Builders can be busy, paid and still short of cash. Progress claims, retentions, variations and subcontractor payments pull cash and profit in different directions, and the ATO watches the construction industry closely.
This guide covers the tax and compliance side of construction accounting for 2025-26 and 2026-27: the Taxable payments annual report, GST on progress claims and retentions, PAYG and contractor rules, super under Payday Super, and the basics of job costing and WIP. ATO items were checked against ATO TPAR guidance and ATO GST and super pages on 7 October 2026.
It is written for builders, trade contractors and construction company owners. If you lodge BAS yourself, keep our activity statement guide open alongside this one.
Key takeaways
- The TPAR is due by 28 August each year for businesses primarily in building and construction that pay contractors.
- On a non-cash basis, GST on a progress claim is reported when you invoice or get paid, whichever is first, including the retention amount.
- Cash basis GST is generally available if aggregated turnover is under $10 million.
- Contractors paid mainly for labour can be employees for super. SG is 12% and, from 1 July 2026, must reach the fund within 7 business days of payday.
- Withhold 47% from payments over $75 (excl. GST) to a supplier who does not quote an ABN.
Construction compliance at a glance
| Obligation | Rule | When |
|---|---|---|
| TPAR | Report contractor payments for building and construction services | By 28 August each year |
| GST registration | Required at $75,000 GST turnover | When you reach the threshold |
| GST on progress claims | Non-cash: invoice or payment, whichever first. Cash: when paid | Each BAS period |
| Super guarantee | 12% of ordinary time earnings, including labour-only contractors | From 1 July 2026, within 7 business days of payday |
| No-ABN withholding | 47% on payments over $75 excl. GST | At time of payment |
| Records | Keep most records 5 years | Ongoing |
Source: ATO TPAR, ATO GST accounting methods, ATO registering for GST, ATO Payday Super, checked 7 October 2026.
Who has to lodge a TPAR?
You must lodge a Taxable payments annual report by 28 August if you have an ABN, pay contractors or subcontractors for building and construction services, and your business is primarily in building and construction. Under the ATO’s building and construction rules, that means any of these is true:
- 50% or more of your business income this financial year comes from building and construction services
- 50% or more of your business activity this year relates to building and construction services
- 50% or more of your business income last financial year came from building and construction services
For each contractor you report their ABN if known, name and address, the gross amount paid including GST and any tax withheld, the total GST you paid them, and any tax withheld because no ABN was quoted. Payments to employees are not included. A late TPAR can attract a failure to lodge penalty.
How does GST work on progress claims and retentions?
Builders almost always pass the $75,000 GST registration threshold (see also our GST registration guide). The timing of GST depends on your accounting method:
- Non-cash (accruals) basis: report GST in the period you issue a tax invoice or receive full or part payment, whichever happens first.
- Cash basis: report GST in the period you receive payment. Generally available if aggregated turnover is under $10 million.
Retentions are where this matters. On a non-cash basis, if your tax invoice is for the full claim, GST on the full amount is reported in that period, even though the client holds back the retention. On a cash basis, GST follows the money. Deposits and variations follow the same timing rules: document each variation with its scope, price and GST before you invoice it.
Worked example: a progress claim with a 5% retention
A builder issues a tax invoice for a progress claim of $110,000 including GST of $10,000. The client holds back a 5% retention: $110,000 x 5% = $5,500. Cash received is $110,000 – $5,500 = $104,500.
Non-cash basis: GST of $10,000 is reported in this BAS period, even though only $104,500 has arrived.
Cash basis: GST is reported on what was received: $104,500 / 11 = $9,500. The remaining $5,500 / 11 = $500 is reported when the retention is released. Check: $9,500 + $500 = $10,000.
On a non-cash basis, the builder needs $500 more cash on hand for this BAS than the cash-basis builder, for every claim like this.
What are the PAYG and contractor rules?
Employees and apprentices
For employees, you withhold PAYG, report each pay through Single Touch Payroll and pay super guarantee at 12%. From 1 July 2026, Payday Super requires SG to be received by the fund within 7 business days after payday. Our Payday Super guide and payroll registration checklist cover the set-up.
