Australian builders registered for GST charge 10% on taxable construction supplies and claim input tax credits on business purchases. When GST on a progress claim falls due depends on your accounting basis. Builders on the non-cash basis attribute GST on the earlier of invoicing or payment. Builders on the cash basis attribute GST only when payment is received. Registration is compulsory once GST turnover reaches $75,000.
Total construction work done in Australia was $82.5 billion in the June quarter 2026, one of the largest activity figures in the economy. The Australian Taxation Office puts the net GST gap at $8.7 billion for 2023-24, or 9.4% of theoretical GST, and attributes part of the latest increase to spending on dwelling construction rising 7.1%. Construction sits squarely inside the ATO's field of view on GST compliance.
For builders operating in Melbourne and across Australia, understanding GST obligations is not optional. It is essential to maintaining compliance, avoiding penalties and managing cash flow. Progress payments, retention amounts, material purchases and subcontractor invoices all have GST implications that require careful attention, particularly given the scale and frequency of transactions in building contracts.
This guide covers the key GST rules builders must understand, from registration thresholds through BAS lodgement. Whether you are managing a small residential project or a multi-million-dollar commercial build, the principles remain consistent, and the stakes of getting them wrong are real.
For more information on industry-specific compliance, see our guide to accounting services for builders and tradies in Melbourne.
When Do Builders Need to Register for GST?
Builders must register for GST once their GST turnover reaches $75,000, and must do so within 21 days of that point. The test looks at both current turnover over the past 12 months and projected turnover over the next 12 months. Once registered, you charge 10% GST on all taxable supplies.
The $75,000 threshold applies to your GST turnover, which is gross business income less GST and certain excluded amounts. It is not a profit test. You must monitor two figures each month: your current turnover for the past 12 months, and your projected turnover for the next 12 months. Reaching the threshold on either measure triggers the obligation.
In our experience advising Melbourne-based builders, many underestimate their turnover in the early months of operation. A small renovation job combined with maintenance contracts can quickly accumulate to the registration threshold. Once you register, you remain registered unless you can demonstrate your turnover will fall below $75,000 for the next 12 months.
Voluntary Registration Benefits
Some builders with turnover below $75,000 choose to register voluntarily. This allows you to claim input tax credits on business purchases, which can reduce your effective costs. If you are purchasing significant quantities of materials or equipment, voluntary registration may be worthwhile even before reaching the statutory threshold.
Penalties for Failing to Register
Two separate penalty regimes apply, and they are often confused. Failing to apply for GST registration when required is an administrative penalty of 20 penalty units. A penalty unit is $364 from 1 July 2026, so the exposure is $7,280. Separately, where a false or misleading statement produces a tax shortfall, the base penalty is 25% of the shortfall for failing to take reasonable care, 50% for recklessness and 75% for intentional disregard of the law. General interest charge applies to unpaid amounts. An unregistered builder also cannot claim input tax credits, so GST on purchases becomes a real cost rather than a recoverable one.
For detailed requirements and to register online, visit the ATO's GST registration page.
When is GST payable on a builder's progress claim?
It depends on your accounting basis. Under the non-cash basis, GST on a progress claim is attributable in the tax period in which you issue the invoice or receive payment, whichever happens first (GST Act s.29-5(1)). Under the cash basis, GST is attributable only when, and to the extent that, payment is received (s.29-5(2)).
This single distinction drives most of the GST cash flow pain in construction, and it is the point most often stated incorrectly. The "earlier of invoice or payment" rule in s.29-5(1) applies to builders who account on a non-cash (accruals) basis. It does not apply to builders who account on a cash basis. A cash-basis builder cannot owe GST before receiving payment, because receipt is the attribution trigger.
