Understanding GST for Construction and Trades
Construction businesses—including builders, electricians, plumbers, carpenters, plasterers, painters, roofers, and general contractors—face unique GST challenges. From progress payments and the GST margin scheme to subcontractor relationships, residential vs commercial work, and materials vs labor, tradies must navigate complex tax rules specific to the construction industry.
This comprehensive guide covers everything construction professionals need to know about GST compliance, including registration thresholds, quoting with GST, progress claim invoicing, subcontractor tax invoices, the margin scheme for property development, and maximizing GST credits on tools and materials.
Quick GST Facts for Construction
- Registration Threshold: $75,000 annual turnover (Australia), $60,000 (New Zealand)
- Labor & Materials: Both subject to 10% GST (Australia), 15% (NZ) when sold together
- Tax Invoices: Required for all jobs > $82.50 (Australia) or $50 (NZ)
- Progress Payments: GST payable on each progress claim, not just final invoice
- Subcontractors: Must provide tax invoices if GST-registered, verify ABNs
- Margin Scheme: Special GST rules for property developers selling renovated/new homes
1. When Construction Businesses Must Register for GST
Calculating Turnover for Tradies and Builders
For construction businesses, turnover includes all revenue from:
- Labor charges (hourly rates, day rates, project fees)
- Materials supplied (timber, fixtures, fittings, hardware)
- Equipment hire charged to clients
- Subcontractor margins (if you mark up subbie invoices)
- Variations and extra work
- Emergency callout fees
- Project management fees
What NOT to Include in Turnover
- GST itself (calculate turnover GST-exclusive)
- Reimbursable expenses passed through at cost (e.g., permits paid on behalf of client)
- Subcontractor costs (if you're acting as agent, not principal)
Reaching $75k Threshold - Common Scenarios
Example 1: Solo ElectricianHourly Rate: $85/hour Average Hours: 30 hours/week Weeks Worked: 48 weeks/year (allowing 4 weeks leave) Annual Turnover: $85 × 30 × 48 = $122,400 Result: MUST register for GST ($122,400 > $75,000)Example 2: Plumber (Jobs + Materials)Average Job Value: $450 (labor + materials) Jobs per Week: 8 Weeks Worked: 50 weeks/year Annual Turnover: $450 × 8 × 50 = $180,000 Result: MUST register for GST ($180,000 > $75,000)Example 3: Part-Time CarpenterDay Rate: $400/day Days Worked: 2 days/week Weeks Worked: 48 weeks/year Annual Turnover: $400 × 2 × 48 = $38,400 Result: Not required to register (but can voluntarily)
Voluntary Registration Benefits for Tradies
Even if below the threshold, registering for GST benefits construction businesses:
| Benefit | How It Helps Construction |
|---|---|
| Claim GST on Tools & Equipment | Recover 10% on power tools, machinery, utes, trailers - major startup costs for tradies |
| Claim GST on Materials | Reclaim GST on timber, fixtures, paint, plumbing supplies (typically 30-40% of job cost) |
| Professional Credibility | ABN and GST registration signal legitimacy to builders, project managers, and commercial clients |
| Commercial Contracts | Many commercial builders require subcontractors to be GST-registered |
| Government Tenders | Council and state government contracts often require ABN + GST registration |
2. Quoting and Invoicing Construction Work
How to Quote with GST
Option 1: GST-Exclusive Quoting (Common for B2B)
When quoting for commercial clients or builders, use GST-exclusive pricing:
QUOTE - Electrical InstallationABC Electrical Services ABN: 12 345 678 901 Quote For: Office Fit-Out - 123 Business St, Sydney Labor: - Electrician (40 hours @ $85/hr) $3,400.00 - Apprentice (40 hours @ $45/hr) $1,800.00 Materials: - Cabling, switches, outlets $1,200.00 - Light fixtures $800.00 - Safety switch and breaker panel $600.00 Subtotal: $7,800.00 GST (10%): $780.00TOTAL INC. GST: $8,580.00Quote valid for 30 days Payment terms: 50% deposit, 50% on completion
