GST in Construction for Residential Builders

What it is

GST lands on a residential builder in three places and behaves differently in each. Building work for a client is a taxable supply. A new home you build and sell is a taxable supply. That same home resold years later is input taxed: no GST on the sale, no credits on the way in.

Get the category wrong and you either hand the ATO 10 per cent you never collected, or you claim credits you were never entitled to.

When you have to register

You must register once your GST turnover reaches $75,000, within 21 days of being required to. Turnover is gross business income minus the GST in your sales, input taxed sales and sales not connected with your enterprise.

Two tests, either one triggers it: current turnover (this month plus the previous 11) or projected turnover (this month plus the next 11). One decent extension pushes a sole trader chippie over.

If you do not register when required, you may have to pay GST on sales made since that date even if you never charged it. Backdating is limited to 4 years.

New residential premises versus existing

The sale or long term lease of residential premises is input taxed, except for new residential premises and commercial residential premises.

Premises are new where they have not previously been sold or been subject to a long-term lease as residential premises, were created through substantial renovations, or are new buildings replacing demolished buildings on the same land. They stop being new once used solely for renting for at least 5 years since construction.

That catches the builder-developer who rents a spec home for two years while the market recovers. Two years is not five. The sale is still taxable.

The margin scheme

The margin scheme works out GST on the difference between what you paid for the property and what you sell it for, rather than the full price. You can only apply it where the sale is taxable, and there must be a written agreement that the sale uses the scheme before the settlement date. Not after.

Two consequences. A purchaser buying under the margin scheme cannot claim a GST credit for the GST in the price. And if you claimed the full GST back when you bought the property, you generally cannot apply the margin scheme when you sell.

GST at settlement

Since 1 July 2018 the purchaser pays the GST straight to the ATO at settlement instead of to you. It applies to new residential premises and potential residential land.

Supply	Amount withheld
Taxable supply	1/11th of the contract price
Margin scheme supply	7 per cent of the contract price
Between associates, below market value	10 per cent of the GST exclusive market value

Your job is the notification. You must notify the purchaser in writing before settlement, whether or not they have a withholding obligation. Where they do, the notice names every supplier and ABN, the amount to withhold, when to pay it and the contract price. Fail to give it and you face a strict liability offence of 100 penalty units, or an administrative penalty of the same. At $364 a unit from 1 July 2026 that is $36,400.

You still report the full sale at G1 and the GST at 1A on the BAS for the period settlement occurred. The withheld amount sits in your GST property credits account and transfers across when you lodge.

Progress payments, retentions and variations

Attribution decides which BAS the GST lands in. It is where builders lose cash.

Cash basis is open if your aggregated turnover is under $10 million, and you account for GST when payment is received. 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 payable in the June quarter even though the client pays in August.

Retentions run the other way, in your favour. A determination under the GST Act defers attribution of GST on a retention amount to the earlier of the period it is invoiced or received. You do not fund GST on money the head contractor is still holding.

Variations are not a separate supply. They are consideration for the same supply of building services under the contract, taxed the same way.

What you can claim

You need a tax invoice to claim a GST credit, except for purchases costing $82.50 or less, and you have four years to claim.

Credits follow creditable purpose. Building a new home to sell, your acquisitions are creditable and you claim the GST on materials, subbie invoices and plant hire. Building or renovating residential premises you intend to rent out, the supply is input taxed and you cannot claim.

If a homeowner engages you directly, your services are still a taxable supply and you charge GST. They cannot claim it back because they are not carrying on an enterprise, which is why the quote should be GST inclusive. Where a contract covers taxable and non-taxable parts, apportion on a reasonable basis and show it on the invoice.