Sale and Leaseback Australia: How It Works, Costs & Risks
Property Lending Hub
Sale and leaseback · Business premises · Owner occupiers
Someone has offered to buy the building your business trades from and rent it straight back to you. The rent helps set the price, but the decision also changes what cash you actually receive, what your next lender sees, and how easily you can sell the business later. Here is how to test the whole trade before you give up the freehold.
Quick Answer
A sale and leaseback is where a business sells the premises it trades from and stays as the tenant. The rent and lease terms largely drive what an investor will pay, so a higher headline price can be bought with a higher long-term occupancy cost. Compare the net cash after debt and transaction costs, the lease you are committing to, and what borrowing against the property instead would achieve before you sign.
Also called a sale-leaseback, a leaseback, a sale and rent back, or selling your premises and renting them back. A property let above market rent is described by valuers as over-rented.
Start where you actually are
- An offer has landed and you have not answered it
- Work out whether what you have been sent already binds you, then check whether the rent in it is doing the work. See is the offer already binding and is the rent real.
- You need capital and the bank has said no
- Selling is one way to get value out of the building and it is the most expensive one to reverse. See selling versus releasing equity, what happens to the loan already on the building, and what selling does to your borrowing afterwards.
- You have decided to explore it but do not have a buyer yet
- Do not start by inventing a rent and waiting for somebody to price it. See who buys leasebacks, how a campaign is run and what the buyer, valuer and financier will underwrite.
- You want to know what will actually land in the bank
- The headline sale price is not the usable capital. Start with what you actually receive after debt, costs and settlement adjustments, then check GST and the tax position before you allocate the proceeds.
- You are winding down, retiring or selling the business
- The concessions and the timing of the contract date decide more than the price does. See the small business CGT concessions, the GST position, and whether the lease will let a future business sale actually complete.
- You are worried the business may have a bad year after the sale
- Once you have sold the freehold, a cashflow problem becomes a lease-default problem rather than a mortgage problem. Read what arrears, guarantees, surrender and insolvency can mean before using a long lease to solve a short-term capital need.
- You expect to sell the operating business in the next few years
- A leaseback can turn the landlord into a gatekeeper on the business sale. Read assignment, permitted use, guarantees and remaining lease term before you sign a long lease today.
- You want tenure even if the buyer later refinances, sells or gets into trouble
- Your protection is the lease and its place in the title and financing structure, not the buyer's name on day one. See registration, mortgagee consent, redevelopment rights and what to ask your solicitor to lock down.
- You think you may want the building back later
- There is no automatic route back to ownership. See what a repurchase right can do to the accounting and make any option or first-right discussion part of the term sheet, not an afterthought.
- Your accountant has raised your super fund buying the premises
- Superannuation law permits it and the conditions are strict. See selling to your own super fund and what goes wrong in an SMSF leaseback.
What is a sale and leaseback of your own business premises?
A sale and leaseback is one transaction with two halves: you sell the building your business occupies, and in the same contract you sign a lease that keeps you in it as the tenant. The buyer acquires a tenanted investment from day one, and you convert an illiquid asset into cash without moving a single pallet.
This is not the residential arrangement of the same name. A vendor leaseback or rent back on a house sale is a short holdover while the seller finds somewhere to live. What this guide covers is a commercial transaction over premises a business trades from, where the lease is a long term investment-grade document and the rent is the thing the buyer is actually purchasing.
The ownership change is the part most owners underestimate. You go from holding freehold title to holding a leasehold interest in exactly the same walls. Nothing about the building changes. Everything about your rights over it does, and those rights are now whatever the lease says they are.
The same structure is used on machinery. A manufacturer can sell plant and lease it back for working capital, and while the shape of the deal rhymes, the tax, the security and the lender treatment are all different. That version is covered in the same structure applied to plant rather than property. This guide is about real property only.
| The question | The short answer | Where the detail is |
|---|---|---|
| What you get | Cash released from a building you keep using, but the usable amount is the sale price after secured debt, transaction costs and settlement adjustments. | What actually lands |
| What you give up | Ownership, the future capital growth, and the security your lender was reading when it priced your last facility. | What it does to your borrowing |
| What it costs each year | Rent, plus whatever outgoings the lease pushes on to you, both escalating on the review basis you agree at the start. | The lease a buyer requires |
| What happens to your borrowing | The next facility is read on cashflow rather than on property, and the lease itself becomes a commitment on the file. | What the next lender sees |
| What the alternative is | Releasing equity against the building and keeping it, or selling it to your own super fund and leasing it back from there. | The four routes compared |
If the building is still the security behind an existing facility, the sale has to be sequenced with a discharge, and that is a different conversation from a straight commercial property loan. It is worth understanding how commercial property lending is assessed before you agree to anything, because the terms you sign as a tenant are read by the next lender as a fixed obligation.
| The question | The short answer | Where the detail is |
|---|---|---|
| What you get | The sale proceeds in cash, released from a building you carry on using, without relocating the business. What lands in your account is lower than the price. | How much cash you actually receive |
| What you give up | Ownership, the future capital growth, and the security your lender was reading when it priced your last facility. | What it does to your borrowing |
| What it costs each year | Rent, plus whatever outgoings the lease pushes on to you, both escalating on the review basis you agree at the start. | The lease a buyer requires |
| What it does to a later business sale | The premises stop being an asset you can transfer and become a lease your buyer has to be allowed to take over. | Selling the business afterwards |
| What the alternative is | Releasing equity against the building and keeping it, or selling it to your own super fund and leasing it back from there. | The routes compared |
Why do owner-occupiers do it, and what does the money get used for?
Most owners reach for a leaseback because the balance sheet is asset rich and the bank account is not. The building has appreciated for fifteen years, the business needs capital now, and every conventional route either needs security the owner has already pledged or takes longer than the opportunity will wait. Selling the premises releases the whole value in one settlement rather than the fraction a lender will advance against it.
That is the honest case for it, and it is a real one. The dishonest version is the pitch that a leaseback is free money because you keep using the building. You do not keep using it for free. You have swapped a depreciating mortgage for a permanent, escalating rent, and rent is the only business cost that never amortises.
Where the proceeds go decides whether the trade was worth making. Money that funds a step change in trading capacity, retires expensive short term debt, or buys out a departing shareholder is money doing work the building could not do. Money that funds an operating shortfall has bought time, not capacity, and the rent bill outlives the time it bought.
Uses that tend to hold up
- Funding capacity the business can already sell, such as plant, a second site or a book of work
- Retiring short term or high cost debt and resetting the working capital cycle
- Funding a shareholder exit or a succession event that has a deadline
- Releasing capital from a specialised building that no lender will advance heavily against
Uses that tend not to
- Covering an operating shortfall, where the rent outlives the problem it solved
- Funding a purchase that a facility against the same building would have funded more cheaply
- Diversifying into an unrelated asset the owner does not run
- Anything reversible, because the sale of a freehold is not
The comparison that actually matters is against not selling at all. Releasing equity keeps the asset, the growth and the option to sell later on your own timing, and it is the route this guide keeps returning to. If your position is capital-constrained rather than capital-destroyed, start with the options available to an asset rich, cash poor business owner and treat the leaseback as the fallback, not the opener.
Who buys sale and leaseback properties, and what will they check before making an offer?
A sale-and-leaseback buyer is buying two things at once: your real estate and your promise to keep paying rent. That means the buyer pool is determined as much by the strength of your business as tenant as it is by the building itself. A strong property with an unsustainable rent is not a strong leaseback, and a strong tenant in a building nobody else could use can still be difficult to finance.
How do you actually take a leaseback to market?
You can negotiate bilaterally with one buyer, approach a targeted group off-market, or run a competitive investment-sale campaign through a commercial property agent or capital-markets adviser. The route changes the leverage. A bilateral deal can be faster and quieter, but a competitive process gives you evidence that the price, rent and lease package survived more than one buyer's underwriting.
Prepare the leaseback before you market the building, not after a price appears. Buyers need enough detail to price the income stream: proposed rent, lease term, review mechanism, outgoings, security, permitted use and the financial standing of the future tenant. If those points are vague, the headline offer is not comparable with another offer because the thing each buyer is pricing is different.
| Underwriting question | What the buyer is testing | What the seller should prepare |
|---|---|---|
| Tenant covenant | Whether the operating business is financially strong enough to support the rent for the committed term. | Current financials, trading history and a clear explanation of any one-off weakness rather than letting the buyer invent one. |
| Rent affordability | Whether the proposed rent is sustainable from the business rather than merely high enough to manufacture a larger sale price. | Independent market-rent evidence and a cashflow model showing the rent after reviews. |
| Lease quality | Committed term, reviews, outgoings, assignment rights, security, permitted use and make-good obligations. | Settled lease heads and preferably a near-final draft lease, not a promise that the lease will be agreed later. |
| Property fundamentals | Location, access, condition, zoning, land component, planning position and the building's usefulness beyond the current tenant. | Title and planning material, building information, recent reports and explanations for any unusual improvements or restrictions. |
| Re-letting and alternate use | What happens to the asset if your business leaves or fails and whether another occupier could use it without major capital works. | A realistic description of alternate users, not an assumption that specialised fit-out automatically adds investment value. |
| Environmental and physical risk | Contamination history, hazardous uses, major maintenance liabilities and anything that could impair value or financeability. | Existing environmental, building and compliance reports and a plan for any issue likely to be found in due diligence anyway. |
| Settlement certainty | Whether title, the existing mortgage, buyer finance, the lease and tax documentation can all settle on the proposed date. | The lender discharge path, adviser team, realistic timetable and no unresolved document that can stop completion. |
Compare buyers, not just offers
A higher price with a higher rent, longer hard term, longer exclusivity period or broad buyer due-diligence escape can be worse than a lower clean offer. Put every proposal into one comparison sheet: price, rent, review basis, lease term, options, guarantees, outgoings, deposit, due-diligence conditions, finance condition, exclusivity, settlement date, cost-sharing and what lets the buyer reduce the price or walk away.
Then verify who is actually making the offer. Check the legal entity against ASIC and ABN Lookup, and make sure the entity signing the heads is the entity expected to buy or that the document clearly allows a nominated purchaser. That does not prove funding capacity, but it stops a basic identity problem becoming a settlement problem. See whether the offer is already binding before signing exclusivity or paying third-party costs.
The practical read for a seller is that you are being priced as a covenant, not only as a building. The financial evidence a buyer wants, your trading history, serviceability and the strength of the entity signing the lease, is broadly what a lender assesses when you borrow against the property instead. That is a good reason to run both processes on the same numbers before you choose. See commercial property loans.
How much cash do you actually receive from a sale and leaseback?
The usable cash is not the sale price. It is the sale price after the facilities secured against the property are paid out and the transaction is adjusted for the costs and tax treatment that apply to your structure. If the deal only works when you treat every dollar of the headline price as available working capital, the model is incomplete.