Option 2: GST-Inclusive Quoting (Consumer Work)
For residential clients (homeowners), Australian law requires GST-inclusive pricing:
QUOTE - Bathroom RenovationJoe's Plumbing Pty Ltd ABN: 98 765 432 109 Quote For: Bathroom Renovation - 45 Smith St, Melbourne Complete bathroom renovation including: - Remove and dispose of old fixtures - Install new shower, vanity, toilet - Retile floor and walls - Plumbing and drainageTotal Price: $12,650 (including GST)GST Breakdown: - Total (excl. GST): $11,500.00 - GST (10%): $1,150.00 Quote valid for 14 days Payment: $4,000 deposit, $4,000 at halfway, $4,650 on completion
Progress Payment Invoicing
For large construction projects, use progress claims with GST on each invoice:
Progress Claim Example
TAX INVOICE - Progress Claim #2XYZ Builders Pty Ltd ABN: 11 222 333 444 License: NSW 123456C Invoice Date: 23 January 2026 Project: New Home Build - Lot 15, Greenfield EstateProgress Claim #2 (as at 20 January 2026)Stage Completed: Frame & Roof Previous Claims: - Progress Claim #1 (Slab): $45,000 + GST = $49,500 Current Claim: - Timber framing $28,000.00 - Roof trusses and tiles $18,000.00 - Windows and doors (supply & install) $15,000.00 - Labor (2 weeks, 4 workers) $12,000.00 Subtotal This Claim: $73,000.00 GST (10%): $7,300.00TOTAL THIS CLAIM: $80,300.00Less: Deposit Received -$10,000.00AMOUNT DUE: $70,300.00Payment Due: 7 days from invoice date
Tax Invoice Requirements for Construction
For jobs over $82.50 (Australia) or $50 (NZ), your tax invoice must include:
Construction Tax Invoice Checklist
- ✅ The words "Tax Invoice" clearly displayed
- ✅ Your business name and ABN (Australia) or GST number (NZ)
- ✅ Builder's license number (if applicable in your state/territory)
- ✅ Invoice date and invoice number
- ✅ Description of work performed (be specific: "Electrical rough-in, 3-bedroom house")
- ✅ Breakdown of labor and materials (recommended for transparency)
- ✅ GST amount shown separately OR statement "Total price includes GST"
- ✅ Total amount payable
- ✅ Customer name and address (required for invoices > $1,000)
- ✅ Payment terms (e.g., "Net 7 days", "Due on receipt")
3. Subcontractors and GST
When You Hire Subcontractors (You're the Principal)
Verify Subcontractor ABN and GST Status
Before hiring subbies, always verify their ABN using the ABN Lookup tool:
- Visit abr.business.gov.au (Australian Business Register)
- Check if they're GST-registered (shows on ABN Lookup)
- Obtain their tax invoice for their work
Scenario 1: GST-Registered Subcontractor
Your Job: $50,000 (excl. GST) You Charge Client: $50,000 + $5,000 GST = $55,000 total You Hire Electrician (subbie): - Subbie charges you: $10,000 + $1,000 GST = $11,000 - You pay subbie: $11,000 - You claim $1,000 GST credit on your BAS Your BAS: - GST on Sales (Label 1A): $5,000 (from your $50k job) - GST on Purchases (Label 1B): $1,000 (from subbie invoice) - Net GST Payable: $4,000
Scenario 2: Non-GST-Registered Subcontractor
Your Job: $50,000 (excl. GST) You Charge Client: $50,000 + $5,000 GST = $55,000 total You Hire Laborer (not GST-registered): - Laborer charges you: $3,000 (no GST) - You pay laborer: $3,000 - You CANNOT claim GST credit (laborer didn't charge GST) Your BAS: - GST on Sales (Label 1A): $5,000 - GST on Purchases (Label 1B): $0 (no GST on laborer invoice) - Net GST Payable: $5,000
PAYG Withholding for Subcontractors
If you hire subcontractors who don't quote an ABN, you must withhold 47% tax and remit to ATO:
- Example: Subbie invoice $1,000 (no ABN quoted)
- Withhold: $470 (47% of $1,000)
- Pay subbie: $530
- Remit $470 to ATO via PAYG withholding
Always get subbies' ABNs to avoid this complex withholding requirement.
