Builders Bookkeeping and GST Mistakes

What it is

Most builder GST errors are not aggressive tax planning. They are a tired person at 9pm on a Sunday coding invoices. The ATO does not grade on effort. These are the ones that turn up in audits, what each costs and how to fix them.

The invoice is not a tax invoice

The mistake: claiming a GST credit off a document that is not a valid tax invoice. A subbie sends a text with a figure on it. A supplier docket says "Total $880" and nothing else. Into the software it goes, and the credit gets claimed.

The cost: the credit is denied on review, plus general interest charge from the date you claimed it. GIC has not been deductible since 1 July 2025.

The fix: for sales under $1,000 the document has to let you determine seven things, being that it is intended to be a tax invoice, the seller''s identity, the seller''s ABN, the date it was issued, a description of what was 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. At $1,000 and over it also needs your identity or ABN. Under $82.50 including GST you do not need one at all.

If you self-bill subbies with recipient-created tax invoices, check they are still registered for GST. If not, the RCTI is invalid and your credit is wrong. Make a voluntary disclosure rather than wait.

The subbie has no ABN

The mistake: paying a subbie who never quoted an ABN, and paying the invoice in full.

The cost: 47 per cent. Where a supplier does not quote an ABN and the total payment for goods and services is more than $75 excluding GST, you must withhold 47 per cent and send it to the ATO. Fail to withhold and the penalty equals the amount you should have withheld, so you pay it twice. You also cannot claim a GST credit for payments you have withheld from.

The fix: no ABN on the invoice, no payment. If they have applied for one, hold the payment until it is quoted.

The timing is wrong

Progress claims. On a non-cash basis you account for GST on a sale in the period you issue the tax invoice or receive any payment, whichever happens first. Issue a progress claim on 28 June and the GST is yours in the June quarter even though the client pays in August. Builders on accruals fund GST out of working capital because of this. Under $10 million aggregated turnover you can choose cash and line GST up with money actually received.

Retentions. The mistake is remitting GST on retention money the head contractor is still holding. A determination made under the GST Act defers attribution of the GST on a retention to the earlier of the period it is invoiced or received. Pay GST on retentions when you issue the claim and you are lending the ATO money.

Deposits. A deposit held as security is not consideration for the supply under Division 99 of the GST Act until forfeited or applied towards the price. A part-payment is consideration straight away. If your contract calls it a deposit but it is really the first progress payment, it is a part-payment and the GST is due. The label does not decide it.

You claimed what you cannot claim

The mistake: claiming input tax credits on residential work that is input taxed.

Building a new home to sell is a taxable supply and the acquisitions are creditable. Renovating an existing residential property you intend to rent out is input taxed, and you cannot claim the credits on the way in even though you are registered.

The cost: every credit claimed across the whole job, plus GIC.

The fix: settle the purpose of the acquisitions before you code them, not at year end. If the intention changes later, adjustments apply.

The ute, the tools and the TPAR

Private use. The mistake is claiming all of the ute, the fuel and the tools when the ute also does the school run. Where expenses relate to business use and personal use, you need clear documents showing the business portion. No logbook, no defence.

The TPAR. The mistake is coding a subcontractor payment as materials or plant hire so it never reaches the taxable payments annual report, which is due 28 August. The ATO matches that report against what your subbies declare in their own returns, and a gap between your ledger and your TPAR is exactly what the data matching is built to find. Wet hire, meaning plant with an operator, is a building and construction service. Dry hire is not.

Insurance and records

Insurance settlements. You do not have to pay GST on an insurance settlement, provided you tell the insurer before making the claim what proportion of the premium you can claim GST credits for. Tell them afterwards and you may pay GST when the claim settles. One sentence to the broker at claim time protects a tenth of the payout.

Records. Keep most records for 5 years, generally from when you prepared or obtained the record or completed the transaction, whichever is later. Companies carry a separate 7 year ASIC requirement. Records must be in English or readily convertible.