Eligibility to use the cash basis is set by s.29-40. In broad terms, you can choose it if you are a small business entity with aggregated turnover under $10 million, if you already account for income tax on a cash basis, or if you are a non-business enterprise with GST turnover of $2 million or less. Builders above those thresholds must use the non-cash basis.
| Situation | Non-cash (accruals) basis, s.29-5(1) | Cash basis, s.29-5(2) |
|---|---|---|
| Progress claim invoiced, not yet paid | GST attributable in the period the invoice is issued | No GST attributable until payment is received |
| Part payment received | Full GST already attributed on invoicing | GST attributable only on the part received |
| Retention withheld by the principal | GST on the retained amount is attributable when invoiced, before the money is released | GST on the retained amount is attributable when the retention is released and paid |
| Deposit received before work starts | GST attributable on receipt, being the earlier event | GST attributable on receipt |
| Who can use it | Any registered entity; compulsory above the cash accounting thresholds | Small business entities with aggregated turnover under $10 million, entities accounting for income tax on a cash basis, and non-business enterprises with GST turnover of $2 million or less |
Worked example: a $550,000 contract with 5% retention
A Melbourne builder contracts to complete a residential renovation for $550,000 including GST, payable in five equal progress claims. Each claim is $100,000 plus $10,000 GST. The contract allows the principal to retain 5% of the certified value until practical completion. The builder lodges quarterly.
The builder issues progress claim 1 on 20 June 2027. The principal certifies the full $110,000, withholds retention of $5,000 plus $500 GST, and pays $104,500 on 10 August 2027.
On the non-cash basis: the invoice is the earlier event, so the full $10,000 of GST is attributable to the April to June 2027 quarter. That BAS is due on 28 July 2027. The builder remits $10,000 thirteen days before the principal pays anything, and $500 of that relates to retention money the builder may not see for another year.
On the cash basis: nothing is attributable until 10 August 2027. GST of $9,500 falls into the July to September 2027 quarter, reported on a BAS due 28 October 2027, by which time the builder has held the money for 79 days. The remaining $500 is attributable only when the retention is released.
The same contract, the same invoice and the same payment produce a GST liability four months apart. On this single claim the non-cash builder funds $10,000 out of working capital; the cash-basis builder funds nothing. Across five claims on one job, that is a $50,000 swing in working capital timing, which is why the choice of accounting basis is a cash flow decision as much as a compliance one.
GST on Retention Amounts in Construction
Retention is part of the consideration for the construction supply, not a separate supply. A builder on the non-cash basis attributes GST on the retained amount when the progress claim is invoiced, before the money is released. A builder on the cash basis attributes it only when the retention is actually paid. If retention is never released, the consideration is reduced and an adjustment arises.
Retention is a common practice in construction contracts, where the client withholds a percentage of progress payments, typically 5% to 10%, until final completion. From a GST perspective, retention is part of the total contract price and is included in the value on which GST is calculated. ATO guidance confirms that the release of a retention amount is not consideration for a separate supply by the builder.
Timing of GST Liability on Retention
Non-cash basis: GST is attributed when you issue the invoice, regardless of when the retention is actually received. If you invoice a progress claim of $110,000 including GST and the principal withholds $5,500 including GST as retention, the full $10,000 of GST is attributable in the period you issue the invoice, including the $500 sitting inside the retained amount.
Cash basis: GST is attributed when payment is received (s.29-5(2)). On the same claim, $9,500 is attributable when the $104,500 lands, and the remaining $500 only when the retention is released.
In our experience advising Melbourne-based builders, the non-cash method creates a significant timing issue. You may invoice in October for work completed, triggering a GST liability in October. But if the client does not release retention until January the following year, you have paid GST on money you have not received. Builders on the cash basis do not face this mismatch, though other cash flow considerations apply.
Where a contract instead requires the builder to invoice net of retention and issue a separate retention invoice at practical completion, the GST on the retention attaches when that later invoice issues (non-cash) or when it is paid (cash). Regardless of method, maintaining clear records that separate retention from progress payments is essential for accurate BAS reporting.
Input Tax Credits Builders Can Claim
One of the key benefits of GST registration is the ability to claim input tax credits (ITCs) on business purchases. For builders, this includes materials, subcontractor invoices, equipment hire, and fuel. To claim an ITC, you must have a valid tax invoice from the supplier.
What Builders Can Claim
Materials: Bricks, timber, steel, plasterboard, and all construction materials used in projects. The GST component is claimable as an ITC.
Subcontractor Invoices: When you engage plumbers, electricians, or other trades, claim the GST on their invoices if they are registered for GST. Ensure their invoice clearly shows GST and their ABN.
Equipment Hire: Hiring scaffolding, cranes, or other equipment is subject to GST. The GST on hire costs can be claimed as an ITC.
Fuel and Vehicle Expenses: GST on fuel for vehicles used in the business can be claimed, provided records support the business-use portion.