When You Work as a Subcontractor (You're the Subbie)
Issuing Tax Invoices to Head Contractors
If you're a subcontractor working for builders, you must:
- Provide a tax invoice showing your ABN and GST
- Include detailed description of work (e.g., "Plumbing rough-in, Lot 23")
- Charge GST on your labor + materials
- Lodge BAS quarterly and remit GST to ATO
TAX INVOICE - Subcontractor WorkABC Tiling Services ABN: 55 666 777 888 Invoice To: XYZ Builders Pty Ltd ABN: 11 222 333 444 Invoice Date: 23 January 2026 Project: Lot 23, Greenfield Estate Work Performed: - Floor tiling (main living areas, 80sqm) $4,800.00 - Bathroom wall tiling (2 bathrooms) $3,200.00 - Materials (tiles, adhesive, grout) $2,000.00 Subtotal: $10,000.00 GST (10%): $1,000.00TOTAL DUE: $11,000.00Payment Terms: Net 14 days
4. GST Margin Scheme for Property Development
What is the GST Margin Scheme?
The margin scheme is a special GST concession for property developers who buy, renovate, and sell properties. Instead of paying GST on the full sale price, you only pay GST on your profit margin.
Eligibility for Margin Scheme
You can use the margin scheme if:
- You purchased the property from a non-GST-registered seller (e.g., individual homeowner)
- The property was residential (not commercial)
- You're selling the renovated or newly-built property
- You're registered for GST
Margin Scheme Calculation
Example: Property Flip Using Margin Scheme
WITHOUT Margin Scheme (Standard GST):Purchase Price: $500,000 (from homeowner, no GST) Renovation Costs: $100,000 + $10,000 GST = $110,000 total Sale Price: $750,000 GST Calculation (Standard Method): - GST on Sale: $750,000 ÷ 11 = $68,182 - GST Credits Claimed: $10,000 (renovation materials/labor) - Net GST Payable: $68,182 - $10,000 = $58,182Profit: $750,000 - $500,000 - $110,000 - $58,182 = $81,818 ---WITH Margin Scheme:Purchase Price: $500,000 (from homeowner, no GST) Renovation Costs: $100,000 + $10,000 GST = $110,000 total Sale Price: $750,000 GST Calculation (Margin Scheme): - Margin: $750,000 - $500,000 = $250,000 - GST on Margin: $250,000 × 1/11 = $22,727 - GST Credits Claimed: $10,000 (renovation materials/labor) - Net GST Payable: $22,727 - $10,000 = $12,727Profit: $750,000 - $500,000 - $110,000 - $12,727 = $127,273Margin Scheme Benefit: $45,455 less GST ($58,182 - $12,727)
When to Use Margin Scheme
The margin scheme is highly beneficial for:
- Property flippers buying from homeowners
- Developers building on purchased residential land
- Builders doing knock-down rebuilds
Important: You must notify the buyer in writing before sale that you're using the margin scheme.
