Sale and leaseback: tax and accounting, in plain English

A possible CGT event on sale

Selling your premises is generally a disposal for capital gains tax purposes, which can create a taxable gain (or loss) depending on what you paid for the property, what you spent on it, and what you sell it for. Ownership structure, how long you've held the asset, and any concessions that might apply to your entity all affect the outcome.

This is genuinely case-by-case. The right approach is to model the after-tax proceeds with your accountant before you commit to terms, not after.

General information only, not taxation advice. Your CGT position depends on your specific circumstances — get advice before proceeding.

GST and the going-concern concept

The sale of commercial property can attract GST, but there are circumstances where a sale of a leased, tenanted asset may qualify for GST-free treatment as the supply of a 'going concern' — broadly, where a continuing arrangement (the property, the lease, the tenancy) is sold as an operating whole rather than as a bare asset.

Whether that treatment is available depends on the specific facts of your transaction and how it's structured and documented. This is a question to work through with your accountant and lawyer as part of structuring the sale, not an assumption to make going in.

General information only, not taxation advice. GST treatment depends on your transaction's specific facts.

Rent as a deductible operating cost

Once you're the tenant, rent paid under the leaseback is generally deductible as an operating expense of the business, in the same way rent is deductible for any tenant. That's a different profile to ownership, where the costs sit as depreciation, interest and outgoings rather than a single rent line.

Whether the shift from ownership costs to a deductible rent line improves or changes your overall tax position depends on your business's structure and profitability, and is worth modelling rather than assuming.

General information only, not taxation advice. Confirm deductibility for your specific structure with your accountant.

Balance-sheet presentation, at a concept level

Under current Australian accounting standards, most leases — including a leaseback lease — are brought onto the tenant's balance sheet rather than treated purely as an off-balance-sheet cost. Broadly, the tenant recognises a right-of-use asset (representing the right to use the premises) and a corresponding lease liability (representing the obligation to pay rent over the lease term).

This is a different picture to owning the property outright, where the building itself sits on the balance sheet as an asset. The net effect on your reported financial position — gearing, asset base, key ratios — is something your accountant should walk you through using your actual numbers and lease terms, not general figures.

General information only, not accounting advice. Accounting standards and their application can change — confirm current treatment with your accountant.

Why owners model the after-tax outcome first

The commercial appeal of a leaseback — capital released, tenure kept — is easy to see. Whether it's the right move after tax, and after the accounting effect on your financial statements, depends on your specific structure, your entity, your existing cost base in the property, and your business's profitability.

The owners who get the most out of a leaseback are the ones who bring their accountant in early — ideally before terms are settled — so the deal is shaped around the after-tax outcome they actually want, rather than reverse-engineered afterwards.

Questions for your accountant

• What is my likely CGT position on selling this property, and are any concessions available to my entity?
• Could this sale qualify for GST-free treatment as a going concern, and what does that require in how we structure and document it?
• How does the shift from ownership costs to a deductible rent line affect my overall tax position?
• How will the new lease be recognised on our balance sheet, and what does that do to our gearing and key ratios?
• Are there timing considerations — within this financial year versus next — that change the outcome?
• What documentation or advice should be in place before we sign anything?