Model the transaction in two columns before you negotiate the rent: money that physically leaves at or around settlement, and liabilities that arise because of the sale but may be paid later. That distinction stops a large gross price from being mistaken for a large capital injection.
| Item | What happens | Why it matters to the seller |
|---|---|---|
| Contract sale price | This is the starting number, and in a leaseback it is tied to the rent, lease term and yield the buyer is prepared to accept. | A higher price can be created by a higher rent, so gross proceeds and future occupancy cost must be modelled together. |
| Existing mortgage and secured facilities | Facilities secured over the property normally have to be paid out or restructured so the mortgage can be discharged and clear title transferred. | This amount does not become working capital. Cross-collateralised facilities can also pull other assets or limits into the restructure. |
| Break, discharge and lender costs | A fixed-rate or specially structured facility may carry an economic or break cost, plus discharge, legal or administration costs depending on the lender and documents. | These are easy to discover after the price has been agreed, when the seller has less room to renegotiate. |
| Selling, legal, valuation and advisory costs | Agency, legal, valuation, accounting and other transaction costs are paid from the economics of the sale even when they are not all deducted by the settlement platform itself. | The right comparison is net proceeds against the net amount an alternative facility would release, not sale price against loan limit. |
| GST and settlement adjustments | The contract must state the GST treatment, and normal property adjustments can also change the amount distributed at settlement. | Do not spend the GST component or assume a going-concern treatment until a registered tax agent has confirmed the structure. |
| CGT and other income-tax consequences | The sale can create a tax liability even where the tax is not physically withheld from the settlement proceeds. | Reserve for the after-tax position before the balance is allocated to debt reduction, expansion or shareholder payments. |
| Net usable capital | What remains after the payout, transaction costs, settlement adjustments and a properly modelled tax reserve. | This is the number to compare with releasing equity and keeping the property. |
Do not let a missing ATO clearance certificate take cash out of settlement
For an Australian-resident vendor of Australian real property, the foreign resident capital gains withholding clearance certificate belongs on the settlement checklist even though you are not a foreign resident. The ATO says the legal owner should apply as early as practical, the certificate can be obtained before the sale contract is signed, it is valid for 12 months, and processing can take up to 28 days. The certificate must be given to the purchaser on or before settlement to prevent the withholding rules applying. Source: ATO, Capital gains withholding clearance certificate application for Australian residents, read August 2026.
For contracts entered into from 1 January 2025 the property-value threshold was removed and the withholding rate increased to 15%, which makes forgetting the certificate a potentially large settlement cashflow problem rather than a minor administrative omission. Have the solicitor or registered tax agent confirm who on title must apply and that the certificate details match the vendor before settlement.
The sequencing matters. Get a current payout figure and any break-cost methodology from the existing lender, have the sale contract and lease reviewed together, ask the tax adviser for an after-tax proceeds model, and start the clearance-certificate process before you commit the capital elsewhere. See what has to happen to the existing loan, the GST treatment and the CGT concessions.
Is the offer you have been sent already binding?
The document in front of you is usually a heads of agreement or a letter of offer, and whether it binds you does not turn on what it is called. It turns on what its own words say and on how the parties behave after signing it. A page headed "non-binding indicative terms" can still create enforceable obligations, and a page headed "heads of agreement" can create none.
Before any of the legal analysis, do one free check. Look up the entity that sent the offer on ASIC's company register. You are looking for whether it exists, how long it has existed, and whether the name on the letterhead matches the entity that would actually be contracting with you. It takes a few minutes, it costs nothing, and on a transaction where you are handing over the freehold your business trades from, knowing who is on the other side is not an optional step. ASIC maintains the register.
The pattern worth knowing is that the commercial terms and the procedural terms often have different status in the same document. Price, rent and lease term are frequently expressed as subject to contract. Confidentiality, exclusivity and cost-sharing clauses in the same document are frequently expressed as immediately binding, because that is the point of them from the buyer's side.
Exclusivity is the clause that costs sellers the most and gets read the least. A short exclusivity period is normal. A long one, with no obligation on the buyer to proceed and no obligation to justify a price reduction, hands the buyer a free option over your building while you are contractually unable to talk to anyone else.
Before you sign anything, do these four things in order:
- Have a solicitor read the document and tell you, clause by clause, which parts bind you now and which do not. This is not a formality and it is not something a broker or an agent can answer for you.
- Check the exclusivity period, what ends it, and whether the buyer can extend it unilaterally.
- Check whether the lease terms are annexed or merely described. A leaseback where the lease is "to be agreed" is a transaction with its most important document missing.
- Check what happens to your costs if the buyer walks, and whether any deposit or break fee runs in your favour at all.
None of that is finance advice and none of it is something to settle from a web page. It is the point at which you engage a commercial property solicitor. What a broker can usefully tell you at the same moment is what the transaction will do to your existing facilities, which is covered in how commercial property lending actually works.
How is the sale price worked out, and why does the rent decide it?
The price is worked out from the rent, not from the building. A buyer of a leaseback is buying an income stream secured over real property, so it capitalises the rent you agree to pay at the yield it requires for that income, and the resulting number is the price. Change the rent and the price moves with it, in the same direction, by a multiple.
That is why the rent negotiation and the price negotiation are the same negotiation, even when they are conducted as though they are separate. Agreeing a higher rent lifts the sale proceeds today and raises your fixed cost for the whole term. Agreeing a lower rent does the reverse. There is no version where you get both.
A formal valuation will be commissioned, usually by the buyer and usually by the buyer's financier as a condition of its own funding. Expect to be asked to contribute to the cost or to accept the buyer's valuer. Who commissions the valuation matters, because the valuer's instructions define what is being valued: the building, or the building subject to your lease.
| Effect | Now, at the sale | Later, across the term |
|---|---|---|
| Price effect | Higher rent raises the capitalised value, so the proceeds rise by a multiple of the rent increase, not by the increase itself. | The multiple is spent once. The rent is paid every year until the lease ends. |
| Annual cost effect | Neutral. Nothing has been paid yet, which is why an inflated rent feels costless at signing. | Compounds. The starting rent is the base every review escalates from, so the error grows rather than washing out. |
| The first market review | Not tested. The agreed rent is simply the agreed rent. | Tested against actual market rent. If the starting rent was above market, a market review can correct downwards unless a ratchet clause prevents it. |
| What the buyer's valuer tests | Whether the passing rent is supportable by comparable evidence for that use, in that location, on that lease. | The same question at every review, which is when an unsupportable starting rent surfaces. |
| What the buyer's lender tests | Whether the income covers the buyer's own debt, and how much of that income depends on you alone as the single tenant. | Whether the remaining term still satisfies its covenants, which is why buyers push for term rather than options. |
This is directional, not a formula, and the actual numbers depend on the building, the covenant and the market at the time. What is not directional is the structure: you are setting your own sale price and your own annual cost with the same signature, and you are also setting your future cost base for tax purposes at the same moment. That interaction is dealt with in the CGT section below.
Is the rent real, or set high to lift the sale price?
The rent in a leaseback is not a market fact you discover. It is a number you agree, and both sides know exactly what it does to the price. That makes an inflated rent the most common structural problem in these transactions, and it is the one the field discusses least from the seller's side.
The accounting standards treat it as a known risk and deal with it explicitly. AASB 16 Leases provides that where the consideration for the sale does not equal the fair value of the asset, or the lease payments are not at market rates, "any below-market terms shall be accounted for as a prepayment of lease payments; and any above-market terms shall be accounted for as additional financing provided by the buyer-lessor to the seller-lessee". Source: AASB 16 Leases, paragraph 101, Sale and leaseback transactions, compilation applying from 1 January 2024, read August 2026.
The word for this is over-rented, and it is worth knowing
Valuers have a term for a property where the rent actually being paid sits above the market rent, and that term is over-rented. Market rent itself is a defined concept rather than an opinion: the international valuation standards define it as the estimated amount for which an interest in real property should be leased on the valuation date between a willing lessor and a willing lessee, and the Australian Property Institute applies the same definition. Source: International Valuation Standards Council standards glossary and Australian Property Institute valuation guidance, read August 2026.
Knowing the word matters because it tells you what the buyer's valuer will do. A leaseback is priced by capitalising the rent, which is to say the annual net rent is divided by a yield to produce a value. Push the rent up and the capitalised value rises with it, which is the whole mechanism behind an inflated offer. But an over-rented property is valued differently from one let at market, because the excess above market rent is treated as running only until the rent can be corrected, not forever. The buyer knows this. The seller usually does not.
Current market yields move with the market and are published by the major commercial agencies rather than by any regulator, so this guide does not quote them. If an offer is on the table, ask the buyer directly what yield they have priced it at and what rent they consider to be market for the building. Both are fair questions, both have a number behind them, and a buyer who will not answer either has told you something.
Read that in plain terms. If the rent is above market, the standard says the excess is not rent at all. It is a loan the buyer has made you, dressed as a sale price, and you repay it through the rent for the life of the lease. The extra proceeds are borrowed money with no facility documentation and no ability to refinance.
The practical consequences arrive at the first market rent review, and they arrive whether or not anyone accounts for the transaction under AASB 16. If your starting rent was set above market to lift the price, a genuine market review can mark it down, which is what a review is for. Buyers therefore push for a ratchet clause, which prevents the rent falling at review. A ratchet plus an inflated starting rent means the error is locked in for the whole term.
The defensible way to run it is to have the market rent established independently first, agree that as the passing rent, and let the price fall where it falls. If the price only works at a rent nobody can support, the transaction is telling you something about the building's value that the price is being used to hide.
What lease will a buyer of a leaseback require?
From the buyer's seat, the lease is the asset. A leaseback buyer is not acquiring a building it wants to occupy; it is acquiring a contract that obliges you to pay it money for a defined period, and every clause it pushes for is aimed at making that contract longer, firmer and cheaper to hold. Understanding that inverts most of the negotiation.
Two structural facts explain almost every position a buyer takes. The first is that options to renew do not count toward weighted average lease expiry, because an option is yours to exercise and not a commitment you have made. That is why a buyer will trade you almost anything for term and almost nothing for options. The second is that a buyer using debt has its own covenants, and those covenants commonly set a floor on remaining lease term, which is why the buyer's financier ends up dictating clauses you never negotiated with the buyer.
How long will the buyer want the lease to run?
There is no reliable market answer to how long a leaseback lease should be. The published guidance in Australia is genuinely inconsistent, and none of the sources acknowledges the others. What is consistent is the trade-off: a longer lease lifts the price a buyer will pay and shortens your strategic optionality, and a shorter one does the reverse. Decide which of those you are short of before you decide a number.
| Lease term | What the buyer needs, and why | What it costs the seller-tenant |
|---|---|---|
| Lease term | Length, because term is what its own financier's covenants measure and what its valuer capitalises. | Every year of term is a year you cannot relocate, downsize or sell the business free of the obligation. |
| Options to renew | Little. Options do not count toward weighted average lease expiry, so they add nothing to the buyer's valuation. | Nothing, which is why they are the cheapest thing to ask for and the first thing to ask for. |
| Rent review basis | Certainty and an upward bias, typically fixed increases with a ratchet on any market review. | A ratchet removes your only mechanism for correcting a starting rent that was set too high. |
| Outgoings | A net position, where you carry rates, land tax, insurance and maintenance so its return is not eroded. | Costs that used to be yours as owner stay yours as tenant, and now escalate outside your control. |
| Guarantee or security deposit | A director's guarantee or a bank guarantee, because the covenant is a single operating business, not a diversified tenant. | Personal exposure, and a bank guarantee consumes facility capacity you may need elsewhere. |
| Make good | An obligation to return the premises to a defined condition at the end of the term. | You may be contracted to strip out fitout you installed and paid for as the owner of the building. |
Every one of those clauses is a legal question, not a finance question, and the drafting decides the outcome. Have a commercial property solicitor negotiate the lease as a document in its own right, not as an annexure to the sale contract. What a broker adds is the read on how the finished lease will look to your next lender, which is covered in how a lender reads a commercial lease.
The duties you keep as the occupier
Selling the land does not necessarily shed the obligations attached to occupying it, and Victoria is the clearest example. Under the Environment Protection Act 2017 (Vic), the duty to manage contaminated land "applies to you if you manage or control contaminated land, including groundwater", and the persons who manage or control land expressly include those who "hold a legal interest in the land as the owner, leaseholder (tenant) or committee of management" or who "have access to or use of the land". The same guidance states that "you have a duty to manage contamination on your land even if you did not cause the contamination". Source: EPA Victoria, Duty to manage contaminated land, section 39 Environment Protection Act 2017 (Vic), page last updated 2 October 2025. Victoria only. Other states run their own regimes and this does not generalise.
