Key takeaways
- GST is triggered by the tax invoice you issue, not by when the client pays, so a progress claim that sits unpaid still creates a BAS liability.
- Deposits and progress claims are separate GST events and each needs correct tax invoicing at the time it is issued.
- Retention withheld from a progress claim is still part of the value of the supply, so GST applies to the full claim before retention is deducted.
- The margin scheme changes the GST calculation for the sale of a property but does not apply to the construction work you perform on someone else’s land.
- Cash accounting for GST can smooth the mismatch between BAS lodgement and progress payment cycles, but it has eligibility rules that need checking with your accountant.
Most builders do not get into trouble with GST because they misunderstand the rate. They get into trouble because they misunderstand the timing. The GST liability on a residential job is created when you issue a tax invoice, not when the client pays you. On a job with a long progress claim cycle, that gap can be months, and the BAS falls due in the middle of it.
The practical effect is that a builder can be profitable on paper and still run short of cash, because the GST component of an unpaid claim has already been remitted. This article covers the mechanics of GST and BAS on typical building transactions: deposits, progress claims, retention, variations and final claims. It deliberately stays away from taxable payments reporting and payday super, which are separate obligations with their own rules.
What follows is not tax advice. GST treatment depends on your entity structure, your accounting basis and the specific contract. The point is to give you enough understanding of the mechanism to ask your accountant the right questions and to stop the errors that show up at the end of a job.
Why the tax invoice, not the payment, drives the BAS
GST is a transaction tax. It attaches to a supply, and in most building work the supply is the construction service you provide to the client. The tax invoice is the document that crystallises the liability. Once you issue it, you have accounted for GST on that supply in the BAS period in which the invoice was issued, whether or not the client has paid.
This is why a builder can lodge a BAS showing a GST liability on a claim that is sitting in a client’s accounts payable system, unpaid. The ATO is not waiting for the money to reach you. The obligation has already arisen.
There is an alternative. If you are eligible and have elected to account for GST on a cash basis, the liability arises when you receive payment rather than when you issue the invoice. For builders with lumpy progress claim cycles, that can be a meaningful cash-flow advantage. Eligibility depends on your turnover and entity type, and the election has to be made properly. It is worth a specific conversation with your accountant rather than an assumption.
How GST moves through a residential building contract
- Contract signedNo GST event yet. The contract sets the price basis and whether it is stated inclusive or exclusive of GST.
- Deposit invoicedA tax invoice is issued and GST on the deposit becomes payable in that BAS period, regardless of when the client pays.
- Progress claim issuedEach claim is a separate supply event. GST is calculated on the claim value before retention is deducted.
- Variation approvedA signed variation is a further supply. If it is not invoiced, the GST is not accounted for but the cost is still incurred.
- Retention releasedThe retention amount already carried GST when it was withheld. Release is a payment event, not a new GST event.
- Final claim and handoverThe last claim closes out the contract value. Any GST shortfall across the job surfaces here.
Deposits, progress claims and the sequencing problem
A residential building contract typically involves a deposit followed by a series of progress claims tied to stages of work. Each of those is a separate supply event for GST purposes. The deposit is not a holding payment that only becomes taxable at completion; it is consideration for the supply, and GST applies when it is invoiced.
The sequencing problem arises because your costs do not follow the same pattern as your claims. You might pay a subcontractor for framing work in one BAS period while the corresponding progress claim is not issued until the next. The GST credit on the subcontractor invoice is available in the earlier period, but the GST on your claim is not yet a liability. That timing mismatch can work in your favour or against you depending on the job.
Where it catches builders is on jobs with slow certification or slow client approval. A progress claim that is ready to issue but held back because a certifier has not signed off means the GST event has not occurred, which sounds fine, but it also means you are carrying the cost of the work without the corresponding claim. The BAS is not the problem there; the contract administration is. Getting progress claims out on time is a GST issue as much as a cash-flow issue. The mechanics of claims and payment schedules are covered in our article on progress claims and security of payment in NSW.
Retention: the line most builders get wrong
Retention is the amount withheld from each progress claim and released at practical completion or at the end of the defects liability period. The common error is to treat retention as reducing the value of the supply, and therefore reducing the GST.
