced for commercial buildings in 2020 at 2% straight-line (paused again from 2024–25). Fitout and chattels depreciate at faster rates.
GST on Commercial Property
Commercial property transactions are fundamentally different from residential for GST:
Buying Commercial Property
If you are buying commercial property as a GST-registered person:
- The purchase may be zero-rated (if seller is also GST-registered and you intend to use for taxable supplies)
- Zero-rated means no GST changes hands at settlement — you do not get an input tax credit, and the seller does not charge GST
- If the seller is not GST-registered, the purchase is outside the GST system — no GST implications
Always confirm with your lawyer and accountant before settlement — miscommunication about GST can create large unexpected liabilities.
Selling Commercial Property
If you sell commercial property while GST-registered:
- Sale to another GST-registered buyer: typically zero-rated (buyer declares they are registered and will use for taxable supplies)
- Sale to a non-GST-registered buyer: standard-rated (GST at 15% on sale price — a significant cost if not built into the purchase price)
Rental Income from Commercial Property
Commercial property rental income is a taxable supply for GST:
- If annual rental income exceeds $60,000, you must be GST-registered
- Charge tenants 15% GST on rent (or include in rent if agreed as GST-inclusive)
- Claim GST back on all commercial property expenses (rates, insurance, repairs, property management)
Residential vs commercial GST on rent:
- Residential rent: exempt from GST (no GST charged, no input credits)
- Commercial rent: taxable at 15% (GST charged, input credits available)
Depreciation on Commercial Buildings
The history of commercial building depreciation in NZ is complex:
| Period | Building depreciation |
|---|---|
| Before 2010 | 4% DV (or 3% SL) — buildings were depreciable |
| 2010–2020 | 0% — building depreciation removed |
| 2020–2024 | 2% SL reintroduced (COVID stimulus measure) |
| 2024–25 onwards | 0% again — building depreciation removed again from 2024–25 tax year |
As of the 2024–25 tax year, commercial building structures (the building shell) are not depreciable.
However, fitout and chattels remain fully depreciable:
| Item | Depreciation rate (DV) |
|---|---|
| Air conditioning/HVAC | 20% |
| Carpet | 25% |
| Office furniture | 20–25% |
| Kitchen fitout | 13.3% |
| Electrical fit-out (lighting, wiring) | 20% |
| Security systems | 20% |
| Lifts and escalators | 8% |
Work with a quantity surveyor or depreciation specialist to identify and separately value depreciable chattels and fitout within a commercial property — this can unlock significant deductions even when the building itself is not depreciable.
Deductible Expenses for Commercial Property
| Expense | Deductible? |
|---|---|
| Mortgage interest | Yes — fully deductible (no ring-fencing for commercial) |
| Rates and insurance | Yes |
| Property management fees | Yes |
| Repairs and maintenance | Yes |
| Building warrant of fitness | Yes |
| Legal fees (ongoing, not acquisition) | Yes |
| Fitout depreciation | Yes |
| Accounting and tax fees | Yes |
| Advertising for tenants | Yes |
Key difference from residential: There is no interest deductibility ring-fencing for commercial property. Interest on loans for commercial investment property is fully deductible — unlike residential rental, where interest deductibility has been progressively limited.
The Bright-Line Test and Commercial Property
The bright-line test applies to residential land, not commercial property. If you sell a commercial building, the profit is generally:
- Not taxable unless you acquired the property with the intention of resale (the “intention test”)
- Taxable if you are in the business of buying and selling commercial property (a dealer)
The intention test applies regardless of holding period — if you bought a commercial property intending to sell it for profit, the gain is taxable. This requires honest self-assessment and is fact-specific.
Depreciation Recovery on Sale
When you sell a commercial property that has depreciated chattels or fitout:
- If the sale price allocable to the chattel exceeds its depreciated book value, a depreciation recovery arises
- Depreciation recovery is taxable income in the year of sale
- Work with your accountant to allocate the purchase price across land, building, and chattels in the sale agreement
Commercial Property Held in a Company or Trust
Many commercial property investors hold property in a company (28% tax rate) or trust (39% trustee rate or beneficiary rates). Key considerations:
- Rental profits taxed at 28% in a company vs personal rates (up to 39%)
- Imputation credits attach to dividends paid from company profits
- Trust structures allow distribution to beneficiaries at their personal rates
- GST registration is at the entity level — the company or trust registers
Frequently Asked Questions
I’m buying an office building as an investment. Do I need to register for GST?
If rental income will exceed $60,000/year, yes. You should also be registered when you purchase, to ensure the transaction can be structured as zero-rated (otherwise the seller charges 15% GST on top of the purchase price).
The building I’m buying has a mix of commercial and residential tenants. How does GST work?
Mixed-use buildings require apportionment. GST on purchase is claimed for the commercial portion only. Rent from commercial tenants is subject to GST; residential rent is exempt. Your accountant will calculate the apportionment.
Can I claim the full cost of refurbishing a commercial building?
Refurbishment costs may be:
- Revenue expenditure (repairs and maintenance — deductible immediately)
- Capital expenditure (improvements — depreciated over time as chattels or buildings)
The distinction matters. A like-for-like repair is revenue; an upgrade that adds value or changes the character is capital.