What Builders Cannot Claim
Food and Drink: ITCs on food and drink are generally denied where the entertainment provisions apply (GST Act Division 69). However, site meals provided to employees as part of ordinary working conditions may be claimable. Client entertainment is typically not deductible. The distinction depends on the nature and purpose of the expenditure.
Private Use Items: Vehicle running costs for private use, household items, or personal purchases are not eligible.
Unregistered Supplier Invoices: If a supplier is not registered for GST, no GST is shown on the invoice, and therefore no ITC can be claimed.
Documentation Requirements
A tax invoice for a sale under $1,000 must show seven things: that the document is intended to be a tax invoice, the seller's identity, the seller's ABN, the date it was issued, a description of the items sold including quantity and price, the GST amount (or a statement that the total price includes GST), and the extent to which each sale is taxable. Sales of $1,000 or more must also show the buyer's identity or ABN.
A supplier's signature is not required, and electronic invoices are acceptable. You do not need a tax invoice for purchases of $82.50 or less including GST, though you still need records supporting the claim. Input tax credits must generally be claimed within four years. The ATO regularly reviews construction businesses on ITC claims, so maintain organised records and cross-reference invoices to your project records.
For comprehensive guidance, visit the ATO's input tax credits page. If you need help maximising your ITCs and ensuring compliance, our BAS and IAS services can support your business.
BAS Reporting for Construction Businesses
Once registered for GST, builders must lodge a Business Activity Statement (BAS) to report their GST obligations. BAS lodgement is either quarterly or monthly, depending on your turnover. Most builders lodge quarterly.
Quarterly BAS Due Dates
| Quarter | Period | Due date |
|---|---|---|
| 1 | July to September | 28 October |
| 2 | October to December | 28 February |
| 3 | January to March | 28 April |
| 4 | April to June | 28 July |
The December quarter is the exception builders most often miss. It is due 28 February, because the ATO has already built a one-month extension into that date. For the same reason, the two-week online lodgement concession is available for quarters 1, 3 and 4 but not quarter 2. Monthly lodgers, which means any builder with GST turnover of $20 million or more, or where the ATO directs it, report by the 21st of the following month. Clients lodging through a registered tax or BAS agent generally receive further concessional dates.
Key BAS Fields for Builders
GST Payable: This is the GST you have charged to clients, calculated as 10% of taxable supplies. For a builder, this includes progress payments and retention, attributed according to your accounting basis.
Input Tax Credits: These are the ITCs you have claimed on business purchases. For builders, this includes materials, subcontractors, and equipment.
Net GST Position: This is the difference between GST payable and ITCs. If ITCs exceed GST payable, you receive a refund. If GST payable exceeds ITCs, you pay the difference to the ATO.
Common BAS Errors in Construction
Forgetting to include progress payments: Builders on the non-cash basis sometimes omit progress invoices from their GST calculation, leading to underreporting. Every invoice issued must be included.
Claiming ITCs without valid invoices: Submitting ITC claims without supporting tax invoices invites ATO scrutiny and potential adjustments.
Cash and non-cash confusion: Builders on the non-cash basis must include invoices issued, not just payments received. Builders on the cash basis must include payments received, not invoices issued. Mixing the two approaches creates errors in both directions.
Missing the February deadline: The December quarter BAS is due 28 February, not 28 January. This catches builders who assume a uniform 28-day rule.
For full BAS guidance and lodgement, visit the ATO's BAS page. For key ATO due dates and planning, see our article on key ATO due dates for BAS, PAYG, FBT, super, and TPAR.
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Contact Us TodayWhat Are the GST Rules for New Residential Premises?
The sale of new residential premises is a taxable supply attracting 10% GST (GST Act s.9-5, read with the carve-out in s.40-65(2)). Existing residential premises are input taxed under s.40-65, so no GST is charged and no ITCs can be claimed. The distinction between "new" and "existing" determines the correct treatment.
The GST treatment of residential property is one of the most misunderstood areas for builders. Under the GST Act, the sale of new residential premises is a taxable supply, meaning you must charge 10% GST to the purchaser. This is not GST-free. In contrast, the sale of existing residential premises is input taxed under s.40-65, so no GST is charged, but the seller cannot claim ITCs on related costs.
