Deductions for a Residential Construction Business

What it is

A residential building business deducts what it spends earning its income. Section 8-1 of the Income Tax Assessment Act 1997 (series C2004A05138) is that short. Builders lose money on the mechanics, not the principle: which method they picked for the ute, whether their travel qualifies and whether the write-off was recorded before 30 June.

Tools and plant sit on top of the instant asset write-off, and that limit changed on 1 July 2026. Read instant-asset-write-off-builders before you buy anything.

Vehicles, where the method decides the money

A sole trader or partnership claiming for a car picks one of two methods.

Cents per kilometre pays a set rate for each business kilometre, capped at 5,000 kilometres per car per year. No receipts, but you need a record of how you worked out the kilometres. The rate is remade by legislative instrument:

• 2025-26: 88 cents per kilometre
• 2026-27: 91 cents per kilometre

The 2026-27 rate comes from the Income Tax Assessment (Cents per Kilometre Deduction Rate for Car Expenses) Determination 2026, made under subsection 28-25(4). At the cap that is a maximum claim of $4,550. The rate already covers decline in value, so there is no separate depreciation claim on top.

Logbook claims the business-use percentage of every car expense. It needs 12 continuous weeks of records, then holds for 5 years if you take odometer readings each year.

Two traps. A company or trust cannot use either method. Actual costs on receipts only. A builder who incorporated last year and kept claiming cents per kilometre is claiming something the structure cannot claim.

And a car means a vehicle built to carry under one tonne and fewer than 9 passengers. Many four-wheel drives and some utes are cars. A ute rated to one tonne or more is an other vehicle, so neither method is open to anyone. Actual costs only.

Travel between sites, and the itinerant test

Home to a regular place of work is private. It stays private if you live a long way out, work odd hours, are on call or pick up the mail on the way.

Travel between two work sites in a day is deductible. And builders are one of the few groups the itinerant work test genuinely fits. The ATO indicators are that travel is a fundamental part of the work, that there is a web of workplaces with no fixed place of work and that you regularly work at more than one site before returning home.

The ATO example is an apprentice roof tiler sent to various sites each day. He is itinerant, so home to the first site and the last site to home are both deductible. The example then flips: send him to one site for several days until the job is done and the itinerancy disappears.

Carrying bulky tools is the other way home. It needs all four: the tools are essential, they are genuinely bulky, there is no secure storage at the workplace and you are not carrying them by choice. Secure site storage kills the claim.

Everything else the business claims

• Protective clothing and its laundering. Protective gear and compulsory uniforms qualify. Ordinary work clothes do not.
• Home office running costs where the business is genuinely run from home.
• Subcontractor payments. Deductible, and reportable. Subbie payments for building and construction services go on a Taxable Payments Annual Report by 28 August. Deduction and report come from the same ledger, so a builder claiming subbie costs that never appear on a TPAR has data-matched itself.
• Insurance premiums, licence fees and continuing professional development.

Bad debts and prepayments, the two 30 June jobs

A bad debt deduction needs three things and the third is a deadline.

You must have already included the amount in assessable income, which means accruals accounting. A cash-basis builder gets nothing, because the income was never booked. You must determine the debt is genuinely bad rather than merely doubtful. And you must write it off, with the decision recorded in writing before the end of the income year in which you claim it. A decision made in August about a June debt is next year deduction.

Formal recovery action is not always needed; reminder notices and attempts to contact the debtor can carry it. On a non-cash GST basis you also get a decreasing adjustment once the debt is written off or is 12 months overdue.

Prepayments run the other way. A small business entity under $10 million aggregated turnover deducts a prepayment immediately under the 12-month rule where the service period runs 12 months or less and ends in the next income year. Insurance paid in June for the year ahead qualifies. Two years of cover does not.

Substantiation

Keep records 5 years from lodgement: written evidence of the expense, the working behind the business-use share and the logbook or kilometre record. A deduction you cannot evidence is an amendment waiting for an audit.