Subcontractors
An ABN does not settle the question. A worker paid mainly for their labour, for their personal skills rather than a result, who cannot delegate the work, is an employee for super guarantee purposes. Late or missed super can lead to the charges explained in our unpaid super guide.
If a subcontractor does not quote an ABN, you must withhold 47% from payments over $75 excluding GST, unless an exception applies. Misclassifying employees can also be sham contracting, with maximum penalties per contravention of $99,000 for businesses with fewer than 15 employees. Payroll tax is a separate state tax with its own contractor rules, so check with your state revenue office.
How do job costing and WIP fit in?
Job costing ties every cost, from materials and labour to subcontractors and plant hire, to a specific job. A work in progress (WIP) schedule then compares what you have earned on each job with what you have billed. A common approach estimates percentage complete as costs to date divided by estimated total costs. Your accountant will confirm the method that suits your financial reports.
| Job | Contract (ex GST) | Costs to date / estimated total | % complete | Revenue earned | Billed (ex GST) | Over / (under) billed |
|---|---|---|---|---|---|---|
| Job A | $400,000 | $180,000 / $300,000 | 60% | $240,000 | $250,000 | $10,000 |
| Job B | $600,000 | $240,000 / $480,000 | 50% | $300,000 | $260,000 | ($40,000) |
| Job C | $300,000 | $237,500 / $250,000 | 95% | $285,000 | $300,000 | $15,000 |
Job B is under-billed by $40,000, so the business is funding that client’s project. Over-billing helps cash flow but is not profit yet. Keep contracts, variations, claims and job costing records for at least 5 years.
Rule of thumb: Reconcile three things every month: your WIP schedule, your STP payroll to BAS labels W1 and W2, and your contractor list to the TPAR data you will need in August.
Common construction accounting mistakes
- Netting off retentions: on a non-cash basis, GST is due on the full invoice, not just the cash received.
- Missing contractor details: a TPAR needs ABN, name, address and amounts, so collect them at onboarding.
- Treating labour-only subbies as contractors for super: they may be employees for SG purposes.
- Still paying super quarterly: from 1 July 2026 SG must reach the fund within 7 business days of payday.
- Running the business off the bank balance: without job costing and WIP you cannot tell which jobs make money.
FAQ about construction accounting in Australia
When is the TPAR due for builders?
The Taxable payments annual report is due by 28 August each year and covers payments made to contractors for building and construction services in the financial year just ended. You must lodge if your business is primarily in building and construction, pays contractors for those services and has an ABN. Payments to employees are not reported.
Do I pay GST on a progress claim before the client pays?
It depends on your GST accounting method. On a non-cash basis, you report GST in the period you issue the tax invoice or receive any payment, whichever happens first. On a cash basis, you report GST in the period you receive payment. Cash basis is generally available to businesses with aggregated turnover under $10 million.
How is GST treated on retentions?
If you account on a non-cash basis and issue a tax invoice for the full claim, GST on the full amount is reported in that period, even though the client holds back a retention. On a cash basis, you report GST as you receive the money, so the GST on the retention is reported when it is released and paid.
Do I have to pay super for subcontractors?
You do if the contract is mainly for their labour, they are paid for their personal labour and skills rather than a result, and they cannot delegate the work. In that case they are treated as employees for super guarantee purposes even if they have an ABN. Super guarantee is 12% for 2025-26 and 2026-27.
How long should a builder keep records?
The ATO says most business records must be kept for 5 years, in English or in a form that can easily be converted to English. For a builder that includes contracts, variations, progress claims, tax invoices, subcontractor ABN details, timesheets and payroll records. Keep job costing reports with them so you can support your figures.
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Nanak Accountants can set up job costing and WIP reporting, prepare your BAS and TPAR, and run builder payroll through our payroll services. Read more on the ATO BAS pages or talk to our business advisory team. Call 1300 626 258 or book a free 15-minute consultation.
This article is general information only and is not personal tax or legal advice. Figures and rules were checked against the ATO pages on the Taxable payments annual report, GST accounting methods, GST registration, super guarantee, Payday Super, no-ABN withholding and record keeping, and the Fair Work Ombudsman sham contracting page on 7 October 2026. Rates and thresholds change, so confirm the current position before acting.