The consequence inverts the usual de-risking pitch. A sale can convert an owner with an environmental duty into an occupier with the same duty, while simultaneously handing the new owner a party to bring a contamination claim against. On any site with an industrial history, take advice from a commercial property solicitor and an environmental consultant before contract, not after.
Does the Retail Leases Act still protect you as the tenant?
Probably not, and that is the finding most owner-occupiers get wrong. The retail leases legislation in each state protects a defined class of retail premises, and a factory, warehouse, yard or standalone office almost never falls inside that class. The protections people assume they have as a small business tenant simply do not attach to most leaseback premises.
Which premises count as retail, state by state?
Queensland is the clearest because the Act can be read in full at source. A "retail shop" means premises "situated in a retail shopping centre" or "used wholly or predominantly for the carrying on of a retail business", and a retail shop lease "does not include a lease of ... a retail shop with a floor area of more than 1,000m2". Source: Retail Shop Leases Act 1994 (Qld) ss 5A(2)(a) and 5B, official Queensland consolidation, current as at 1 August 2025. The floor area cap alone excludes most industrial premises even where the use is retail.
New South Wales runs a similar gate. The state's small business guidance states that the Act "will relate to your premises if it is less than 1,000 square metres in size, sells and supplies goods and services, is a type of retail business listed in Schedule 1 of the Act, and the length of the lease is between six months and 25 years", with a carve-in where the premises sit in a shopping centre. Source: NSW Small Business Commissioner, Retail Tenancy Guide, read August 2026. Schedule 1 itself was not read, so treat the list of qualifying businesses as a question for your solicitor.
Victoria is materially broader, and that asymmetry is the finding. The Victorian Small Business Commission describes retail premises as premises used wholly or predominantly for "the sale or hire of retail goods or provision of retail services", and adds that court decisions have confirmed the Act reaches "premises used for supplying commercial services to other businesses". Source: Victorian Small Business Commission, What are retail premises?, page last updated 7 January 2025. This is the Commission's gloss; section 4 of the Retail Leases Act 2003 (Vic) itself was not read, and the commonly quoted occupancy-cost threshold appears on no live government page.
| State | What counts as retail premises | Floor area cap | Does a factory, warehouse or office qualify | What protection is lost if it does not |
|---|---|---|---|---|
| Victoria | Wholly or predominantly the sale or hire of retail goods or the provision of retail services, and, on the Commission's reading of the case law, premises supplying commercial services to other businesses. | The Commission's guidance does not state a floor area cap. | More often than interstate. A services or wholesale business can be caught in Victoria where it would not be in New South Wales or Queensland. | The statutory minimum term, the disclosure regime and the outgoings limits all fall away. |
| New South Wales | A business listed in Schedule 1 of the Act that sells and supplies goods and services, or any business in a shopping centre. | Less than 1,000 square metres. | Generally no. Industrial and standalone office premises are not Schedule 1 retail businesses and are not in a shopping centre. | The limits on recovering land tax, the disclosure statement regime and the assignment protections. |
| Queensland | Premises in a retail shopping centre, or used wholly or predominantly for carrying on a retail business. | More than 1,000m2 is excluded outright. | Generally no, and the floor area cap excludes most industrial premises even where the use is retail. | The statutory exclusion of land tax from lessor's outgoings, which is the protection that matters most here. |
| Western Australia, South Australia, Tasmania, ACT and NT | Each has its own retail or commercial tenancy legislation with its own definition, thresholds and exclusions. They are not covered in detail here and they do not simply mirror the eastern states. | Varies by jurisdiction. Check the current Act or the local small business commissioner rather than assuming an eastern state figure applies. | Not assumed either way in this guide. The eastern state answers above are not transferable. | The same categories of protection are at stake, but which ones and to what extent is jurisdiction specific. Get it confirmed locally before you sign. |
The practical instruction is the same in all three states: do not assume the protection exists, and do not let anyone tell you it does without pointing at the section. Whether your premises are caught is a legal question with a specific statutory answer, and it changes what the next two sections mean for you. It also changes how the finished lease reads to a financier, which is the ground covered in when the rent carries the file. Ask your solicitor to answer it in writing before the lease is settled.
What happens if your business cannot pay the leaseback rent?
You no longer have a mortgage-arrears problem over an asset you own. You have a commercial-lease default over premises somebody else owns, and the remedies, security and restructuring position are different. That distinction matters most where the sale proceeds are being used to cure a short-term cashflow problem, because the new rent survives after the cash injection has been spent.
The exact notice, termination and re-entry rights depend on the lease, the state and whether retail-leasing legislation applies. Do not use a generic web answer to decide whether a landlord can terminate a particular lease. The useful planning question is what exposure exists before anybody is in default.
| Event | What can become exposed | What to negotiate or understand before the sale |
|---|---|---|
| Rent arrears or another lease breach | Default interest, costs, damages and ultimately termination or re-entry rights may arise under the lease and applicable law. | Notice and cure periods, what counts as a default, cross-default clauses and whether minor non-monetary breaches can trigger disproportionate remedies. |
| Bank guarantee or cash security | The landlord may be able to draw security if the conditions in the lease and guarantee are met, leaving the tenant to replenish it or reimburse the bank. | Amount, expiry, replenishment mechanics, when it can be called and the release timetable after assignment or lease end. |
| Director or parent guarantee | A company default can become personal or group-company exposure rather than stopping at the tenant entity. | Caps, release events, assignment treatment and whether the guarantee survives a sale of the operating business. |
| Negotiated surrender or rent restructure | The landlord is not obliged to erase the bargain merely because the tenant's circumstances changed, so any surrender or variation is a negotiation. | Break rights where commercially achievable, assignment flexibility and a lease term the business can survive rather than the longest term that maximises today's price. |
| Formal insolvency or restructuring | Control of the business, occupancy decisions, creditor rights and guarantee enforcement can all change under the Corporations Act processes. | Do not assume insolvency either automatically ends the lease or automatically protects the premises. Take insolvency and property-law advice immediately if distress appears. |
ASIC's guidance on voluntary administration illustrates why this cannot be reduced to “the landlord changes the locks”. During a voluntary administration, lessors generally cannot simply recover property used or occupied by the company without the administrator's consent or the court's permission, and the administrator has specific decisions and potential personal liability around continued occupation. Source: ASIC, Voluntary administration: a guide for creditors, read August 2026. This is insolvency procedure, not advice on your lease.
The finance consequence is simpler. Once the freehold has gone, you cannot later refinance that building to buy time. If the reason for considering a leaseback is that the business is already under cashflow stress, compare the transaction against a restructure while the property is still yours before converting that property into somebody else's asset and a permanent occupancy cost. See what selling does to future borrowing and the alternatives to selling.
The structural point is that a mortgage and a lease fail differently. A lender in a bad quarter is negotiating over an asset it would rather not end up holding. A landlord in the same quarter holds a contract it can enforce while you remain in occupation. That asymmetry is the strongest argument for testing what a facility would do before you convert the building into somebody else's asset. See equity release.
Who pays the land tax after the sale?
You may well pay it, even though you no longer own the land. Land tax is levied on the owner, but a commercial lease can require the tenant to reimburse it as an outgoing, and outside the retail leases legislation there is generally nothing stopping that. The three eastern states then diverge sharply on whether the retail statute blocks the pass-through, which means there is no national answer to give.
Queensland is the strongest position for a tenant who is inside the Act. Lessor's outgoings are defined to include charges and taxes payable by the lessor as owner, but the Act then provides that "lessor's outgoings do not include ... land tax payable on the land on which the centre or building is situated". Source: Retail Shop Leases Act 1994 (Qld) s 7(3)(a), official Queensland consolidation, current as at 1 August 2025. The mechanism is exclusion from the definition, not voiding the clause, and it only reaches leases the Act covers.
New South Wales does not mirror Victoria, and assuming it does is the trap. The state's small business guidance says land tax "is a type of 'outgoing' expense that a lessor may pass on to their lessee who has a lease covered by the Retail Leases Act 1994", while also stating that "the Act limits the lessor's ability to recover land tax from their lessee". Source: NSW Small Business Commissioner, Can the landlord make me pay land tax?, read August 2026. Section 23 of the Retail Leases Act 1994 (NSW) could not be read at source, so this row rests on the Commissioner's wording and should not be read as a prohibition.
Victoria voids the clause rather than limiting it, for leases the retail Act covers. Section 50 of the Retail Leases Act 2003 (Vic) makes a provision of a retail premises lease void to the extent that it makes the tenant liable to pay an amount for tax for which the landlord is liable under the Land Tax Act 2005. Source: Retail Leases Act 2003 (Vic) s 50. Currency warning: the section was amended with effect from 1 July 2024 and the current heading covers both land tax and the commercial and industrial property tax. Confirm the current authorised version with your solicitor before relying on the wording.
| State | Mechanism | Provision | Effect | Does it reach a non-retail leaseback |
|---|---|---|---|---|
| Victoria | The clause is made void, to the extent of the tax, rather than merely limited. | Retail Leases Act 2003 (Vic) s 50, as amended with effect from 1 July 2024. | A pass-through clause in a covered lease has no force for the land tax amount. | No. The section operates on a retail premises lease. Victoria's definition is broad, so whether your lease is covered is a live question rather than an obvious no. |
| New South Wales | The Act limits recovery for covered leases. It is not stated as a prohibition. | Retail Leases Act 1994 (NSW). Section 23 was not read at source for this guide. | Land tax is treated as an outgoing a lessor may pass on, subject to the Act's limits and to what the lease and disclosure statement say. | No. Outside the Act, the lease governs, and a net lease will normally pass land tax to you. |
| Queensland | Land tax is excluded from the definition of lessor's outgoings. | Retail Shop Leases Act 1994 (Qld) s 7(3)(a), current as at 1 August 2025. | A covered lease cannot recover land tax as an outgoing, because it is not an outgoing under the Act. | No. The 1,000m2 cap and the retail business test exclude most leaseback premises before the outgoings rule is reached. |
| Western Australia, South Australia, Tasmania, ACT and NT | Each jurisdiction sets its own rules on whether a lease can pass land tax to a tenant, and the protections that exist in the eastern states do not automatically exist elsewhere. | Not stated in this guide. Check the current Act for your jurisdiction. | Not stated in this guide. Confirm with your state or territory revenue office before you model the pass-through. | Assume nothing from the rows above. The lease clause and the local legislation together decide it. |
Why last year's land tax bill understates what you will pay
There is a second-order effect that catches sellers who model the pass-through using their own past land tax bills. Land tax is generally assessed on the total holdings of an owner, not on a single title, so an investor or syndicate that already owns other land can be assessed at a far higher marginal rate on your building than you ever were. If your lease passes land tax through at cost, the number you inherit is the new owner's number, not yours. Ask for the pass-through to be capped or calculated on a single-holding basis, and have your solicitor draft it. Outgoings are also part of the total occupancy picture a financier builds when it looks at what a commercial property loan actually costs to hold.
What does the sale do to the building's tax status in your state?
In one state it permanently changes the character of the asset, and in another it costs nothing at all. Transfer duty on the sale leg is the buyer's cost in most transactions, but it feeds directly into what the buyer can pay, and in Victoria the leaseback is capable of being the transaction that converts the property into a new annual tax regime for good. That is a consequence attaching to the land, not to the parties, and it survives you.
Which states charge duty on the sale leg?
South Australia is the outlier that national content gets wrong. RevenueSA's own circular states that "no liability for stamp duty arises in relation to a conveyance or transfer of an interest in non-residential and non-primary production real property ('qualifying land')" for contracts entered into on or after 1 July 2018. Source: RevenueSA, Information Circular 103, issued 10 May 2024. Qualifying land is determined by land use code, not by a general exemption, so the code on the title decides it.
