GST for Construction & Trades
Construction is one of the ATO's key focus industries for GST compliance. The rules around new residential premises, the margin scheme, and GST at settlement create significant obligations that builders and tradies need to understand to avoid costly errors.
Overview
All construction services are taxable supplies that attract 10% GST. If you are a builder, plumber, electrician, carpenter, or any other tradie registered for GST (mandatory once turnover exceeds $75,000), you must charge GST on your services and can claim GST credits on your business purchases.
The most complex GST area in construction involves new residential premises. When a builder constructs and sells new residential premises, GST applies to the sale. 'New residential premises' means premises that have not previously been sold as residential premises, have been created through substantial renovations, or are new buildings replacing demolished buildings. Premises stop being 'new' after five years of continuous residential rent.
Since 1 July 2018, purchasers of new residential premises or potential residential land must withhold GST from the contract price and pay it directly to the ATO at settlement. The standard withholding is 1/11th of the contract price. If the margin scheme applies, the purchaser withholds 7% of the contract price instead.
Subcontractors in construction must have an ABN and, if registered for GST, must issue tax invoices showing GST. If a subcontractor does not quote an ABN, the builder paying them must withhold 47% of the payment under PAYG withholding rules. This is one of the most common compliance failures in the construction industry.
Common items & GST status
The table below shows the GST treatment of common items and transactions in the construction & trades sector.
| Item | GST Status | Notes |
|---|---|---|
| Building and construction services | Taxable | All labour, materials, and project management for construction work |
| Sale of new residential premises | Taxable | GST on the sale price (or margin if using margin scheme) |
| Sale of existing residential premises | Input-taxed | Existing (not new) residential premises — no GST, no input credits |
| Sale of commercial property | Taxable | Standard GST applies unless going concern exemption is used |
| Commercial rent | Taxable | Landlord charges GST on commercial lease payments |
| Residential rent | Input-taxed | No GST on residential rent; landlord cannot claim input credits |
| Progress payments | Taxable | GST applies to each progress claim — timing depends on cash vs accrual basis |
| Retention amounts | Taxable | GST on retentions is triggered when the progress claim is issued (accrual) or paid (cash) |
| Defects rectification work | Taxable | Warranty or defects work is a taxable supply even if no additional charge |
| Owner-builder permits | GST-free | Government fees for owner-builder permits are GST-free |
| Council development application fees | GST-free | Most local government regulatory fees are GST-free |
| Sale of vacant land (non-residential) | Taxable | Taxable if sold in the course of a business or enterprise |
Common mistakes & traps
These are the most frequent GST errors the ATO sees in the construction & trades industry. Avoiding them can save your business from penalties and back-payments.
1Not withholding GST at settlement
Since 1 July 2018, buyers of new residential premises must withhold GST from the contract price and pay it directly to the ATO. Many conveyancers and buyers are unaware of this obligation.
How to fix it
Check whether the property being sold is a 'new residential premises' or 'potential residential land'. If yes, the buyer must withhold 1/11th of the contract price (or 7% if the margin scheme applies) and pay it to the ATO using a lodgment form before settlement.
2Misunderstanding the 5-year rule for new premises
Developers sometimes assume premises remain 'new' indefinitely. They stop being new after 5 years of continuous residential rent — meaning the eventual sale becomes input-taxed, and the developer cannot claim back GST on construction costs.
How to fix it
If you build to sell, sell within 5 years. If you rent the property first, be aware that after 5 continuous years of residential tenancy, the premises lose their 'new' status. This can create a significant GST cost if you planned to claim input credits.
3Paying subcontractors without an ABN
If a subcontractor does not quote an ABN on their invoice, you must withhold 47% of the payment and remit it to the ATO. Many builders overlook this, which creates a compliance liability.
How to fix it
Always verify that subcontractors have an active ABN before engaging them. Check ABNs on the Australian Business Register (abr.business.gov.au). If no ABN is quoted, withhold 47% and lodge using the PAYG withholding system.
4Claiming GST credits on residential rental expenses
Residential rent is input-taxed. Landlords who rent residential premises cannot claim GST credits on costs related to that rental — including agent commissions, repairs, maintenance, and insurance.
How to fix it
Only claim GST credits on expenses related to taxable supplies. If you use a property for both commercial (taxable) and residential (input-taxed) purposes, you need to apportion your input tax credits.
5Incorrect GST timing on progress claims
On accrual basis, GST on a progress claim is reportable when you issue the claim — not when you receive payment. On cash basis, it is reportable when payment is received.
How to fix it
Know your GST accounting method and report GST in the correct BAS period. Accrual: report when the claim is issued. Cash: report when payment is received.
Input tax credit guide
Which business purchases can you claim GST credits on? This table covers the most common purchases for construction & trades businesses.
| Purchase | Credit? | Notes |
|---|---|---|
| Building materials (timber, steel, concrete) | Yes | Full GST credit on materials for taxable construction work |
| Tools and equipment | Yes | Full credit on tools, power tools, scaffolding, and safety equipment |
| Trade vehicle (ute, van) | Yes | GST credit on purchase — subject to car limit if a passenger vehicle |
| Fuel for vehicles and equipment | Yes | GST credit plus potential fuel tax credits for off-road equipment |
| Subcontractor invoices (with GST) | Yes | Claim the GST on subcontractor invoices — ensure valid tax invoice |
| Insurance (public liability, WorkCover) | Yes | Business insurance premiums include GST |
| Training and licences | Yes | Work-related training courses and trade licences |
| Expenses for residential rental properties | No | Residential rent is input-taxed — no GST credits on related expenses |
| Council development application fees | No | These are GST-free government fees — no GST to claim |
| Accounting and legal fees | Yes | Professional services for the business are taxable supplies |
BAS tips for construction & trades
Match progress claims to the correct BAS period
On accrual basis, report GST when you issue the progress claim. On cash basis, report when you receive payment. Retentions follow the same rule — they are part of the progress claim.
Keep a register of subcontractor ABNs
Maintain a register of all subcontractor ABNs and verify them before making payments. This protects you from the 47% PAYG withholding obligation and satisfies ATO audit requirements.
Claim fuel tax credits on the same BAS
If you use diesel in off-road equipment (generators, excavators, bobcats), you may be eligible for fuel tax credits. Claim these at label 7D on your BAS in the same period you acquire the fuel.
Separate new residential from commercial projects
Track GST on new residential premises projects separately from commercial work. The GST at settlement rules, margin scheme, and 5-year rule only apply to residential — mixing them up creates compliance problems.
Frequently asked questions
ATO sources & references
All information in this guide is based on the following ATO publications and rulings.