Knowledge · Finance
GST and BAS
for builders.
GST sits across every deposit, claim and retention on a residential build, and the money collected is never the builder’s to keep. This is the reference for how GST moves through a job, when it is actually owed, and how the BAS pulls it together, written as general information rather than tax advice.
01 / Overview
GST across a residential build
Goods and services tax runs through every part of a residential build. It is added to the contract price the client pays, collected on each progress claim, paid out on materials and subcontractors, and settled with the tax office through the business activity statement. A builder is, in effect, an unpaid collector of GST: the ten per cent added to a claim is held on the ATO's behalf and handed across later, while the GST paid on costs is claimed back as an input tax credit. The whole subject is the movement of that money and, more than anything, its timing.
This page is general information about how GST and the BAS work on a building business. It is not tax advice, and nothing here should be acted on without a registered tax agent who knows the specific business. Tax law changes, thresholds and rules are set by the ATO, and the treatment of a particular payment can turn on facts a general article cannot see. The value of understanding the mechanics is not to self-advise, it is to run the money so the BAS is a plan rather than a shock, and to ask the accountant the right questions.
Why it matters
The observation every experienced builder eventually makes is that GST kills businesses that were never actually unprofitable. The tax lands in the same bank account as everything else, so a builder who reads the balance as available cash spends money that was always owed to the tax office, then has to find it again at lodgement. On a business billing progress claims ahead of its costs, the GST collected can be sizeable, and treating it as working capital is borrowing from the ATO without noticing. GST is a cash flow discipline first and a compliance one second.
02 / The mechanics
Where GST attaches on a job
GST touches the contract at four points that matter to a builder. The treatment at each turns on what the payment actually is, which is why the labels on a claim matter as much as the amounts.
GST on the contract
Residential building work is generally a taxable supply, so GST of one eleventh of the price is built into the contract sum. The headline contract figure a client signs is usually GST-inclusive, and the builder is collecting that GST on the tax office’s behalf, not earning it.
GST on the deposit
A true security deposit may not trigger GST until it is applied to the price, but most residential “deposits” are really a first progress payment and carry GST when invoiced or paid. The treatment turns on what the payment actually is, which is a question for the builder’s accountant.
GST on progress claims
Each progress claim is part of a single progressive supply, so GST is accounted for on each claim as it is made. The claim shows GST of one eleventh of the claimed amount, and that GST belongs on the activity statement for the period the claim falls in.
GST on retention
Retention held from a claim is still part of the consideration for the supply. On accruals, GST on the retained amount generally falls due with the claim it was withheld from, not when the retention is finally released, which is a common cash-timing trap.
03 / The timing question
Cash basis, accruals, and when GST is owed
The question that decides a builder's cash position is not how much GST, but when. GST is attributed to a tax period under rules the ATO sets, and the basis a business is registered on changes the answer. On a cash basis, GST on a progress claim is owed in the period the client pays. On an accruals, or non-cash, basis, it is generally owed in the period the claim is issued, whether or not the client has paid yet. A building contract is treated as a progressive supply, so GST is accounted for claim by claim rather than in one lump at the end.
For a builder who bills ahead, accruals can mean remitting GST on claims before the cash arrives, which is exactly the position a retention makes worse: the GST on the retained amount can fall due with the claim while the money stays with the client. The choice of basis, and the way retentions and any later adjustments are handled, is a decision for the builder's accountant, made against current ATO guidance. The point for the operator is simply that these timing rules are real cash, not paperwork, and they should be understood before a quarter turns into a scramble. Confirm current requirements with a registered agent.
04 / Process workflow
How the BAS pulls it together
The activity statement nets what a builder collected against what they paid, then adds wages withholding and income tax instalments. Five parts make up the number that falls due.
- 01
GST collected on claims (GST on sales)
One eleventh of every progress claim, deposit-as-payment and variation billed in the period. This is money held for the tax office, sitting in the business account looking like available cash.
- 02
GST paid on costs (GST on purchases)
The GST on supplier invoices and subcontractor claims, claimed back as input tax credits, provided a valid tax invoice is held. Coding invoices correctly is what makes this number right.
- 03
The net GST position
GST on sales minus GST on purchases. On a job in its billing-ahead phase the business often owes GST; on a job buying materials ahead of a claim it may be owed a refund. The net is what the BAS settles.
- 04
PAYG and other labels
The activity statement also carries PAYG withholding for employees and PAYG instalments toward income tax. These sit beside GST on the same form and fall due on the same date.
- 05
Lodge and pay by the due date
Most builders lodge quarterly, some monthly. The net amount is paid to the tax office (or refunded) by the statement due date, which is why the GST owed has to be treated as a liability held from the day it is collected.
05 / A common confusion
The margin scheme, and why it usually does not apply
The margin scheme comes up often enough to be worth clearing up. It is a mechanism under Division 75 of the GST Act for working out GST on the sale of certain property, where GST is calculated as one eleventh of the margin between the sale price and what the seller originally paid for the property, rather than on the full sale price. It is a developer's tool, relevant when a business sells property it owns, and it can reduce the GST on a sale where it is available and correctly elected.
It is not a general builder's tool. A builder constructing a home on a client's land under a building contract is making an ordinary taxable supply of building services, and GST applies to the contract in the normal way. The margin scheme only enters the picture where the builder is also the seller of the property, in a spec build or a development, and even then it has strict eligibility and election rules. Assuming it applies to a standard building contract is a genuine and expensive error, so whether it is available on any given project is a question to put to an accountant before, not after, the sale.