What the sale does to the building's tax status afterwards
Victoria's position is the one that changes the asset. Under the commercial and industrial property tax reform, a property enters the new regime where "a contract of sale is entered on or after 1 July 2024", "50 per cent or more of the property transacts", and the property has "a qualifying commercial or industrial use at the date of settlement" by reference to its Australian Valuation Property Classification Code. Duty is then paid "one final time on the property if and when it is transacted", and an annual tax "set at a flat one per cent of the property's unimproved land value" begins ten years after that transaction. Source: Victorian Department of Treasury and Finance, Commercial and Industrial Property Tax Reform Information Sheet, read August 2026. The base is unimproved land value, not capital improved value, and the exemption on later dealings is conditional on the property continuing in qualifying use.
The qualifying use test biting at the date of settlement is the leaseback-specific point, because at settlement the vendor is still in occupation and still using the building for exactly the purpose that qualifies it. A leaseback is therefore close to the cleanest possible entry transaction into the regime.
Duty is a buyer's cost on paper and a seller's cost in effect, because a buyer prices its total outlay and offers accordingly. That is one reason a leaseback offer on an identical building can differ materially between states, and it is worth modelling alongside the buy versus lease decision if you are weighing whether to own premises at all. In New South Wales and Queensland the dutiable value is the greater of the consideration and the unencumbered value, so a sale at a soft price does not produce a soft duty bill. Source: Revenue NSW, Revenue Ruling DUT 012 version 4, issued November 2023, status current, read August 2026. The New South Wales statutory text was not read at source, so the ruling is cited rather than the section.
| State | Is duty payable | What it is calculated on | What changes for the building afterwards | Who pays |
|---|---|---|---|---|
| New South Wales | Yes. Ad valorem transfer duty applies. | The greater of the consideration and the unencumbered value of the property, under section 21 of the Duties Act 1997. | Nothing structural. Land tax continues on the owner's aggregated holdings. | The buyer, by convention, and it is priced into what the buyer can offer. |
| Victoria | Once more. Duty is paid one final time on a qualifying transaction. | The greater of the consideration and the unencumbered value, with unencumbered value defined as the open market price free from any encumbrances. | The property enters the commercial and industrial property tax regime. An annual tax at 1% of unimproved land value starts ten years later, and future transfers are duty free while qualifying use continues. | The buyer pays the duty. The annual tax is levied on whoever owns the property when it starts. |
| Queensland | Yes. Ad valorem transfer duty applies. | The consideration, or the unencumbered value where that is greater, under section 11 of the Duties Act 2001. The GST component is added into the dutiable value. | Nothing structural. Land tax continues on the owner's aggregated holdings. | The buyer, by convention. |
| South Australia | No. Duty on qualifying land was abolished for contracts from 1 July 2018. | Not applicable. Whether land qualifies is determined by its land use code. | Nothing on the duty side. Land tax remains, and is assessed on the total taxable site value of all land held under an ownership. | Nobody, on the duty leg, where the land qualifies. |
| Western Australia, Tasmania, ACT and NT | Not stated in this guide. Each charges transfer duty on its own rates and rules. | Check your state or territory revenue office for the current basis and rates before you model the deal. | No position is taken here. The eastern state answers above do not transfer. | Confirm locally. Duty rates and any concessions change at state budgets. |
The Victorian definition of unencumbered value carries a leaseback-specific sting. Section 22 of the Duties Act 2000 (Vic) defines it as "the amount for which the property might reasonably have been sold in the open market at the time the dutiable transaction occurred free from any encumbrances to which the property was subject", which means a sale subject to your leaseback is valued for duty as though the lease were not there. Source: State Revenue Office Victoria, Revenue Ruling DA.029. The ruling is dated 2004, so confirm the current section wording with your adviser.
One question here is deliberately left unanswered. The published Treasury and Finance guidance says the new annual tax "will not be allowed to be passed through by landowners to specific retail tenants identified in the Retail Leases Act 2003". Most leaseback premises are not retail. Whether that wording confines the protection to retail tenants, or whether the prohibition is broader, is not resolved by the material available, and the consequence of getting it wrong runs to a recurring annual cost on land you have sold. Do not accept either reading from a web page, including this one. Put it to a Victorian commercial property solicitor with the lease in front of them.
Can you still claim the small business CGT concessions?
Often yes, and there are four of them: the small business 15-year exemption, the small business 50% active asset reduction, the small business retirement exemption, and the small business roll-over. A sale and leaseback is a disposal like any other, so if you satisfy the basic conditions and the asset is an active asset, the concessions are available on the gain in the ordinary way.
Does your building pass the active asset test?
The point the advisory web most often gets wrong is the active asset test. A great deal of published commentary warns that a property whose main use is deriving rent cannot be an active asset, and then leaves owner-occupiers assuming their premises are disqualified. The Australian Taxation Office states the general test as follows: "A CGT asset is an active asset if you (or your affiliate or entity connected with you) use it, or hold it ready for use, in running a business." The same page carries the rent exclusion: "An asset whose main use is to derive rent, interest, an annuity, royalties, foreign exchange gains usually cannot be an active asset." Source: ATO, Active asset test, page last updated 2 February 2026.
The words in brackets are the load-bearing half. On the ordinary owner-occupier structure, where an individual or a family trust owns the land and a connected operating company trades from it, the property is being used in a business carried on by an entity connected with the owner. That is the general test, stated by the regulator in the test itself rather than buried in an exception. It does not follow that every structure qualifies, the interaction with the rent exclusion is fact specific, and the specific statutory provisions were not examined for this guide. Get a registered tax agent to apply the test to your structure in writing before you sign a contract.
When is the CGT event, and who can use the 50% discount?
Three separate facts about timing and structure decide more outcomes than the concessions themselves.
The CGT event happens at contract date, not settlement. The ATO states that "if there is a contract of sale, the CGT event happens when you enter into the contract". Source: ATO, CGT events, page last updated 22 June 2026. This determines the income year, which can differ from the year the cash arrives: a contract signed in June and settled in July puts the whole gain in the earlier year.
Companies get no 50% CGT discount. The ATO is direct about it: "Companies can't use the CGT discount." Source: ATO, CGT discount, page last updated 29 June 2026. Complying super funds discount a capital gain by 33.33%. This is separate from the small business concessions, which may still be available. Where the premises sit inside the trading company, which is common for owner-occupiers, the discount is unavailable regardless of how long the building has been held. Who owns the building decides the outcome, and that decision was usually made years before anyone thought about selling.
The law changes for gains accruing after 1 July 2027. The ATO states the measure will "replace the 50% CGT discount for individuals, trusts and partnerships with cost base indexation and a 30% minimum tax rate on capital gains" from 1 July 2027, that "these measures are now law", and that the reforms "will only apply to gains that accrue after 1 July 2027". Source: ATO, Tax reform, boosting home ownership, page last updated 29 June 2026. Companies are not named in the measure. Whether the small business CGT concessions operate alongside it is not addressed in the material read for this guide and must not be assumed either way.
| Concession | What it does | The gate on it | The limit |
|---|---|---|---|
| 15-year exemption | Disregards the whole capital gain. | Continuous ownership of the asset for the 15-year period ending just before the CGT event, and the owner or significant individual is 55 or older and the event happens in connection with retirement, or is permanently incapacitated with no age requirement. | Must be chosen and applied first, ahead of the other concessions. |
| 50% active asset reduction | Reduces the capital gain by half, after any general CGT discount. | The basic conditions, including the active asset test. | No dollar cap, but it applies to the gain, not to the proceeds. |
| Retirement exemption | Disregards the gain up to a lifetime limit. | The basic conditions. Where the individual is under 55, the exempt amount must be paid into a complying super fund or retirement savings account. | $500,000 lifetime per individual, not per transaction. |
| Roll-over | Defers the gain where a replacement active asset is acquired or capital improvements are made. | The basic conditions, plus acquiring the replacement asset inside the statutory window. | Deferral, not exemption. A leaseback usually means there is no replacement premises to acquire. |
Sources for the table: ATO, Small business 15-year exemption and Small business retirement exemption, both confirmed against the live pages in August 2026. Eligibility is determined on your facts by a registered tax agent, not from a table.
The 15-year exemption has a leaseback-specific edge worth naming. Fifteen years of continuous ownership is the gate, and a sale ends the clock rather than resetting it, so an owner two years short of the threshold is making a materially different decision from one two years past it. The requirement that the event happen "in connection with your retirement" is also a live question when the seller carries on trading from the same building the day after settlement, which is precisely what a leaseback does.
GST is a separate question and it is not a small one. It has its own section below, because the going concern route that removes GST from a commercial sale behaves differently in a leaseback than it does in an ordinary sale of a tenanted building. See do you pay GST on a sale and leaseback, and going concern for the concept it turns on.
Do you pay GST when you sell and lease back your premises?
Usually the sale of commercial premises is a taxable supply, but a leaseback has a very specific going-concern question that depends on who owned, occupied and leased the property before the sale. The ATO's general position is that selling commercial premises such as shops, factories or offices is generally subject to GST unless another treatment applies. Source: ATO, Selling commercial premises, read August 2026.
The exemption everyone reaches for is the GST-free supply of a going concern. The statutory conditions are cumulative: consideration must be provided, the purchaser must be registered or required to be registered, the parties must agree in writing that the supply is of a going concern, the supplier must supply all things necessary for the continued operation of the identified enterprise, and the supplier must carry that enterprise on until the day of supply. Source: A New Tax System (Goods and Services Tax) Act 1999 s 38-325 and ATO GSTR 2002/5, read August 2026.
What the ATO says about the exact owner-occupier leaseback fact pattern
The ATO has an example that is almost the exact transaction this guide is about. In Example 2 of GSTR 2002/5, an entity owns the building from which it operates its business, sells that building to a trust and agrees to lease it back. The ATO says the seller was not conducting a leasing enterprise before the sale and could not lease the premises to itself. The property sale therefore could not be the supply of that leasing enterprise as a going concern. Source: ATO, GSTR 2002/5, paragraphs 26 to 29, Example 2, current consolidated ruling read August 2026.
But do not turn that example into a universal rule. The same ruling recognises that an existing leasing enterprise can be supplied as a going concern, including where a genuine tenancy exists before the property sale. Example 21 even accepts a leasing enterprise carried on for only a day where the operating business is sold first, a lease is put in place, and the building is then supplied with that lease intact. The ATO's compendium also states that an enterprise of leasing can commence when a tenant enters an agreement for lease, even before possession, if the enterprise continues until the day of supply. Sources: ATO GSTR 2002/5 Example 21, paragraphs 135 to 136, and GSTR 2002/5EC, read August 2026.
The practical answer is therefore structural rather than verbal. If the same entity simply owns and occupies the premises and sells them with a same-transaction leaseback, the ATO's published example is directly adverse to treating the property sale itself as a leasing going concern. If a separate property-owning entity already leases to an operating entity, or a genuine leasing enterprise is established before the supply, the analysis can be different. Get the treatment confirmed in writing by a registered tax agent before the contract is signed.
| Route | What it requires | What it means for a leaseback |
|---|---|---|
| Taxable supply, the default | Nothing. It is what applies unless another route is established. | GST is payable on the sale price. If the buyer is registered they generally claim a credit, so this is often a cash flow and contract drafting issue rather than an absolute cost, but it has to be priced and documented either way. |
| GST-free supply of a going concern | The section 38-325 conditions, including an identified enterprise that the supplier carries on until the day of supply and all things necessary for its continued operation. | ATO Example 2 says a same-entity owner-occupier that has not carried on a leasing enterprise cannot turn the property sale into a leasing going concern merely by agreeing to lease it back. Existing or genuinely established leasing arrangements can produce a different result. |
| Margin scheme | Eligibility rules apply and the parties must deal with it in the contract. | Where available, GST is one-eleventh of the margin rather than of the total selling price, and it only applies where the sale is taxable. Whether it is open to you depends on how and when you acquired the property, which is an accountant question, not a negotiation question. |
One threshold catches people on the other side of the transaction. If you or a related entity ends up in the position of landlord rather than tenant, for example where the premises are sold into a family trust or a self managed super fund rather than to a third party, that entity has its own GST position to work out. Registration is required once GST turnover reaches the registration turnover threshold, and rent counts towards it. Source: ATO, Registering for GST and GST and commercial property, read August 2026. The threshold is set by the ATO and changes from time to time, so confirm the current figure rather than relying on a number quoted anywhere, including here. See selling to your own super fund where that structure is in play.
