Construction Accounting Essentials for Melbourne Builders

How do you recognise revenue on a construction project?

Construction revenue is recognised using the percentage-of-completion method — not when cash is received. Revenue is calculated as the percentage of the contract completed multiplied by the total contract price. Completion percentage is typically measured by costs incurred to date as a proportion of total estimated costs, or by certified milestone completions. This means your profit and loss can show substantial revenue from a project that hasn't been fully paid yet, and a project delay can produce a revenue reversal in the same period. Understanding this dynamic is essential for reading your accounts accurately.

When is GST payable on a progress claim?

GST becomes payable when a tax invoice is issued or when payment is received, whichever is earlier. For progress claims, this means GST liability arises at the time the progress claim is issued — not when the builder certifies it or when the cash arrives. A common error is treating disputed progress claims as deferred GST. If the invoice has been issued, the GST obligation exists regardless of the dispute. Businesses on a cash basis accounting method (available only up to $10 million turnover) can defer GST until payment is received, which is a meaningful cash flow advantage for larger projects.

How should retention be accounted for?

Retention — typically 5% or 10% withheld by the principal until defects liability expires — should be recorded as a receivable at the time revenue is recognised. Do not wait until the retention is released to bring it to account. This inflates your revenue and tax position if mishandled in either direction. On the other side, retentions held from your subcontractors are a liability until released. Tracking retentions separately in your accounting system, rather than netting them against contract balances, gives you accurate visibility of what you're owed and what you owe.

What is TPAR and who must lodge it?

The Taxable Payments Annual Report (TPAR) must be lodged by businesses in the building and construction industry that pay contractors for building and construction services. It is due by 28 August each year and covers all contractor payments made in the financial year ending 30 June. You must report each contractor's ABN, name, address, total amount paid, and total GST withheld. Failure to lodge on time attracts failure-to-lodge penalties at the standard ATO rate — currently $330 per penalty unit, with penalties escalating based on the size of the entity and the period of delay.

How do you set up project-based cost tracking?

Every construction project should have its own job code in your accounting software. All direct costs — labour, materials, subcontractors, plant hire — are coded to that job as they are incurred. Overhead allocation (site management, vehicle costs, insurance) should be applied systematically, not ad hoc at year end. The goal is to know your gross margin on each project at any point during the build. Without this, you cannot identify which projects are eroding profit until it's too late to recover. Most Melbourne builders using Xero or MYOB can achieve this with the project or jobs tracking module at no additional cost.

What are the most common construction accounting errors?

The most frequent issue is mixing project revenue and costs across jobs, which obscures where margin is being lost. Second is failing to accrue project costs at period end — if your subcontractor completed the slab in June but hasn't invoiced yet, that cost belongs in the current financial year. Third, many builders treat the business bank account as a cash buffer without maintaining a WIP (work in progress) schedule. Without a current WIP schedule, your balance sheet understates liabilities on loss-making contracts and overstates assets on profitable ones. The ATO increasingly scrutinises construction businesses at audit for exactly these inconsistencies.