Deposit Limits for Residential Building Work in NSW

What it is

The maximum deposit for residential building work in New South Wales is 10 per cent of the contract price. That is the whole rule. There are no value tiers, no separate figure for small jobs and no concession for work done off site.

Section 8 of the Home Building Act 1989 (NSW) is three sentences of substance where other states run to tables. It is the simplest deposit regime in Australia. The simplicity is worth knowing, because a builder working across borders will carry the wrong number in their head.

The cap

Section 8(1) states that the maximum amount of a deposit for residential building work is 10 per cent of the contract price. It then defines the deposit, which matters more than builders expect: a deposit is a payment on account before work is commenced under a contract to do residential building work.

That definition is what counts toward the cap. It is not limited to the payment labelled deposit. Any payment on account taken before work starts counts, whatever it is called. Splitting a 15 per cent up-front payment into a 10 per cent deposit and a 5 per cent mobilisation fee does not work, because both are payments on account before commencement.

It applies regardless of contract price

Section 8 carries no threshold. This trips people up because the neighbouring provisions do have one. The cooling-off period and the section 8A progress payment rules only apply above a prescribed amount, and home building compensation cover is required above $20,000. Section 8 has no such qualifier.

So the cap applies to a $6,000 bathroom job and a $2,000,000 house alike. Building Commission NSW confirms the same to consumers: the maximum deposit you can be asked to pay before work starts is 10 per cent.

The only carve-outs are in section 8(4). The cap does not apply to a contract between two contractor licence holders for work each licence authorises, which covers subcontracting between licensees, nor to a contract to do specialist work that is not also residential building work.

The penalty, and the trap in subsection (2)

Section 8(2) creates two offences. The first is the obvious one: demanding or receiving a deposit above the maximum. The second catches builders who never take a cent. It is an offence to enter into a contract under which the person is entitled to demand or receive an excessive deposit.

The contract itself is the offence. A NSW builder whose standard terms carry a 15 per cent deposit clause has committed an offence at signing, even if they only ever bank 10 per cent. The maximum penalty is 1,000 penalty units for a corporation and 200 penalty units in any other case.

Worth noting what section 8 does not do. Section 10 makes a contract unenforceable by the contractor for unlicensed contracting or for failures of contract form under section 7. A deposit breach is not on that list. It is an offence, but it does not of itself strip the builder of the right to enforce the contract.

Kit homes get no concession

Section 16E caps the deposit for the supply of a kit home at 10 per cent of the contract price, with the same pair of offences and the same penalty. This is where NSW diverges most sharply. Queensland and Western Australia both open the door to a much larger deposit where the value sits off site. NSW does not. Prefabrication changes nothing.

What the cap does not override

Where home building compensation cover is required, taking a compliant 10 per cent deposit is still unlawful if cover is not in place. Building Commission NSW is blunt: the builder must give the owner evidence of cover before starting work or taking any money, including a deposit. A 10 per cent deposit collected before the certificate is handed over breaches that rule regardless of section 8.

How the states compare

Same job, same price, five different answers:

• NSW: 10 per cent flat, any price, kit homes included.
• Victoria: 5 per cent at $20,000 or more, 10 per cent under.
• Queensland: 10 per cent for level 1 contracts, 5 per cent for level 2, 20 per cent where off-site work exceeds half the price.
• Western Australia: 6.5 per cent, with a narrow exception up to 20 per cent for cabinetry where more than half the value is produced off site.
• South Australia: $1,000 where the price is under $20,000, 5 per cent where it is $20,000 or more.
• ACT: no statutory cap at all.

NSW is the outlier for being boring. One number, every job.