The instruction for this section is short. Get the GST treatment settled in writing before the contract is signed, not during settlement, and get it from a registered tax agent rather than from the buyer's solicitor, whose client has a different interest in the answer. See going concern for the wider framing, and what you can still deduct as a tenant for the ongoing GST and deduction position after the sale.
What can you still deduct once you are the tenant?
The rent, in the ordinary course, and rather less of everything else than owners expect. Selling the building does not simply swap one deduction for another. It ends some entitlements, transfers others to the buyer, and leaves one of them turning on a question most sellers have never been asked: what you actually did with the money.
Is the rent deductible?
Rent paid on premises your business genuinely occupies and trades from is an ordinary operating expense and is deductible on normal principles, in the year it is incurred, like any other occupancy cost. This is the least contentious part of the transaction and it is usually the only part sellers ask about. If you are registered for GST, the GST on commercial rent runs through your activity statements in the ordinary way. Your accountant will confirm the treatment for your structure.
Does borrowing against the building instead give you a deduction?
Not automatically, and this is the single most misunderstood point in the sell-versus-borrow comparison. Interest deductibility follows what the borrowed money is used for, not what secures the loan. The ATO applies the use test drawn from the High Court's decision in Munro, which looks to the purpose of the borrowing and the application of the borrowed funds as the main criterion. Source: ATO Taxation Ruling TR 95/25, Income tax: deductions for interest under section 8-1, and ATO edited guidance applying the Munro use test, read August 2026.
The consequence runs in both directions. Borrowing against your premises to fund working capital, stock, plant or an acquisition puts the borrowed money to an income-producing use, and the interest is generally deductible on that basis. Borrowing the same amount against the same building to fund something private does not become deductible merely because a commercial property is the security. The ATO's own material makes the point that interest on a borrowing can fail the test even where an income-producing property is used as security for it.
That matters for this decision because it removes a false comparison. People compare rent, which is deductible, against interest, which they assume is not, and conclude the leaseback wins on tax. If the borrowing funds the business, both are typically deductible, and the comparison returns to what it always was: whether you keep the building. See selling versus releasing equity, and take the deductibility question to a registered tax agent on your facts before you rely on it either way.
What happens to depreciation and capital works?
They largely leave with the building. Capital works deductions for the structure sit under Division 43 and are available to the entity that owns, or in some cases leases, the construction expenditure area and uses it to produce assessable income. Once you no longer own the building, the structural entitlement is no longer yours. Source: ATO, Appendix 2, Capital works deductions, read August 2026. Entitlement turns on the construction expenditure area, the pool of construction expenditure and income-producing use under section 43-140 of the ITAA 1997.
Two qualifications matter for a leaseback specifically. The first is that a lessee can hold capital works entitlements in its own right: the ATO lists alterations and improvements to a leased building, including shop fitouts and leasehold improvements, among the capital works you can deduct construction costs for, and a lessee claiming them must have incurred the expenditure, held the area continuously since construction was completed, and used it to produce assessable income. The ATO also notes that if there is a lapse in the lease, the entitlement reverts to the building owner, which makes your lease term and any gap between leases a tax question as well as an occupancy one. Separately, plant and equipment that is a depreciating asset under Division 40 and is disposed of with the property will generally trigger a balancing adjustment, which is a tax event in the year of sale rather than a footnote to it.
None of this is optional detail. On a building with significant fixtures and fit-out, the deduction consequences and the balancing adjustment can move the after-tax result materially, and they are worked out on your depreciation schedule, not on the sale price. Ask your accountant for the after-tax position on the offer, not the headline number.
| Deduction | Before the sale | After the sale | What decides it |
|---|---|---|---|
| Rent | Not applicable. You occupy premises you own. | Deductible as an ordinary occupancy expense of the business. | Genuine business occupation and ordinary deduction principles. |
| Interest on borrowings | Deductible to the extent the borrowed funds were put to an income-producing use. | Unchanged in principle, but the facility itself is usually discharged at settlement, so the question becomes what any new borrowing funds. | The use test. What the money was used for, not what secures it. |
| Capital works, Division 43 | Available to you as owner, on the structure, where used to produce assessable income. | The structural entitlement follows ownership. Your own fit-out as lessee is treated separately. | Ownership or lease of the construction expenditure area, plus income-producing use. |
| Plant and equipment, Division 40 | Decline in value claimed on your schedule. | Disposal with the property generally triggers a balancing adjustment in the year of sale. | Termination value against adjustable value on your depreciation schedule. |
General information only. Deduction outcomes depend on your structure, your schedule and your contract, and are a matter for a registered tax agent. See commercial property loan for how the borrowing side is assessed.
Is there an ATO ruling on a sale and leaseback of property?
There is a ruling with that title, and it does not cover your building. Taxation Ruling TR 2006/13, titled "Income tax: sale and leasebacks", is the document every search returns, and its own scope paragraphs limit it to depreciating assets under Division 40. Land is not a depreciating asset, so a sale and leaseback of real property sits outside the ruling that appears to be about it.
Check the number before you check the content. Search results and AI answers on this topic still surface TR 95/30, which carries the identical title, "Income tax: sale and leasebacks". That ruling was revised and updated by TR 2006/13 and withdrawn from the date the newer ruling issued. If the document in front of you is numbered 95/30, it has been withdrawn and you are reading superseded material. Source: ATO Taxation Ruling TR 2006/13, which states that it revises and updates TR 95/30 and that TR 95/30 is withdrawn from the date of issue of the newer ruling. Read August 2026.
The ruling states at paragraph 1 that it concerns "financing arrangements taking the form of sale and leaseback arrangements" and "explains the taxation consequences of sale and leaseback arrangements which involve depreciating assets subject to Division 40". Paragraph 3 puts it plainly: "This Ruling applies to sale and leaseback arrangements involving depreciating assets." Paragraph 7 excludes arrangements that "include an option or an obligation for the lessee to reacquire the asset at the end of the lease term". Source: ATO Taxation Ruling TR 2006/13, issued 1 November 2006, which replaced and withdrew TR 95/30. Confirm the current consolidated version and any addendum in the ATO Legal Database before relying on the wording.
The scope limit is itself the useful fact, and it cuts both ways. The ruling extends to fixtures affixed to land, which means a manufacturer selling a building with embedded plant is selling assets on both sides of that line in a single contract. The land and the structure fall outside the ruling; the affixed plant may well fall inside it. That is a distinction with real consequences for how the sale is apportioned, and it is not a distinction the transaction documents will draw for you.
What this does not mean is that there are no tax rules. There are a great many, and this guide has already set out several of them. The narrow and correct proposition is that no single named ATO ruling governs the tax treatment of a property sale and leaseback. The treatment is assembled from the ordinary capital gains rules, the GST rules and each state's duty rules, which is why every page in this field that gestures at "the tax implications" without naming a provision is gesturing at nothing specific.
The practical consequence for you is that there is no single document to hand your accountant and no shortcut through the analysis. Each leg has to be worked separately, on your facts, by a registered tax agent. If the building contains significant affixed plant, say so at the first meeting, because that is the fact that changes which body of law applies to which part of the price. The finance side of the same transaction is covered in how commercial property lending works.
What happens to the loan already secured against your premises?
It has to be paid out and formally discharged before settlement can happen, and that requirement sits on the critical path of the whole transaction rather than beside it. If your building secures a commercial facility, the buyer cannot take clear title while your lender's mortgage remains registered against it. Nothing about the sale completes until that is resolved.
This is the part of a leaseback that almost no published guidance covers, because the property side of the market writes about the sale and the tax side writes about the consequences, and the loan sits between them. It is also the part most likely to move your settlement date.
What your lender needs, and when
Three things, in this order. A signed discharge authority, which is your instruction to the lender to release the security and which only you can give. A payout figure, which is the lender's calculation of what must be paid on the settlement date to close the facility. And a settlement date the lender can actually work to, because the discharge is registered through the electronic settlement process alongside the transfer.
Start this early, and start it before you are certain the deal will proceed. Discharge processing is not instant at any lender, the payout figure is issued as at a specific date and expires, and a figure that lapses has to be reissued. Sellers who lodge the authority once a settlement date is locked are the ones who end up asking for an extension. Ask your lender for its current processing time and the validity period on the figure at the same time you ask for the figure itself, and get both in writing.
The cost nobody prices into the offer
If any part of your facility is on a fixed rate and you are ending it early, there may be a break cost, and it is a genuinely different animal from the administrative discharge fee. A break cost reflects the lender's loss on the remaining fixed term and is calculated on rate movements, which means it cannot be looked up in advance and can be substantial on a large facility with years to run. Lenders do not use one name for it either. Some call it a break cost, others an economic cost or an early repayment cost, which is worth knowing when you go looking in your loan documents.
This guide does not publish figures for any of it, because discharge fees, processing times and break cost formulas differ by lender and by facility and a number quoted here would be wrong for someone. Your own lender will give you all three on request. The point is that they are a real reduction in your net proceeds and they belong in the comparison before you accept a price, not after.
| Step | Who acts | What it affects |
|---|---|---|
| Discharge authority lodged | You, as borrower. Your solicitor or conveyancer cannot give the instruction for you. | Starts the lender's process. Lodging late is the most common cause of a delayed settlement. |
| Payout figure issued | Your lender, as at a nominated date. | Sets what must be paid at settlement. It expires, so a moving settlement date means a reissued figure. |
| Break cost quantified | Your lender, on any fixed portion. | Reduces net proceeds. Cannot be estimated in advance from published information. |
| Discharge registered at settlement | Lender and incoming party through electronic settlement. | Removes the mortgage from title so the buyer takes clear title and the transaction completes. |
There is a strategic point buried in this that is easy to miss. If you are going to the trouble of discharging the facility anyway, the question of whether a refinance would have released the capital you need, without selling the building at all, is live at exactly this moment and not before. That comparison belongs here rather than at the end. See selling versus releasing equity and how equity release works.
What does selling the building do to your borrowing afterwards?
It removes the only asset most owner-occupier businesses have that a lender will lend heavily against, and everything downstream follows from that. Before the sale, a credit assessor opens the file and sees real property with a registered first mortgage available. Afterwards, the same assessor sees a trading business with a long lease obligation and no hard security, which is a completely different exposure priced in a completely different way.
This is the part of the transaction with the least published guidance in Australia, and it is the question every seller asks after settlement rather than before it. The model that answers it is not the agent's and not the accountant's. It is what the next lender sees when the loan application arrives eighteen months later.
| The credit question | Before the sale | After the sale |
|---|---|---|
| The security position | Real property available for a registered mortgage, and headroom for a second mortgage behind it. | No real property. The next facility is a cashflow or unsecured read, or is secured over debtors, plant or a director's own home. |
| The guarantee question | Often satisfied by the property itself, so a director's guarantee may be limited or unnecessary. | Commonly requested, because the guarantee is now doing the job the building used to do. |
| Existing facility covenants | Dormant. Loan to value and negative pledge covenants are satisfied and nobody reads them. | Engaged on discharge. A negative pledge or a disposal covenant can require consent for the sale itself, and is frequently discovered late. |
| How the lease reads on serviceability | No lease. Occupancy cost is interest and rates, and the principal component builds equity. | A fixed, escalating commitment for the balance of the term, assessed against serviceability rather than counted as evidence of tenure. |
| What the next credit assessor sees | An asset backed business with a conventional path to more capital. | A tenant business holding cash from a one-off event, with the security gone and the rent permanent. |
From our broking, indicative
This block is qualitative by design. It describes what changes in a credit read after a leaseback settles, based on how these files are assessed. It contains no rates, no loan to value figures and no approval likelihoods, because none of those can honestly be stated in advance for your business.
