Most tax articles for builders recycle the same advice: claim the ute, keep your receipts, see an accountant. All true, none of it the reason builders get into tax trouble. The real risks in a custom building business come from the mechanics of running projects: money that arrives in claims, subcontractors on ABNs, jobs that straddle financial years. Here are the five areas worth getting right, especially in the next couple of months.
1. Progress claims, retentions and timing
A custom build produces income in stages, and the tax and GST treatment follows rules that many builders have never had explained. The core question is when a progress claim counts as income and when its GST is payable, and the answer depends on your accounting basis. Builders reporting on an accruals basis can find themselves paying GST on claims they have issued but not yet been paid, which is exactly the wrong cash flow direction for a business already funding materials ahead of payment. Retentions have their own timing rules again, since money held back until the end of a defects period is not treated the same as money you are presently entitled to.
None of this is exotic, but it has to be set up correctly in the accounting file once and applied consistently. Builders who discover a timing problem usually discover it at BAS time, as a bill.
2. Super on contractors, even the ones with ABNs
This is the one that hurts. If you pay an individual contractor mainly for their labour, meaning more than half the contract value is their personal work, they must do that work themselves, and they are paid for their time rather than to deliver a result at their own risk, then they are an employee for superannuation purposes. The ABN does not matter. The invoice does not matter. The word “subcontractor” on the agreement does not matter.
The construction industry runs on exactly these arrangements, which is why contractor super is among the most common findings when the tax office reviews a builder. The consequences are unusually severe: the super guarantee charge adds interest and administration fees to the shortfall, none of it is structured the way normal super is, penalties can multiply the bill, and directors can be made personally liable through director penalty notices. A liability that has quietly accrued across three years of sub-contract carpenters is the kind of discovery that ends businesses.
Two points of good news. Contracts with a company, trust or partnership are outside these rules, so the exposure sits with individuals on ABNs, and super is only calculated on the labour component of the contract, not materials. And since payday super began this month, super for anyone entitled to it now moves with each pay cycle rather than quarterly, which makes getting the classification right upfront more important, not less.
3. TPAR: the August deadline most new builders miss
Building and construction businesses that pay contractors must lodge a taxable payments annual report with the ATO, listing every contractor paid during the year, their ABN, and the total paid including GST. The report for the year just ended is due by 28 August, and the ATO uses it to match what you reported paying against what your contractors reported earning.
The lodgement itself takes minutes in any of the major accounting platforms, provided the contractor records have been kept properly all year. Builders who miss it are rarely hiding anything; they simply never knew the obligation existed, because it applies to their industry specifically. Late lodgement attracts penalties, and non-lodgement flags the business for closer attention.
4. What’s sitting in half-built homes at 30 June
A builder’s year-end position is complicated by the fact that money spent is not the same as money deductible. Materials bought in June that are stacked on site or sitting in the yard, and work performed on homes that will not reach the next progress claim until August, both affect how income and deductions land across the two financial years. Claiming everything purchased during the year as an expense, while the value sits in unfinished projects, misstates the year’s profit, and the distortion reverses unpredictably the following year.
Builders with several concurrent projects need a year-end process that captures work in progress and materials on hand properly. It is unglamorous work, but it is the difference between a tax return that reflects the business and one that invites questions.
5. PAYG instalments built for someone else’s cash flow
The ATO calculates pay-as-you-go instalments from your last lodged return, which assumes your income arrives evenly. A custom builder’s income does the opposite: two settlements land in one quarter, then a long stretch of construction produces nothing until the next claims fall due. The result is instalments that feel impossible in lean quarters and lag badly behind a growing year, producing a tax bill on lodgement.
Instalments can be varied, but variations carry penalties when they turn out too optimistic, so they should be based on an actual profit estimate rather than the bank balance. That, in turn, requires books that are current enough to produce one.
The common thread
Every one of these five is a bookkeeping problem before it is a tax problem. Contractor classifications, claim timing, TPAR records, work in progress and instalment estimates are all determined by how well the books are kept during the year, not by anything an accountant can fix the following May. Builders at the scale where this matters, typically once several projects run concurrently, tend to hand the finance function to a specialist. Firms like Hopkan Partners, which pair bookkeeping with monthly reviews of the numbers, exist for exactly this kind of business: high transaction volume, real compliance exposure, and owners whose time is worth more on site than in the software.