It does not. Retention is withheld from the payment, not from the supply. The full value of the work claimed is the consideration for the supply, and GST applies to that full amount. When retention is eventually released, that release is a payment of an amount already invoiced. It is not a new supply and it does not generate a further GST liability.
What this means in practice is that the GST on the retention portion has already been remitted to the ATO before you have received the retention. On a large job with a retention held over a defects liability period, that can be a significant amount of money sitting with the ATO and the client at the same time. It is one of the reasons retention is a persistent cash-flow pressure in residential building, and it is worth modelling before you sign a contract that carries a long defects period.
The mistake that costs the most. Deducting retention from the GST calculation on each progress claim understates your liability across the whole job, and the shortfall only becomes obvious when the final BAS is reconciled at completion, by which point the money has been spent.
Variations and the GST you forget to charge
Variations are where GST leakage happens quietly. A variation that is agreed on site, performed, and never invoiced is not just a revenue problem. It is also a GST problem, because the cost of performing the work has been incurred and the corresponding GST credit on materials and subcontractors has been claimed, but no GST has been charged on the supply.
The discipline is straightforward: no variation work without a signed variation, and no signed variation without an invoice. The invoice is what creates the GST liability and the entitlement to be paid. If variations are tracked on a spreadsheet and invoiced in a batch at the end of the job, you are effectively financing the GST on that work for the duration.
There is also a contract dimension. The NSW Government’s guidance on contracts for home building work sets out what a residential building contract needs to contain, and variations are one of the areas where the written record matters. A variation that is not properly documented is hard to invoice, which means the GST sits unaccounted for until someone reconciles the job.
What the margin scheme does and does not cover
Builders sometimes hear about the margin scheme and assume it applies to their residential construction work. It generally does not. The margin scheme is a way of calculating GST on the supply of property, typically land or a property interest, where the seller did not pay GST on the acquisition. It is relevant to developers selling completed dwellings or subdivided land.
It is not relevant to the construction services you provide to a client on the client’s land. That is a straightforward supply of services with GST calculated on the full contract value. Where a builder is also the developer, both sets of rules can apply to different parts of the same project, and the accounting has to keep them separate. That is a conversation to have with your accountant before the project starts, not after settlement.
If you are working on projects that involve both construction contracts and property sales, the GST treatment of each needs to be mapped at the outset. Mixing them up is an expensive correction.
Managing the cash so the GST is always there
The single most effective control is a separate account for GST collected. Every time a progress claim is paid, move the GST component into that account. It is not your money. Treating it as working capital is what turns a timing problem into a solvency problem.
The second control is a forward BAS forecast. If you know what you have invoiced this quarter and what you expect to invoice next quarter, you can see the liability building before the BAS is prepared. That forecast should sit alongside your general cash-flow forecast, not replace it. Our article on supplier accounts and credit terms covers how to build the forward view.
The third control is invoice discipline. A progress claim issued promptly creates the entitlement to payment promptly. A claim held back because a variation is unsigned or a stage is not quite complete delays the cash without delaying the underlying cost. That is the same problem from the other direction.
Reconciling before you lodge, not after
A BAS that is prepared from the bank feed alone will be wrong for a builder. It will miss retention treatment, it will miss deposits invoiced but not yet paid, and it may miss variations that have been performed but not billed. The reconciliation has to start from the contract and the claims register, not from the bank statement.
The reconciliation should match progress claims issued against invoices raised, confirm retention is included in the GST calculation, confirm deposits are reported in the period the invoice was issued, and confirm variations have signed approval before they are included. If any of those checks fail, the BAS is not ready.
Before you lodge each BAS
- Reconcile progress claims issued against invoices raised in the period.
- Check that retention withheld is included in the GST calculation, not deducted from it.
- Confirm deposits received are reported in the period the tax invoice was issued.
- Check variations for signed client approval before they are included in a claim.
- Confirm the accounting basis you are using and that it still suits your contract cycle.
- Check that GST collected is not sitting in the operating account as if it were profit.
- Confirm any GST on purchases is supported by a valid tax invoice before claiming the credit.
A worked example: a builder in western Sydney
Consider an unnamed builder in western Sydney running a project home through a fixed-price contract with a deposit and staged progress claims. The contract states a total price, and the builder’s accounting basis is the accrual basis for GST.