- The business has just extinguished the only real security on its balance sheet, so the next facility is priced off a cashflow or unsecured read rather than a property read. That is a different product, not the same product at a different rate.
- A director's guarantee is commonly asked for where the property previously did that job. Owners who have not given one for years are frequently surprised to be asked.
- An existing facility's negative pledge, disposal or loan to value covenant is engaged the moment a discharge is requested, and it is often discovered late, after the contract is signed and while settlement is being scheduled.
- The lease becomes a credit item in its own right. A long leaseback with escalating rent reads as a fixed commitment against serviceability, not as evidence of secure tenure, which is the opposite of how sellers describe it.
- The financial-statement treatment depends on the reporting framework and accounting policies; "special purpose" alone does not settle whether AASB 16 is applied. The credit analyst can still read the executed lease as a fixed commitment, so accounting presentation does not remove what the next lender sees.
- Sequencing is a three party timing problem. A leaseback settlement typically needs the discharge of the existing mortgage, the transfer, and the lease all landing together, with an incoming financier for the buyer running its own conditions in parallel. Start the discharge conversation with your existing lender before the contract is unconditional, not after.
Indicative only, based on how these transactions are assessed in practice, as at August 2026. This is not a quote, not an offer, and not a prediction of what any lender will do with your file. Actual terms depend on lender policy and your circumstances at the time of application. Not financial advice.
Does consumer credit protection cover a leaseback?
One structural point about the regulatory environment is worth stating plainly, because it applies to every facility discussed on this page. Commercial and business lending sits outside the consumer credit regime: the corporate regulator states that "the law provides the lowest level of protection to commercial loans, including loans to small businesses", and that "lenders that only provide commercial loans are not required to have a credit licence and are not legally required to be a member of AFCA". Source: ASIC, Disputes about commercial loans, read August 2026. A small business is defined in the external dispute resolution scheme's rules as a business with fewer than 100 employees.
What that means in practice is that the protection you have is the protection you negotiated, in the documents, before you signed. If the building is your existing security, work through what a lender does when property is the security before you commit to a sale, and get the discharge sequencing mapped in writing. If capital is the goal and the security is the only thing standing in the way, the next section is the comparison that should have come first.
Is releasing equity against the property cheaper than selling it?
For most owner-occupiers, releasing equity keeps more of the value in the business, and the reason is structural rather than a matter of pricing. There are four routes out of a building you own and use, and they differ on who ends up owning it, whether your annual cost escalates, who keeps the growth, what security you have left, and which regulator or standard governs the arrangement. Those five differences decide the answer far more reliably than any comparison of headline cost.
This guide does not publish a yield band, a loan to value ceiling or an interest rate for any of the four routes, and that is deliberate. Those numbers are specific to a building, a covenant and a moment in the market, they date within weeks, and a number that describes what you personally will pay is not something a canonical page can responsibly assert. The structural comparison below does not have that problem, because it is true regardless of pricing.
| Route | Who owns the building | Does what you pay escalate | Who keeps the growth | What security is left | Which regulator or standard governs it |
|---|---|---|---|---|---|
| Third party sale and leaseback | An unrelated investor. | Yes. Rent escalates on the review basis in the lease, for the life of the lease, and never amortises. | The buyer, permanently. | None from this asset. Future borrowing is a cashflow or unsecured read. | Contract law and the state retail leases legislation if it applies. Outside the consumer credit regime. |
| Equity release or cash-out refinance | You do. Nothing changes on title except the mortgage. | Interest moves with rates, but principal repayments reduce the balance, so the obligation shrinks rather than grows. | You do, on the whole asset, including the part you have borrowed against. | Reduced but intact. Remaining headroom, and the asset itself, stay available. | Contract law and your credit contract. Outside the consumer credit regime for business purpose lending. |
| Sale to your own super fund, leased back | Your self managed super fund, which is a separate legal structure you control as trustee. | Yes. Rent must be at market and reviewed on arm's length terms, so it escalates, but it escalates into your own fund. | The fund, and therefore your retirement benefit rather than your business. | None in the operating business. The fund holds the asset and the business is a tenant. | The Superannuation Industry (Supervision) Act 1993, the in-house asset and arm's length rules, and the ATO as regulator. |
| Do nothing | You do. | No new cost. The existing position continues. | You do, in full. | Everything, unencumbered to the extent it already is. | Nothing new. This is the baseline every other row should be measured against. |
The row most owners skip is the last one. Doing nothing is a real option with a real cost, and it is the only one that is reversible next year. A leaseback is not: once the freehold is gone it is gone, and buying the building back later means paying the new owner's price plus duty, in a market you do not control.
Where equity release is genuinely constrained, the constraint is usually the amount rather than the concept. A sale releases the whole value; a facility releases a fraction of it. If the capital requirement genuinely exceeds what any facility will advance, the leaseback may be the only route that meets it, and that is the narrow case where it earns its place. If the requirement fits inside a facility, taking the leaseback instead is paying with the asset to avoid a conversation with a lender.
The mechanics of the alternative are set out in the guide to releasing equity by refinancing, including how refinancing interacts with an existing facility and what loan to value ratio actually governs. Where the amount is the binding constraint, a second position or a private lending solution over the same building can sometimes bridge the gap without a sale. If you want that modelled against a leaseback offer you already hold, that is a conversation about releasing equity worth having before the exclusivity period starts running.
Can you sell your premises to your own super fund and lease them back?
Yes, and it is one of the few related party transactions superannuation law expressly permits, but it only works if you pass a sequence of statutory gates in order. Miss one and the fund is not merely inefficient; it is in breach, and the consequences are set out in the next section. The gates are worth walking through in the order they apply, because each assumes the one before it.
The starting position is a prohibition. A trustee of a regulated superannuation fund "must not intentionally acquire an asset from a related party of the fund". The exception that matters here permits acquisition where the fund has no more than six members and "the asset is business real property of the related party acquired at market value". Source: Superannuation Industry (Supervision) Act 1993 ss 66(1) and 66(2)(b), Federal Register of Legislation, compilation in force 10 August 2026. Two conditions travel together: the member cap and acquisition at market value. Both must hold.
What counts as business real property?
Everything then turns on the definition. Business real property means an interest in real property "where the real property is used wholly and exclusively in one or more businesses (whether carried on by the entity or not)". Source: Superannuation Industry (Supervision) Act 1993 s 66(5), same compilation. The bracketed words are load-bearing: the business using the premises need not be the owner's own. The ATO's own ruling on the phrase is candid about how demanding it is, describing the "wholly and exclusively" threshold as "an onerous one to meet", while allowing that "a minor, insignificant or trifling non-business use of the property can also be accommodated". Source: ATO ruling SMSFR 2009/1 on the meaning of business real property, consolidated version. It is a facts and degree test, not a rule of thumb, and a specialist should apply it to your property.
What rent must your fund charge your business?
Once the fund owns the premises and leases them to your business, the lease is a related party arrangement and would ordinarily be an in-house asset. The exception preserves it, but only conditionally: real property subject to a lease between the fund's trustee and a related party is excluded from the in-house asset rules if, "throughout the term" of the lease, the property is business real property of the fund. Source: Superannuation Industry (Supervision) Act 1993 s 71(1)(g), same compilation. "Throughout the term" is the sharpest phrase in the SMSF part of this guide. If the business vacates or changes the use mid-lease, the exception fails and the asset becomes an in-house asset.
| Gate | Provision | What it requires | When it bites |
|---|---|---|---|
| Acquisition prohibition | SIS Act s 66(1) | The fund must not intentionally acquire an asset from a related party. | At acquisition. It is the default position that everything else is an exception to. |
| Business real property exception | SIS Act s 66(2)(b) | No more than six members, and acquisition of business real property at market value. | At acquisition. Both conditions must hold, and market value is tested on evidence, not assertion. |
| The definition test | SIS Act s 66(5) | The property is used wholly and exclusively in one or more businesses, whether carried on by the owner or not. | At acquisition, and again on every question that depends on the definition afterwards. |
| In-house asset exception | SIS Act s 71(1)(g) | The leased property is business real property of the fund throughout the term of the lease. | Continuously. A change of use or a vacancy mid-term can fail it. |
| The 5% ratio | SIS Act ss 82 and 83 | In-house assets must not exceed 5% of the fund's total assets by market value, with a written rectification plan required if the year-end ratio is exceeded. | On acquisition under s 83, and at each year end under s 82. Cite both, never s 83 alone. |
| Arm's length duty | SIS Act s 109 | Dealing at arm's length, or on terms no more favourable than arm's length terms, at the time of investment and at any time during its term. | Continuously. It binds every rent review and every option exercise for the life of the lease. |
| Can the fund borrow | Limited recourse borrowing arrangement rules, as amended from 10 August 2026 | The property must meet the definition of business real property for the fund to borrow to acquire it. | At the point the borrowing arrangement is entered into. |
Can the fund borrow to buy your premises?
The borrowing rules changed on 10 August 2026, and for this readership the change confirms the route rather than closing it. The measure "changes the meaning of an acquirable asset to exclude the purchase of real property that does not meet the definition of 'business real property'", and "applies to arrangements entered into on, or after, 10 August 2026". Existing arrangements entered into before that date, refinancing of them, and binding contracts exchanged before that date are carved out. Source: ATO guidance on the limited recourse borrowing arrangement provisions and the changes commencing 10 August 2026, enabling Act assented 26 June 2026, as at August 2026. The restriction is defined by exclusion rather than by the word residential: business real property remains borrowable.
The second order consequence has not been widely drawn. Because the carve-out is written by reference to business real property, the "wholly and exclusively" test in section 66(5) now gates the fund's borrowing capacity, not just its ability to acquire. A property that is marginal on that test was previously a compliance question; it is now also a funding question.
Where the fund does borrow from a related party, the ATO publishes safe harbour terms it will accept as arm's length without further inquiry: a maximum 15 year loan term for real property, a maximum 70% loan to value ratio for both commercial and residential property, a registered mortgage over the property, principal and interest repayments made monthly, and a written and executed loan agreement, with a personal guarantee not required. Source: ATO Practical Compliance Guideline PCG 2016/5, safe harbour 1, as at August 2026. These are the Commissioner's compliance benchmarks for a loan from a related party into a superannuation fund. They are not terms a commercial lender offers you and they are not law: failing them does not automatically make the arrangement non-arm's-length, but the trustee must then demonstrate arm's length terms itself. The safe harbour interest rate is published annually and the most recent published rate is for 2025-26; no 2026-27 rate appears on the relevant page as at August 2026, which is a live issue for any arrangement being documented now.
Two currency warnings belong with all of this. The ATO's own ruling on limited recourse borrowing arrangements and its practical compliance guideline both currently carry a banner stating that legislative changes commenced on 10 August and that the documents are being reviewed and updated. Two tier one documents self-declaring as out of date, days after the change commenced, is the strongest possible signal to take current advice rather than published guidance. This route needs an SMSF specialist and a registered tax agent, and the lending side is covered in what a self managed fund can and cannot buy.
What goes wrong in an SMSF leaseback, and what does it cost?
The provision that actually bites is usually not the one the market names. The advisory field talks about non-arm's-length income and a 45% tax rate almost every time a related party lease is mentioned, and on the most common failure in an owner-occupier leaseback, that framing is simply the wrong provision.