Premises are considered "new residential premises" under s.40-75 if they have not been previously sold as residential premises, have not been the subject of a long-term lease, or have been created through substantial renovations or replacement of demolished premises. GST-free treatment applies only in limited circumstances, such as sales as a going concern (s.38-325) or certain export transactions.
The Five-Year Rule
The five-year rule under s.40-75(2) determines whether premises remain classified as "new", not whether they are GST-free. Residential premises cease to be "new" if they have been continuously rented out for a period of at least five years since construction or substantial renovation. Once premises are no longer "new", their subsequent sale becomes input taxed rather than taxable, meaning no GST is charged, but ITCs attributable to that sale cannot be claimed. This distinction is critical: the five-year rule shifts treatment from taxable to input taxed, not from taxable to GST-free.
Substantially Renovated Premises
A substantial renovation creates new residential premises under the GST Act (s.195-1 definition). This means the sale of substantially renovated premises is a taxable supply, and GST at 10% must be charged. Substantial renovation generally requires that all or substantially all of the building has been removed or replaced. Cosmetic upgrades or partial refurbishments typically do not meet the threshold. Because the renovated property is treated as "new", the builder must account for GST on sale but may also be entitled to claim ITCs on renovation costs. This area warrants specific advice based on the scope of the project.
Going Concern Exemption
If you sell a property or business as a going concern under s.38-325 of the GST Act, the sale may be GST-free provided specific conditions are met, including that the supply is of a going concern, both parties are registered for GST, and the parties have agreed in writing that the supply is a going concern. This is particularly relevant for developers transferring project rights or selling approved land packages.
For detailed guidance on GST treatment of residential property, see the ATO's GST and residential property page. If you are involved in property development or residential construction, our property tax accounting services in Melbourne provide tailored advice for your circumstances.
Conclusion: GST Compliance Summary for Builders
GST compliance for builders involves multiple overlapping rules: registration thresholds, progress payment timing, retention treatment, input tax credits, and BAS lodgement. Each decision affects your tax position and cash flow. In our experience advising Melbourne-based builders, the most successful ones treat GST planning as an integral part of project management, not an afterthought.
To help you stay compliant, here is a summary of the key GST rules:
| GST Rule | Key Point |
|---|---|
| Registration Threshold | Register within 21 days of GST turnover reaching $75,000, tested on current and projected turnover |
| GST Rate | Charge 10% on taxable construction supplies |
| Progress Payments | Non-cash basis: earlier of invoice or payment (s.29-5(1)). Cash basis: when payment is received (s.29-5(2)) |
| Retention | Part of the contract consideration, not a separate supply. Non-cash: GST due when invoiced. Cash: GST due when the retention is released |
| Input Tax Credits | Claim GST on materials, subcontractors and equipment with a valid tax invoice. No supplier signature required. Four-year time limit |
| BAS Lodgement | Quarterly: 28 October, 28 February, 28 April, 28 July. The December quarter is due 28 February. Tax agent clients may have extended dates |
| New Residential | Sale of new residential premises is a taxable supply (10% GST); existing premises are input taxed (s.40-65) |
Getting GST right is not just about compliance. It directly affects your profitability. Builders who understand their GST obligations can manage cash flow more effectively, claim all eligible ITCs, and avoid costly penalties. The key is staying organised with documentation and understanding the timing rules that apply to your accounting basis.
Book a GST Compliance Review
Let our team review your current GST position, confirm your accounting basis is the right one, and ensure you are compliant with ATO requirements.
Schedule a MeetingDisclaimer: The information provided in this article is general in nature and does not constitute specific tax, legal, or financial advice. Rates, thresholds and lodgement dates were verified on 22 September 2026 and are current for the 2026-27 income year. We recommend seeking professional advice tailored to your individual circumstances. 42 Advisory is a CPA firm and Registered Tax Agent.
Frequently Asked Questions
Do builders charge GST on labour?
Yes. In Australia, a GST-registered builder charges 10% GST on labour as well as materials. There is no split treatment: the whole taxable supply of construction work attracts GST. For example, a contract invoicing $50,000 for materials and $30,000 for labour carries GST on both components, a total of $8,000.
When is GST due on a progress payment?
It depends on your accounting basis. On the non-cash (accruals) basis, GST is attributable in the tax period you issue the invoice or receive payment, whichever is earlier (GST Act s.29-5(1)). On the cash basis, GST is attributable only when, and to the extent that, payment is received (s.29-5(2)). A cash-basis builder never owes GST before the money arrives.