The deposit is invoiced and paid in one BAS period. The builder remits the GST on it. The following period, the slab and frame stages are claimed. The builder’s subcontractors invoice for the same stages, and the GST credits on those invoices are claimed in the same period. The net GST position is manageable.
Then the job slows. A certification delay pushes the next two claims into the following quarter, but the builder has already paid subcontractors for work done ahead of the claim. In that quarter, the GST credits on the subcontractor invoices are claimed, but the corresponding claims are not issued, so there is no GST liability to offset. The BAS shows a refund. That sounds like good news, but it is a warning sign: the builder has incurred cost without issuing the matching claim, and the GST liability on those stages will land in a later quarter, possibly the same quarter as the retention release on another job.
At practical completion, retention is released. The builder treats the release as a new supply and charges GST on it again. That is the error. The GST on the retention was already remitted when the original claims were issued. Charging it again overstates the liability and creates a mismatch that takes time to unwind. Meanwhile, a variation for upgraded joinery that was agreed on site and never invoiced has no GST attached to it at all, and the builder has absorbed both the cost and the GST credit on the materials without ever charging for the supply.
The lesson from this job is not about the rate. It is about the register. A claims register that tracks every invoice issued, every retention withheld, every variation approved, and the BAS period each one falls into would have caught all three problems before lodgement.
Where builders usually need help, and where to get it
GST and BAS are not areas where self-taught shortcuts hold up over a portfolio of jobs. The rules interact with your entity structure, your accounting basis, your contract terms and your project mix. An accountant who understands residential building is worth the fee, particularly at the point where you start taking on larger contracts or moving into development.
What you can control on site is the paperwork. Signed variations. Prompt progress claims. Correct retention treatment. A separate GST account. Those are operational disciplines, and they are the difference between a BAS that is a routine lodgement and one that triggers a payment plan.
If you are working through your NSW builder CPD requirements and want to build the business and compliance side alongside the technical content, the PointCPD guide to how NSW builder CPD works explains the structure, and the course catalogue lists what is available across business and contract administration topics. Building the commercial literacy to run a contracting business is as much a part of the licence as knowing the standards.
Insurance is another area where the paperwork has to be right before the first claim is issued. Our article on building site insurance in NSW covers what needs to be in place before work starts.
Questions builders ask
Do I charge GST on a deposit for a residential building job?
Yes, in most cases. A deposit is consideration for the supply of construction services, so GST applies when you issue the tax invoice for it. The liability arises in the BAS period the invoice is issued, not when the client pays. Check with your accountant if your contract treats the deposit as a separate holding amount.
Is retention subject to GST?
Retention is withheld from payment but it does not reduce the value of the supply. GST applies to the full value of the work claimed, before retention is deducted. When retention is later released, that is a payment of an amount already invoiced, so no further GST applies at that point.
What happens if I forget to invoice a variation?
The cost of performing the variation has been incurred, including GST credits on materials and subcontractors, but no GST has been charged on the supply. That creates a shortfall in your BAS that only becomes apparent when the job is reconciled. The fix is operational: no variation work without a signed variation and a corresponding invoice.
Does the margin scheme apply to my construction work?
Generally no. The margin scheme applies to the supply of property, typically land or a property interest, and is relevant to developers selling dwellings or subdivided land. Construction services you provide to a client on the client’s land are a straightforward supply with GST on the full contract value.
Can I account for GST on a cash basis?
Cash accounting for GST is available to some businesses and means the liability arises when you receive payment rather than when you issue the invoice. Eligibility depends on your turnover and entity type. It can help with lumpy progress claim cycles, but the election has to be made properly, so discuss it with your accountant.
Why is my BAS liability higher than I expected at the end of a job?
The most common causes are incorrect retention treatment, uninvoiced variations, and deposits reported in the wrong period. At the end of a job these surface together because the final claim closes out the contract value. Reconciling from a claims register rather than the bank feed catches most of them before lodgement.
Sources
- Payday Super for employers · Australian Taxation Office
- Taxable payments annual report (TPAR) · Australian Taxation Office
- Contracts for home building work · NSW Government · 2026-04-29
- Payday Super: new rules starting 1 July 2026 · Fair Work Ombudsman
Published 25 July 2026. General information for builders, not legal, financial or engineering advice for a specific job. Check current requirements with the relevant regulator or standard before relying on them.