Charging your own business below market rent on fund-owned premises is not, by itself, non-arm's-length income. The operative test runs one way. Income is non-arm's-length income where, as a result of a non-arm's-length scheme, "the amount of the income is more than the amount that the entity might have been expected to derive" had the parties been dealing at arm's length. Source: Income Tax Assessment Act 1997 s 295-550(1)(a), Federal Register of Legislation, compilation C2026C00324 in force 26 June 2026. The test catches income that is more than arm's length. Below market rent gives the fund less, not more.
Both halves of that sentence ship together, and the second half is not optional. Below market related party rent is still a breach. It contravenes the arm's length duty in section 109 of the SIS Act, which is a civil penalty provision, and it raises a sole purpose question about whose benefit the fund is being run for. The consequences are regulatory rather than a 45% tax event: rectification directions, administrative penalties, disqualification of trustees, and in the worst case the fund being made non-complying. It is a serious breach with a different name and a different remedy, not a permitted saving.
Where non-arm's-length income actually bites
Where non-arm's-length income genuinely bites in a related party lease is the expense side, and that is the mechanism the field misses. Acquisition costs, property management, maintenance, or a limited recourse borrowing arrangement on non-arm's-length terms are the exposure, because a specific expense incurred in relation to an asset has a sufficient connection to all the income derived from that asset. Source: ATO Law Companion Ruling LCR 2021/2, as consolidated 24 September 2025, on specific and general expenses. Do not attempt the calculation from a web page: general expenses and specific expenses are treated differently and the arithmetic is a specialist's job.
What does getting an SMSF leaseback wrong actually cost?
The other number the market understates is the cost of non-compliance. Non-arm's-length income is taxed at 45%, but only on the non-arm's-length component, with the rest of the fund's income staying at the concessional rate. Source: ATO, How SMSFs are taxed, page last updated 2 April 2025. The 45% applies to the component, not the whole fund. A fund made non-complying is an order of magnitude worse: it loses the concessional rate, and in the year it becomes non-complying it includes "an amount equal to the market value of the fund's total assets less any contributions" in its assessable income. Source: ATO, Our SMSF non-compliance actions, page last updated 12 February 2026. For a fund whose only asset is the premises, that one-off inclusion is the value of the building. Most commercial content states only the ongoing rate.
| What goes wrong | Which provision | Regulatory consequence | Tax consequence |
|---|---|---|---|
| Acquiring above or below market value | SIS Act s 66(2)(b), which permits the acquisition only at market value. | The acquisition falls outside the exception, so the s 66(1) prohibition applies. Rectification direction, administrative penalty, possible disqualification. | Capital proceeds can be substituted at market value where the parties were not dealing at arm's length, which changes the vendor's capital gain. |
| Charging non-market rent | SIS Act s 109, arm's length dealing, a civil penalty provision, and the sole purpose test. | Breach. Rectification direction, administrative penalty on each individual trustee, possible disqualification or non-complying status. | Above market rent to the fund can be non-arm's-length income. Below market rent gives the fund less than arm's length, so the income limb is not engaged, and the exposure is regulatory instead. |
| The property ceasing to be business real property | SIS Act s 71(1)(g), which requires business real property throughout the term. | The in-house asset exception fails, so the leased property becomes an in-house asset and the fund is immediately over the limit. | No direct tax charge from the failure itself, but non-complying status carries the whole-of-fund inclusion described above. |
| A limited recourse borrowing arrangement on non-arm's-length terms | SIS Act s 109 and the non-arm's-length expense limbs of ITAA 1997 s 295-550. | Breach of the arm's length duty, with the ATO's safe harbour guideline as the reference point for what acceptable terms look like. | This is where non-arm's-length income actually bites in a leaseback: a below market expense, including interest, can taint income connected with the asset. |
| Breaching the in-house asset limit | SIS Act ss 82 and 83, the 5% market value ratio. | Prohibition on acquiring further in-house assets, a written rectification plan required after year end, and administrative penalties. | No direct charge on the ratio breach itself. The tax exposure arrives through non-complying status if it is not rectified. |
The penalty regime is worth understanding as two separate numbers rather than one. Administrative penalties are expressed in penalty units, with 60 units applying to contraventions including borrowings and the in-house asset rules, 20 units to operating standards, and smaller amounts below that. The value of a penalty unit is $364 for contraventions occurring on or after 1 July 2026. Sources: ATO, Our SMSF non-compliance actions, page last updated 12 February 2026, and ATO, Penalty units, page last updated 26 June 2026. The unit value is set at the date the contravention occurred. Penalties are imposed on each individual trustee or director and cannot be paid or reimbursed from fund assets. The two figures are published separately and are stated separately here for that reason.
The regulator's toolkit is broader than penalties. It includes education directions requiring a trustee to complete an approved course, rectification directions requiring specified action within a specified time where failure to comply is a strict liability offence, and enforceable undertakings. Winding up the fund does not stop compliance action.
Route every part of this to an SMSF specialist and a registered tax agent before anything is signed. The provisions above are civil penalty and compliance territory, the exposure is your fund's complying status rather than a line item, and the auditor is obliged to report contraventions they believe have occurred, are occurring, or may occur. If the fund route still appeals after reading this, start from the non-bank path for an SMSF commercial property purchase and take specialist advice in parallel.
What does it do to your balance sheet, and what will your bank see?
The balance-sheet answer depends on the financial reporting framework and accounting policies your entity actually applies. Calling the accounts "special purpose" does not, by itself, prove that AASB 16 is switched off, so read the basis of preparation and material accounting policies with the accountant who prepares the statements. The separate credit question is easier: the next lender can still read the lease as a fixed commitment even where the financial-statement presentation differs.
Where AASB 16 applies, it starts with a gate rather than a conclusion. The standard requires an entity to "apply the requirements for determining when a performance obligation is satisfied in AASB 15 to determine whether the transfer of an asset is accounted for as a sale of that asset". Only if that test is satisfied does the sale accounting follow.
| Stage | What the standard says | What it means for the seller-tenant |
|---|---|---|
| The sale test, paragraph 99 | Apply the AASB 15 requirements for determining when a performance obligation is satisfied to decide whether the transfer is accounted for as a sale. | Signing a contract of sale does not settle the accounting question. A leaseback with certain repurchase features can fail the test. |
| If it is a sale, paragraph 100 | The right-of-use asset is measured at the proportion of the previous carrying amount relating to the right of use retained, and the seller recognises "only the amount of any gain or loss that relates to the rights transferred to the buyer-lessor". | You do not book the whole accounting gain. Only the portion relating to the rights actually transferred is recognised, which surprises owners expecting a large one-off profit. |
| Off-market terms, paragraph 101 | Below-market terms are accounted for as a prepayment of lease payments, and above-market terms "as additional financing provided by the buyer-lessor to the seller-lessee". | An inflated price supported by an inflated rent is recharacterised as borrowing. The standard names the substance the transaction was structured to obscure. |
| If it is not a sale, paragraph 103 | The seller-lessee continues to recognise the transferred asset and recognises "a financial liability equal to the transfer proceeds". | The building stays on your balance sheet and the proceeds appear as debt. The transaction is accounted for as a secured borrowing, not a disposal. |
Source for the table: AASB 16 Leases, paragraphs 99 to 103 including the sale-and-leaseback amendments applying to periods beginning on or after 1 January 2024, current AASB sale and leaseback provisions, read August 2026. AASB 1054 separately requires entities to disclose whether financial statements are general purpose or special purpose and, in relevant cases, the basis and material accounting policies applied.
Special purpose is a label, not the answer. Some special-purpose financial statements apply recognition and measurement requirements drawn from Australian Accounting Standards and others use a different specified reporting framework. The treatment therefore has to be read from the basis of preparation and accounting policies rather than inferred from the words "special purpose" on the cover. Source: AASB 1054, General Purpose or Special Purpose Financial Statements, current version read August 2026.
The credit question is separate. A lender assessing the business can read the executed lease, annual rent, review mechanism, remaining term and guarantees whether or not the accounting presentation puts a lease liability on the face of the balance sheet. That is why the transaction should be modelled twice: once by the accountant for the statements, and once as a cashflow commitment for what the next lender sees.
Does a right to buy the building back change the answer?
It can change it completely, and this is the trap in an otherwise reassuring negotiation. A right to repurchase feels like the seller protecting themselves, and it is often offered as a sweetener. But if the option is substantive, the argument runs that control of the building never actually passed to the buyer, in which case there was no sale for accounting purposes at all. The transaction is then treated as a financing arrangement: the building stays on your balance sheet and the proceeds are recognised as a liability rather than a disposal.
The same distinction appears on the tax side. The ATO ruling discussed above expressly excludes from its scope arrangements that include an option or an obligation for the lessee to reacquire the asset at the end of the lease term, which tells you the Commissioner treats reacquisition rights as changing the character of the arrangement rather than decorating it.
The practical instruction is not to avoid a buyback right. It may be exactly what you want, and for some owners it is the only version of this deal worth doing. The instruction is to have it drafted knowing what it does, with your accountant in the room, because a clause inserted late to make a seller feel better can quietly undo the accounting and tax treatment the entire transaction was structured around. Raise it at the term sheet stage, not at settlement.
Whether AASB 16 applies to your entity, and which compilation applies to your reporting period, is a question for the accountant preparing the statements rather than for your broker or your solicitor. Ask them before the transaction is documented, because the answer can influence how the contract is structured, not just how it is reported. What a financier then does with the finished document is a separate exercise, set out in how a lender reads a commercial lease.
Can you sell your business after a sale and leaseback?
Yes, but the premises stop being an asset you can transfer with the business and become a lease that the buyer usually needs to take over. That means a future business sale can depend on the assignment clause, the landlord's consent, the permitted use, the remaining term and whether you and any guarantors are actually released.
This is the downstream event most leaseback sellers fail to price. Today the landlord wants a long, secure lease because it lifts the investment value. Three years later the owner of the operating business may want a clean sale, and that same long lease can give the landlord leverage over the incoming buyer or leave the outgoing owner exposed after the business has changed hands.
| Lease issue | What the business buyer needs | What the seller should negotiate now |
|---|---|---|
| Assignment consent | A workable path to take over the lease, often with landlord consent and evidence of financial standing and experience. | Clear consent mechanics, reasonable information requirements and no open-ended ability to block a credible assignee. |
| Permitted use | Enough flexibility to continue, expand or slightly reposition the business without immediately breaching the lease. | A permitted-use definition broad enough for realistic future changes, subject to planning and legal requirements. |
| Remaining term and options | Enough secure tenure to justify paying for goodwill and fit-out. | Options and notice windows that preserve saleability without locking the current owner into an unnecessarily long hard term. |
| Outgoing guarantees | A lease it can assume without hidden obligations to the former owner. | An express release mechanism for the outgoing tenant and guarantors where legally and commercially available. |
| Security and make good | Clarity on bank guarantees, deposits and end-of-term reinstatement obligations. | Rules for replacing security on assignment and a make-good scope that can be priced before the business is marketed. |
New South Wales retail leases have a statutory assignment process: the landlord generally has a 28-day decision period once the required information is provided, and section 41A can release an assignor from later liabilities where the statutory requirements are met. The NSW Small Business Commissioner separately warns that commercial leases outside that regime turn first on the lease itself, and a landlord may seek to keep the outgoing tenant or guarantor on the hook. Sources: NSW Small Business Commissioner, Transferring your lease, and Retail Leases Act 1994 (NSW) ss 41 and 41A, current guidance read August 2026. Other states have different retail leasing regimes.
If a business sale, succession or management buyout is plausible during the lease term, have a commercial property solicitor review assignment, change-of-control, permitted-use and guarantor-release provisions at the leaseback stage. Business.gov.au also warns that leases, permits and licences may need to be transferred on a business sale and that obligations remain with the seller until transfers are complete.