06 / Common mistakes
Where GST goes wrong on a building business
Most GST failures are cash-timing failures wearing a compliance hat. Each of these is avoidable with current data and a conversation with the right adviser.
Spending the GST
The single most common cash failure. GST collected on a claim is not revenue, but it lands in the same account and funds this week’s wages. The BAS then arrives as a shock the business has to borrow to pay, quarter after quarter.
Choosing cash or accruals without thinking
On accruals, GST is owed when the claim is issued, even if the client has not paid. On cash, it is owed when the money arrives. For a builder billing ahead, the difference is real cash timing, and the choice should be made with an accountant, not by default.
Missing the retention timing
Assuming GST on retention waits until the retention is released. On accruals it generally does not, so the builder can owe GST on money they are still holding back, and will only recover the position when the retention comes in.
Assuming the margin scheme applies
The margin scheme is a property-sale mechanism, not a general builder’s tool. A builder constructing on a client’s land under a building contract is making an ordinary taxable supply, and reaching for the margin scheme where it does not apply is a costly error to unwind.
Input tax credits without valid tax invoices
Claiming GST back on costs the business cannot support with a valid tax invoice is a review risk. Unmatched or missing invoices quietly overstate the credits, which is a job-cost problem as much as a tax one.
Reconciling the BAS from stale job data
If claims and supplier invoices are entered in a rush at BAS time, the statement is assembled from data that is weeks out of date, and errors in coding flow straight onto a government form. Current data is a compliance safeguard, not just an operational nicety.
07 / FAQ
Common questions.
Residential building work is generally a taxable supply, so GST of one eleventh of the price is included in the contract sum. The builder collects that GST as part of each payment and remits it to the ATO through the business activity statement, while claiming back the GST paid on materials, subcontractors and other costs as input tax credits. The net of the two is what the builder actually pays across each period. The headline point for cash flow is that the GST portion of every claim is never the builder’s money to keep. This is general information, not tax advice; confirm your position with a registered tax agent.
It depends on whether the business accounts for GST on a cash or an accruals (non-cash) basis. On accruals, GST on a progress claim is generally attributed to the period in which the claim is issued, even if the client has not yet paid. On cash, it is attributed to the period in which payment is received. A building contract is treated as a progressive or periodic supply, so GST is accounted for progressively as each claim is made rather than all at the end. Which basis a builder is on materially changes cash timing, so it is a decision to make with an accountant.
Often, yes, if you account on an accruals basis. Retention withheld from a progress claim is still part of the consideration for the building work, so GST on the retained amount generally falls due with the claim it was withheld from, not when the retention is eventually released. That means a builder can be remitting GST on money the client is still holding. If the retention is ultimately not paid in full, the reduction in consideration is adjusted later. Because the mechanics and any adjustment depend on the facts and current ATO guidance, confirm the treatment with your tax agent.
Usually not to a standard building contract. The margin scheme (Division 75 of the GST Act) is a way of working out GST on the sale of certain property, calculating GST as one eleventh of the margin between the sale price and the acquisition cost, rather than on the full sale price. It is relevant to developers and builders who sell property they own, not to a builder constructing on a client’s land under a building contract, which is an ordinary taxable supply. Whether it applies to a particular project is a question for your accountant, because getting it wrong is expensive to correct.
The business activity statement is the form a GST-registered business uses to report and pay GST, along with PAYG withholding for employees and PAYG income tax instalments. Most small and medium builders lodge quarterly; some lodge monthly depending on turnover and ATO requirements. The statement nets GST collected on claims against GST paid on costs and settles the difference. Because the same form carries wages withholding and income tax instalments, the total due on a BAS date can be substantial, which is why builders who manage cash well set the money aside as it is collected rather than finding it at lodgement.
Construction software does not replace an accountant or lodge your BAS, but it can keep the underlying data clean so the statement is accurate and cash is not a surprise. When progress claims carry the right GST, supplier invoices are coded and matched as they arrive, and everything syncs to the accounting ledger, the GST position is current rather than reconstructed at quarter end. In VIABUILD, claims and their GST flow through to Xero and Oryn codes supplier invoices on the way in, so the numbers the BAS is built from are already right. Your registered agent still reviews and lodges.
08 / Terms
Glossary for this topic
GST (goods and services tax, generally one eleventh of a GST-inclusive price), taxable supply (a supply GST applies to), input tax credit (GST paid on costs, claimed back), BAS (the business activity statement GST and PAYG are reported on), cash basis (GST attributed when money moves), accruals basis (GST attributed when the invoice or claim is issued), attribution (the rule fixing which period GST falls in), margin scheme (a property-sale GST method under Division 75), PAYG (pay as you go, withholding and instalments carried on the BAS). The wider vocabulary lives in the construction glossary.
The natural next articles are construction cash flow, where GST timing plays out, and progress claims, the instrument GST is collected on.
09 / Keep reading
Related knowledge, guides and features
10 / Further reading
Primary sources
- Australian Taxation Office , for GST attribution, the margin scheme, BAS obligations and current rates and thresholds. Confirm every specific against the current ATO guidance.
- A New Tax System (Goods and Services Tax) Act 1999 (Cth), the governing legislation, including Division 75 (margin scheme) and the attribution rules. Read alongside current ATO rulings.
- Your registered tax agent or accountant, for how any of this applies to your specific business, contracts and projects.
Make the BAS a plan, not a scramble.
VIABUILD carries the right GST on every claim, codes supplier invoices as they arrive, and syncs to Xero, so the numbers your BAS is built from are current. Your registered agent still reviews and lodges.