Can a builder on the cash basis owe GST before being paid?
No. Under s.29-5(2) of the GST Act, receipt of consideration is the attribution trigger for a cash-basis taxpayer, so no GST arises on an unpaid progress claim. The timing mismatch where GST falls due ahead of payment is a feature of the non-cash (accruals) basis under s.29-5(1), not the cash basis.
When is the December quarter BAS due?
The October to December quarter BAS is due 28 February, not 28 January. The ATO has already built a one-month extension into that date, which is why the two-week online lodgement concession is available for quarters 1, 3 and 4 but not for quarter 2. The other quarters are due 28 October, 28 April and 28 July.
What is the GST margin scheme for builders?
The GST margin scheme under Division 75 of the GST Act allows GST to be calculated on the margin, being the sale price less the original acquisition cost, rather than on the full sale price, for taxable supplies of real property. It applies where the property was acquired without a full GST credit, for example purchased from a non-registered seller or acquired before the GST system commenced. Eligibility depends on the acquisition history, not simply whether the property is second-hand. Both parties must agree in writing to apply the scheme, and incorrect use may result in shortfall penalties.
Can builders claim GST on subcontractor invoices?
Yes, builders can claim input tax credits on subcontractor invoices if the subcontractor is registered for GST. The invoice must be a valid tax invoice showing the GST and the subcontractor's ABN. If a subcontractor is not registered for GST, no GST appears on the invoice and no ITC can be claimed. Always request tax invoices with ABN details from subcontractors to support your claims.
What happens if a builder does not register for GST when required?
Failing to apply for GST registration when required attracts an administrative penalty of 20 penalty units, which is $7,280 at the penalty unit rate of $364 applying from 1 July 2026. Where the failure also produces a tax shortfall through a false or misleading statement, a separate base penalty of 25%, 50% or 75% of the shortfall applies depending on whether the cause was a lack of reasonable care, recklessness or intentional disregard. General interest charge applies to unpaid amounts, and an unregistered builder cannot claim input tax credits.
The ATO GST Gap and the Construction Sector
The ATO estimates the net GST gap at $8.7 billion for 2023-24, or 9.4% of theoretical GST. The gap is not on a steady upward path: it fell to $3.3 billion in 2020-21 before rising again across the following three years. The ATO attributes part of the 2023-24 increase to spending on dwelling construction, which is subject to GST, rising 7.1%. Construction is therefore squarely inside the ATO's field of view on GST compliance.
Source: ATO, Goods and services tax gap, latest estimate and trends.
Construction Activity in Australia
Total construction work done in Australia was $82.5 billion in the June quarter 2026 in seasonally adjusted chain volume terms, down 2.1% on the March quarter and up 2.7% on the year. Volumes are high but no longer rising quarter on quarter, which sharpens the cash flow point above: on a flat or falling pipeline, funding GST ahead of receipt is harder to absorb.
Source: ABS, Construction Work Done, Australia, Preliminary, June 2026.
Understanding and managing your GST obligations is essential for any registered builder. From registration thresholds through to progress payment timing and BAS lodgement, each rule affects your bottom line. If you are uncertain about your GST position, or unsure whether the cash or non-cash basis suits your contracts, reach out to our team. We specialise in construction industry compliance and can provide tailored advice for your business.
42 Advisory is a CPA firm and Registered Tax Agent based in Melbourne, providing accounting and tax services to builders and tradespeople across Victoria. Contact us for a consultation today.
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Sergiy Kucherenko
Sergiy Kucherenko is the founder and director of 42 Advisory and a member of CPA Australia. He has spent his career in public practice, working with business owners on tax, structuring and the practical problems that come with running a growing company. Before accounting, Sergiy trained as an engineer and studied computer science. The habit of building systems stuck. It is why the practice runs cloud-first and heavily automated, with Xero at the centre rather than paper files, and why he is comfortable acting for clients whose businesses are technical, software companies in particular. His client work covers medical technology, telecommunications, SaaS, construction and trades, and healthcare, including general practice and dental groups. Some clients come to him at incorporation; others when they are restructuring, acquiring or preparing to sell. The areas he knows best are service trust arrangements for medical practices, revenue recognition for SaaS businesses, and cash flow management in construction.