The assignment trap is the single most expensive misunderstanding in this part of the transaction. The clean outcome, where assigning the lease ends the outgoing tenant's responsibility, is a feature of the retail leases legislation, complete with a statutory response period for the landlord and an express release of the assignor. A leaseback of owner-occupied industrial, warehouse or office premises is overwhelmingly not retail, as the retail leases section sets out, so the deemed consent rule and the release of the assignor do not apply, and the outgoing tenant normally stays on the hook for the balance of the term if the incoming tenant fails.
That is why an express release on assignment, for you and for any guarantor, is worth more at the term sheet stage than almost anything else you could negotiate. It costs nothing to ask for now and cannot be obtained later. Have a commercial property solicitor draft the exit provisions while you still have leverage, and see how a business guarantee follows you for what an unreleased guarantee does to your own borrowing afterwards.
What if the buyer, landlord or their lender runs into trouble after settlement?
Your right to stay comes from the lease and how that lease sits in the title and financing structure, not from the buyer remaining wealthy forever. A seller can spend weeks testing its own obligations and almost no time asking what happens if the new owner refinances heavily, sells the property, defaults to its lender or later wants the site for something else.
This is a title-priority and lease-drafting question, and the answer is state-specific. Before settlement, have the property solicitor confirm whether the lease should or must be registered, whether the buyer's existing or incoming mortgagee must consent to it, what protection the tenant has if a mortgagee later enforces, and whether any separate recognition or non-disturbance arrangement is available or warranted. In New South Wales, NSW Land Registry Services expressly notes that a mortgagee's consent may be required for registration of a lease. Other states have their own title and registration rules. Source: NSW Small Business Commissioner, Registering your lease, read August 2026. NSW only, and lodgement requirements are set by NSW Land Registry Services.
| Risk | Why it matters after the sale | Question for the solicitor before settlement |
|---|---|---|
| Lease registration | An unregistered or incorrectly documented interest can have a different priority and enforcement position from a properly registered lease. | Should this lease be registered in this state, who lodges it, and what evidence will I receive that registration completed? |
| Mortgagee consent or recognition | The buyer may finance the acquisition or refinance later, placing a lender with its own rights over the property into the structure. | Does the current or incoming mortgagee need to consent, and what happens to my occupation if that mortgage is later enforced? |
| Sale to a new landlord | The owner you chose today may not be the owner for the whole lease term. | Which landlord obligations bind a purchaser, what notices are required, and what security or deposits must transfer with the property? |
| Redevelopment, demolition or relocation rights | A long lease is not useful operational security if the document contains a broad route for the landlord to recover or move the premises. | Are there redevelopment, demolition, relocation or early-termination rights, and what compensation, notice and conditions apply? |
| Landlord obligations | You no longer control structural works, building insurance, common services or capital expenditure simply because you once owned the site. | What must the landlord maintain, insure and rebuild, and what happens if it fails to do so? |
Do not confuse a famous buyer with permanent tenure. The lease has to survive ordinary ownership changes and financing events without depending on goodwill. If operational continuity is the whole reason you are doing the transaction, this check belongs beside rent and price at the start, not in the closing checklist after the sale contract is unconditional.
None of this is a reason to assume the worst of a buyer, and most leasebacks settle and run without incident. It is a reason to have your solicitor confirm the registration and mortgagee position while you negotiate, when the buyer still needs your signature. For how a lender reads a lease when it is the one taking security over the building, see how lenders read a commercial lease.
What happens at the end of the leaseback, and if you need out early?
At expiry you have no automatic right to stay, and that is the fact most sellers have not absorbed. Unless the lease grants an option to renew and you exercise it within the exact window and on the exact conditions the lease specifies, the term simply ends and the premises revert to the landlord. A building your family may have occupied for thirty years becomes somebody else's to relet.
The sequence at the end of a term runs like this:
- Expiry. The lease ends on its date. Any option to renew must be exercised strictly in accordance with its terms, and an option exercised late or informally is frequently unenforceable.
- Holding over. If you stay on after expiry without a new lease, most leases convert the arrangement to a periodic tenancy on stated terms, often at an increased rent and terminable on short notice. It is a bridge, not a position.
- Make good. You may be contractually required to strip out and reinstate the premises to a defined condition, including fitout you installed and paid for while you owned the building. Price this at the start of the lease, not at the end of it, and check how it interacts with your leasehold improvements.
- The next move. Relocating, negotiating a new lease at the market of the day, or buying premises again. If buying is the plan, the mirror transaction is covered in buying the premises you currently lease.
How do you get out of a leaseback lease early?
The early exit half is the one nobody plans for and the one that costs the most. A commercial lease is a contract for the full term, and walking away from it is a breach rather than an option. The clean route is a negotiated surrender; assignment can also move occupation to somebody else, but whether it releases you is a separate question covered in selling the business after a leaseback.
Ending a lease early generally requires agreement with the landlord, the tenant may need to pay a financial settlement or break lease fee, and the surrender should be documented in a deed. What such a settlement costs is negotiated and depends on the landlord's re-letting position, so no universal figure belongs here.
If you simply leave, the landlord's remedy can be substantial. The New South Wales small business regulator states that a landlord can pursue rent for the balance of the term, subject to mitigation principles, while Queensland guidance lists potential claims including lost rent, reletting shortfalls and make-good costs. Sources: NSW Small Business Commissioner, Surrendering a retail or commercial lease, and Queensland Small Business Commissioner, Ending a lease early, current guidance read August 2026. State law and the lease terms matter; obtain legal advice on your own lease.
A sale and leaseback can release substantially more capital than a conventional facility without moving the business, and that is a genuine advantage when the net usable proceeds justify the trade. It also converts a shrinking mortgage into a permanent escalating rent, hands the future growth to somebody else, extinguishes the only security most owner-occupier businesses have, and does all of it irreversibly. The rent you agree sets the price, so the two numbers are one decision. In most cases where the capital requirement fits inside a facility, releasing equity against the building and keeping it is the stronger structure, and the leaseback earns its place only where the requirement genuinely exceeds what any lender will advance.
Key takeaway: price the rent before you price the sale, and price the alternative before you price either.Before you answer the buyer, it is worth knowing what you could borrow against the building instead. That comparison takes a conversation, not a commitment.
What to check before you sign anything
In the order the answers actually arrive, because two of these change whether the deal is worth doing at all and both take weeks to get.
- Whether you are already committed. Read what you have been sent for exclusivity, deposit and any clause that survives if you walk. A heads of agreement is not automatically non-binding. See the offer section.
- What rent the price assumes. The buyer capitalises the rent you agree, so a higher headline price is bought with a higher rent for the life of the lease. Ask what yield the offer is priced at before you look at the number. See how the price is worked out.
- What actually lands after the payout. Start with the gross sale price, deduct secured debt, lender exit costs and transaction costs, then model GST and the tax reserve before calling the balance working capital. See net usable proceeds.
- What your existing lender needs. If the building secures a facility, the sale cannot settle without a discharge, and a fixed rate may carry a break cost. Lodge the discharge authority early and get the payout figure and any break cost in writing, because they are a real reduction in proceeds and they sit on the critical path. See what happens to your existing loan.
- The tax position, from a registered tax agent. Duty, the CGT event date, the concessions, GST and your ongoing deductions all turn on your structure and your contract date, not on the asset. Settle the GST treatment in writing before the contract is signed. See the CGT section, the GST section, the deductions section and the duty section.
- Whether the lease protects you at all. Most owner-occupier premises fall outside the retail leases legislation, which means the only protection you have is the protection you negotiate. See the retail leases section and the lease terms a buyer will require.
- How it affects a later business sale. The lease can become the gate through which a buyer of the operating business must pass. Check assignment, permitted use, remaining term and guarantor release now. See selling the business after a leaseback.
- How it ends. There is no automatic right to stay at expiry and early exit is expensive. Have the exit clauses drafted before you sign, not when you need them. See the end of term section.
- What borrowing against it instead would look like. This is the comparison most sellers never run, and it is the only one that keeps the building. See selling versus releasing equity, or ask a broker to price it before you answer the buyer.
Frequently asked questions
There is no fixed leaseback timetable. A conventional Australian property settlement is commonly negotiated in roughly a 30 to 90 day range, but a leaseback adds valuation, investor due diligence, lease negotiation, tax review, mortgage discharge and often the buyer's finance. Treat the date as a project plan rather than a promise: work backwards from the discharge and contract conditions, and allow longer where the lease or tax structure is still being negotiated.
There is no national statutory minimum created by the sale-and-leaseback structure itself. The required term is a commercial negotiation: buyers generally value longer committed income more highly, while the seller gives up flexibility for every extra year of hard term. Negotiate the shortest committed term that still supports an acceptable price, then use properly drafted options where you need future tenure.
The lease decides, subject to any state retail-leasing restrictions that apply. In many industrial and office leasebacks the buyer seeks a net or triple-net structure, which can leave the former owner paying rates, insurance contributions, maintenance and other outgoings even though it no longer owns the freehold. Read the outgoings schedule line by line and check land-tax recovery separately because the rules differ by state and lease type.
Not automatically. Once the freehold is sold, you only have a route back if the documents give you one, such as a purchase option, right of first refusal or another agreed mechanism, or if the owner later agrees to sell. Draft any repurchase right before the original sale, because a substantive repurchase right can also change whether the transfer qualifies as a sale for accounting purposes under AASB 15 and AASB 16.
Only within the rights the lease gives you and any planning or regulatory approvals. Once you are the tenant, changes to permitted use, major alterations, signage, subletting or occupation by another entity may require landlord consent. If expansion, a new product line or a later business sale is plausible, negotiate a broad enough permitted use and workable consent clauses while you still own the property.
At minimum, get the heads or term sheet, the full draft lease or settled lease heads, the sale contract, independent market-rent and valuation evidence, the existing lender's payout and discharge requirements, and written tax advice on GST and the expected after-tax proceeds. Do not accept a headline price while the lease is still 'to be agreed': the lease is the document that creates the price and the long-term cost. See the offer section and the lease terms.
No. Companies do not get the general 50% CGT discount. That is separate from the small business CGT concessions, which may still reduce or eliminate a qualifying gain. The owner of the premises, the active-asset tests and the current concession rules therefore matter more than the label 'commercial property'.
Potentially, because the 2026 reforms are framed by taxpayer and gain rather than by whether the asset is residential or commercial. From 1 July 2027 the general 50% CGT discount is replaced for relevant individuals, trusts and partnership gains by cost-base indexation and a 30% minimum tax on gains accruing from that date, subject to the legislation and exceptions. The small business CGT concessions remain separate. Confirm the owner-specific position before contracting. See the CGT section.
Irreversibility. You can renegotiate some lease terms later, but once the freehold has been transferred you do not own the building, its future growth or the security value it previously gave your business. A long lease can then survive changes in your business, including a future sale, relocation or refinance. Price the alternative and the exit before you price the headline offer. See the alternatives.
It depends on the financial reporting framework and accounting policies your entity applies. Where AASB 16 applies and the transfer qualifies as a sale, the seller-lessee recognises the leaseback accounting required by the standard, including a right-of-use asset and lease liability. Special-purpose financial statements do not, by their label alone, answer whether AASB 16 is applied. Separately, a lender can still assess the executed lease as a fixed cashflow commitment. See the accounting and credit section.
Usually the sale of commercial premises is taxable unless another treatment applies. For the classic same-entity owner-occupier leaseback, ATO GSTR 2002/5 Example 2 says the seller had not carried on a leasing enterprise before the sale and therefore could not supply that leasing enterprise as a going concern merely by agreeing to lease the building back. A genuine leasing enterprise that exists before the supply can produce a different result. Get the GST treatment confirmed in writing before the contract is signed. See the GST section.
Yes, if the property secures the facility and the buyer is to receive clear title, the mortgage normally has to be discharged at settlement. That usually means obtaining a payout figure, satisfying the lender's discharge process and dealing with any fixed-rate break or economic cost. If the facility is cross-collateralised, the lender may also require a wider restructure before it releases the property. See the discharge section.
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