Margin Scheme Documentation
To use the margin scheme, maintain records showing:
- Original purchase contract (proving seller was not GST-registered)
- All renovation/construction invoices (to calculate margin)
- Written notice to buyer about margin scheme application
- Sale contract noting margin scheme applies
5. Residential vs Commercial Construction
GST on Residential Construction
New Residential Construction (GST-Free)
Building a new residential dwelling is GST-free (0%) if sold by the builder:
- Builder constructs new house and sells to buyer = No GST on sale price
- Builder can still claim GST on materials and subcontractors (input tax credits)
- Applies to houses, apartments, units (not commercial buildings)
Example: Builder Sells New House Construction Costs: - Materials: $200,000 + $20,000 GST = $220,000 - Subcontractors: $100,000 + $10,000 GST = $110,000 - Total Input GST: $30,000 Sale Price to Buyer: $600,000 (GST-free, no GST charged) BAS: - GST on Sales (Label 1A): $0 (GST-free sale) - GST on Purchases (Label 1B): $30,000 (claim input tax credits) - Net: $30,000 GST REFUND from ATO Result: Builder receives $30,000 refund, effectively reducing costs
Residential Renovations (Subject to GST)
Renovation work on existing residential properties is subject to 10% GST:
- Kitchen renovation = 10% GST
- Bathroom renovation = 10% GST
- Extension/addition = 10% GST
- Repairs and maintenance = 10% GST
Commercial Construction (Always Subject to GST)
All commercial construction work is subject to 10% GST:
- Office fit-outs
- Retail shop construction
- Warehouse builds
- Factory renovations
- Commercial property sales
6. Claiming GST on Tools, Equipment, and Vehicles
Tools and Equipment
| Item | Cost Example | GST Claimable |
|---|---|---|
| Power Tools | Drill, saw, nail gun, grinder, sander | ✅ Full 10% GST ($500 tool = $50 credit) |
| Hand Tools | Hammers, screwdrivers, spanners, levels | ✅ Full 10% GST |
| Machinery | Excavator, bobcat, concrete mixer, scaffolding | ✅ Full 10% GST ($20k excavator = $2k credit) |
| Ladders & Scaffolding | Extension ladders, trestles, mobile scaffolding | ✅ Full 10% GST |
| Safety Equipment | Hard hats, safety boots, hi-vis vests, harnesses | ✅ Full 10% GST |
| Tool Storage | Toolboxes, site boxes, van storage systems | ✅ Full 10% GST |
Vehicles (Utes, Vans, Trucks)
Claiming GST on Vehicle Purchases
If you purchase a vehicle for business use:
| Vehicle Type | GST Claimable? | Conditions |
|---|---|---|
| Ute/Van (100% Business Use) | ✅ Full GST | Used solely for business (no private use) |
| Ute/Van (Mixed Use) | ⚠️ Partial GST | Claim proportion of business use (keep logbook) |
| Truck (> 1 tonne, commercial) | ✅ Full GST | Commercial vehicles used for business |
| Passenger Car | ⚠️ Capped + Partial | GST claim capped at luxury car limit ($69,674 for 2025-26), claim business-use % |
Example: Purchasing a Tradie Ute
Purchase: Toyota HiLux SR (work ute) Price: $50,000 + $5,000 GST = $55,000 drive-away Business Use: 80% (keep logbook to prove) Private Use: 20% GST Claimable: $5,000 × 80% = $4,000 GST creditOngoing Expenses (Fuel, Insurance, Servicing): - Also claim 80% of GST on these expenses - Example: $200 fuel (incl. $20 GST) → claim $16
Materials and Supplies
Claim full GST on all materials purchased for client jobs:
- Building materials: Timber, bricks, concrete, steel, insulation
- Electrical: Cables, switches, outlets, light fixtures, breaker panels
- Plumbing: Pipes, fittings, taps, toilets, hot water systems
- Paint & Finishes: Paint, plaster, tiles, grout, sealants
- Hardware: Screws, nails, bolts, hinges, handles
- Consumables: Sandpaper, brushes, cleaning supplies, tape
7. Common Construction GST Mistakes
The Problem: Hiring subbies without checking ABN Lookup, leading to invalid tax invoices and missed GST credits.
The Fix:
- Always verify ABN at abr.business.gov.au before hiring
- Check if subbie is GST-registered (shows on ABN Lookup)
- Obtain valid tax invoice showing ABN and GST amount
- If no ABN quoted, withhold 47% PAYG tax
Risk: ATO may disallow GST credits if tax invoice is invalid (no ABN, incorrect format)
The Problem: Forgetting to claim GST on major tool purchases (power tools, machinery, utes) - $20k excavator = $2k lost credit.
