Accounting for Progress Payments
A progress claim is not a payment schedule and neither is a payment. GST attribution turns on your accounting basis, and claiming ahead of progress breaches the contract and distorts the books.
What it is
Three different documents, and builders use the words interchangeably at their cost.
A progress claim is what the builder issues: a request for payment for work done to a point. A payment schedule is the response: what the other side says it is prepared to pay, and why less. A payment is money arriving. They can be three different numbers weeks apart, and your books have to hold all three.
The statutory caps on what you may claim at each stage are set per state and are covered elsewhere: progress-payment-rules-hba-nsw, progress-payment-rules-dbca-vic, progress-payment-rules-qbcc-qld, progress-payment-rules-hbca-wa, progress-payment-rules-bwc-sa, progress-payment-rules-residential-tas, progress-payment-rules-residential-act and progress-payment-rules-residential-nt. This entry is about how the money hits the ledger.
Revenue, and work in progress
A construction contract does not deliver a house on the last day. It delivers continuously, and the accounting follows the work rather than the invoice. Revenue is recognised as the job progresses, measured by how much of the contract has actually been performed: cost incurred to date against total expected cost, applied to the contract price.
Work in progress is the gap. It is the cost of work done but not yet claimed, carried as an asset at cost. Not at what you hope to bill. Not at margin.
Two errors sit either side of it.
Overclaiming. You claim stage payments ahead of the work. Cash looks good, the P&L looks good and neither is true. You have booked revenue you have not earned. On a fixed-price residential contract, claiming ahead of the stage reached is a breach of contract as well as a distortion of the accounts. It is also the classic pre-insolvency signature: the job is funding itself with the owner money.
Underclaiming. You do the work and forget to claim it. WIP balloons, cash starves and the loss is real.
GST: the attribution point
Which tax period the GST lands in depends on your accounting basis, not on the contract.
Non-cash (accruals). You account for GST on the sale in the period you issue the tax invoice or receive full or part payment, whichever happens first. Issue the claim on 28 June, get paid on 20 July, and the GST sits in the June quarter. You remit GST you have not yet collected.
Cash. You account for GST in the period you receive the payment, and only on the part you received.
A business with aggregated turnover under $10 million can choose either. That choice is the biggest lever a small builder has over BAS timing, and most never revisit it after registration.
Retention inside a progress claim is a special case. It is not attributable until it is invoiced or received. That is accounting-for-retentions-builders.
Income tax: when the amount is derived
Different question, different answer.
- Accruals: income is assessable when you earn it, even if you have not been paid.
- Cash: income is assessable when you receive it.
The ATO example is a carpenter who completes a $7,240 contract in April 2026 and is paid on 10 July 2026. On accruals it is 2025-26 income. On cash it is 2026-27 income. Same work, same money, different year, different tax bill.
You cannot mix. All transactions in a year use the same method. And the two systems are separate elections: a builder on accruals for income tax and cash for GST is normal, but confusing the two puts the BAS and the return out of step.
The cashflow reality
Here is what none of the above fixes. The builder pays for materials and subbies before the claim goes in, waits for the payment schedule, then waits again for the money. Cost is incurred at week 1. Cash arrives at week 6. The builder funds the gap.
On accruals for both income tax and GST it gets worse. You can be paying tax and GST on a progress claim the owner has not paid, on a job where you have already paid the subbies. Profitable on paper, insolvent in the bank account. That is how builders fail.
Claiming ahead to close that gap is not a solution. It is the beginning of the end, and it is the first thing an administrator finds.
Citations
- [1]
Choosing an accounting method for GST
governmentAustralian Taxation Office · AU · accessed 17/07/2026
"There are two methods of accounting for GST (goods and services tax), a cash basis and a non-cash basis (accruals). The method you use will affect when you must report GST." And: "Businesses with an aggregated turnover... of less than $10 million, or who use cash accounting for income tax, can use either method. Most larger businesses must use the non-cash method." Cash sales: "You account for the GST payable on the sales you make in the reporting period in which you receive payment for them. If you receive only part payment for a sale in a reporting period, you only account for the GST in the part of the payment you received." Non-cash sales: "You account for the GST payable on the sales you make in the reporting period in which you issue a tax invoice or receive full or part payment, whichever happens first."
- [2]
Accounting methods for business income
governmentAustralian Taxation Office · AU · accessed 17/07/2026
"cash basis, report income when you receive the payment, even if the work was done earlier"; "accruals basis, report income when you earn it, even if you haven't been paid yet." Also: "You need to account for all transactions within a financial year using the same method." Example: "Dimitris manages his own business as a carpenter. He completes a contract in April 2026 worth $7,240 (in the 2025-26 financial year). His client pays the invoice on 10 July 2026 (in the 2026-27 financial year)." On cash he includes it in 2026-27; on accruals in 2025-26. Last updated 10 June 2026.
- [3]
Deductions for unrecoverable income (bad debts)
governmentAustralian Taxation Office · AU · accessed 17/07/2026
Under "GST and bad debts": "If you account for goods and services tax (GST) on a non-cash (accruals) basis, you can claim a decreasing adjustment for a bad debt if: you made a taxable sale and have paid GST to the ATO for that sale; you have not received the consideration, either in whole or in part, for the taxable sale, and you write the debt off as bad or the debt has been overdue for 12 months or more."
- [4]
Goods and Services Tax: (Particular Attribution Rules for Retention Payments) Determination 2017
legislationFederal Register of Legislation · AU · accessed 17/07/2026
Made under subsection 29-25(1) of the A New Tax System (Goods and Services Tax) Act 1999. Clause 5(c): "The GST payable on a retention amount is attributable to the earlier of the tax period in which the retention amount is: (i) invoiced; or (ii) the tax period in which the retention amount is received (to the extent the GST payable on the retention amount has not been attributed to an earlier tax period)." Clause 4 limits the determination to entities that "do not account on a cash basis". Clause 8(c): "this determination is not intended to override subsection 29-10(3) or Division 156 of the GST Act."
How this was researched
This entry was drafted from primary Australian sources (legislation, regulator publications and industry guidance) and reviewed and signed off by Hunter Jacobs, Director, TradeForm. Citations link to the source documents you can verify yourself. The entry is re-verified on a cadence and automatically flagged for review when a watched source changes.
Disclaimer
This is general information about Australian construction and business topics. It is not legal, engineering, or financial advice. Laws and standards change. Verify current requirements with a licensed professional in your jurisdiction before relying on this content.