The Fix:
- Keep all tax invoices for equipment purchases
- Claim GST in the BAS period when purchased
- For vehicles: Keep logbook to prove business-use percentage
- Claim ongoing GST on fuel, insurance, servicing (proportional to business use)
Missed Opportunity: $5,000-20,000/year in unclaimed GST credits for typical tradie
The Problem: Only charging GST on final invoice instead of each progress claim, or charging GST on cumulative total instead of incremental work.
The Fix:
- Charge GST on each progress claim (not just final invoice)
- GST applies to work completed in that claim period
- Keep running total to avoid double-charging GST
Example: Claim #1: $50k + $5k GST. Claim #2: $30k + $3k GST (NOT $80k + $8k GST cumulative)
The Problem: Property developers paying GST on full sale price instead of margin, losing tens of thousands in unnecessary GST.
The Fix:
- When buying residential property from non-GST sellers (homeowners), consider margin scheme
- Notify buyer in writing before sale that margin scheme applies
- Calculate GST on (Sale Price - Purchase Price) instead of full sale price
- Consult accountant for complex property developments
Benefit: Can save $30,000-100,000+ GST on property flips
The Problem: Using the same ute for work and personal use without keeping a logbook, claiming 100% GST when only 60% is business use.
The Fix:
- Keep a logbook for 12 continuous weeks to establish business-use %
- Claim GST proportionally (60% business = claim 60% of GST)
- Never claim GST on purely personal expenses (home groceries, family car)
- Use separate business bank account and credit card
Audit Risk: High - ATO often targets tradies for vehicle and mixed-use expense claims
8. Construction GST Checklist
Per Job/Project Tasks
- ☐ Issue quote with clear GST breakdown (GST-exclusive for B2B, inclusive for consumers)
- ☐ Issue tax invoice for all jobs > $82.50 (Australia) or $50 (NZ)
- ☐ For progress payments: invoice each claim with GST on incremental work
- ☐ Verify all subcontractor ABNs before hiring (abr.business.gov.au)
- ☐ Obtain valid tax invoices from all subcontractors
- ☐ Keep receipts for all materials purchased (claim GST)
Weekly/Monthly Tasks
- ☐ Calculate running turnover to monitor $75k threshold
- ☐ Code expenses in accounting software (materials, tools, subcontractors)
- ☐ Reconcile bank statements with invoices issued/received
- ☐ File tax invoices by supplier/date for easy BAS preparation
- ☐ Update vehicle logbook (if claiming mixed-use vehicle GST)
Quarterly BAS Tasks
- ☐ Calculate total fees charged (labor + materials, GST-exclusive) - Label G1
- ☐ Calculate GST on sales (G1 ÷ 11) - Label 1A
- ☐ Sum GST from all purchase invoices (materials, tools, subcontractors, fuel) - Label 1B
- ☐ Lodge BAS by 28th of month following quarter-end
- ☐ Pay GST liability or receive refund
- ☐ Back up all records (invoices, quotes, tax invoices)
9. Recommended Tools for Construction Businesses
Accounting Software for Tradies
| Software | Pricing | Best For | Key Features |
|---|---|---|---|
| Xero | From $35/month | Medium-large builders | Progress invoicing, job tracking, automatic GST, BAS preparation, subcontractor management |
| MYOB | From $30/month | Australian tradies (strong local support) | Job costing, GST tracking, BAS lodgment, inventory, quotes |
| QuickBooks Online | From $20/month | Small tradies, solo contractors | Simple invoicing, expense tracking, GST reports, mobile app |
| Tradify | From $49/month | Service tradies (electricians, plumbers) | Job scheduling, quoting, invoicing, GST-compliant, Xero integration |
| Simpro | Custom pricing | Large construction firms | Enterprise job management, complex GST handling, multi-project tracking |
Invoicing & Quoting Apps
- Invoice2go: Mobile invoicing, quotes, GST calculation (from $19.99/month)
- Fergus: Job management + invoicing for tradies (from $79/month)
- AroFlo: Australian-built for service contractors (custom pricing)