Construction is the industry where profitable businesses go broke. A Sydney builder can have $3 million of signed contracts, a full pipeline and a healthy profit on paper — and still miss payroll in March because progress claims are slow, retentions are locked up, and the BAS landed in the same fortnight as the insurance renewal. The numbers in construction behave differently from any other industry, and they punish accountants who treat a builder like a café with a ute.

At Trinity Accounting Practice we have worked with Sydney builders, tradies and subcontractors since 2003 — from sole-trader sparkies in the St George area to builders running multiple residential projects. This guide covers the five accounting problems that decide whether a construction business thrives: revenue recognition and WIP, retentions, the subcontractor-versus-employee question, GST and TPAR compliance, and project cash flow.

Revenue recognition and WIP — why your P&L lies to you

On a job that runs eight months, when have you actually earned the money? If you invoice a 40% progress claim in June but have only completed 25% of the work, your profit-and-loss statement overstates this year’s profit — and your tax bill follows it. If you have done the work but have not claimed it yet, profit is understated and the bank thinks your business is weaker than it is.

The fix is work in progress (WIP) accounting — measuring, at each reporting date:

Costs incurred to date on each open job (materials, labour, subbies, site costs).
Percentage of completion, usually costs-to-date over total estimated costs.
Over-claims (you have billed ahead of work done — a liability) and under-claims (work done but unbilled — an asset).

For long-term contracts, the ATO accepts the basic approach (recognising progress payments as billed) or the estimated profits approach (spreading the ultimate profit across the contract years) — but you must apply your chosen method consistently across all contracts. The choice affects timing of tax, not the total, and the right answer depends on your claiming patterns and margins. A construction accountant should run a WIP schedule at least quarterly; without it, neither your tax planning nor your pricing is based on reality.

Retention monies — the profit you cannot spend yet

Retentions — typically 5% of each progress claim, with half released at practical completion and half after the defects liability period — are the silent cash flow killer. On $2 million of annual subcontract work, that may be $100,000 of your money sitting in someone else’s bank account for 12–24 months.

Three things every Sydney contractor should know:

Track retentions as a separate receivable. Most subbies lose track of them, and head contractors do not chase you to pay you. We have recovered five-figure forgotten retentions for new clients simply by reconciling old contracts.
NSW trust account protection. Under the Building and Construction Industry Security of Payment Act 1999 (NSW), head contractors on projects worth over $20 million must hold subcontractors’ retention money in a trust account with an authorised deposit-taking institution. Below that threshold, your retention is an unsecured debt — if the builder above you collapses, you queue with everyone else.
Security of Payment rights. The NSW Act gives you a statutory fast-track adjudication process for unpaid progress claims. Strict timeframes apply, and your paperwork (valid payment claims, payment schedules) must be in order — which is an accounting-systems issue as much as a legal one.

Subcontractor or employee? The question that triggers three taxes at once

Construction runs on subcontractors, and that is precisely where the most expensive compliance failures happen. Calling someone a subbie does not make them one. If a worker is, in substance, an employee — or even a genuine contractor paid mainly for their labour — three separate regimes can bite:

Superannuation guarantee (SGC). Contractors paid wholly or principally for their labour are generally treated as employees for super purposes, even with an ABN and an invoice. Missed super at the 12% rate (from 1 July 2025) becomes the superannuation guarantee charge: the shortfall plus interest plus admin fees, none of it tax-deductible, with directors personally liable under the director penalty regime.
NSW payroll tax. Payments to contractors under “relevant contracts” can be pulled into your payroll tax wages unless an exemption applies (such as the contractor engaging others, or working 90 days or fewer in the year). With the NSW threshold at $1.2 million and a 5.45% rate, a builder paying $1.5 million to regular subbies may have a liability they have never lodged for.
PAYG withholding. Misclassified employees mean unwithheld tax, and the ATO can deny deductions for payments where withholding obligations were ignored.

The ATO’s employee or contractor guidance is the reference point. Our approach with construction clients is a worker-by-worker review: contract terms, control, delegation rights, who supplies tools and bears risk. The answer is often mixed — some genuine subbies, some who need super paid, occasionally someone who needs to go on the books. Finding this out in a Revenue NSW audit, with five years of back-assessment plus interest, is the worst possible way.

GST, the margin scheme and TPAR — construction’s compliance trio

GST and progress claims

For most builders on an accruals basis, GST is payable on each progress claim when invoiced — even if the principal pays you 60 days later. Builders eligible for cash-basis GST (generally aggregated turnover under $10 million) can defer GST until the cash arrives, which often suits project cash flow far better. This single election is worth reviewing for almost every contractor under the threshold.

The margin scheme for spec builders

If you build and sell new residential premises — a spec duplex, a small townhouse project — GST applies to the sale. The margin scheme may cut that to one-eleventh of the margin rather than the full price, but it must be agreed in writing with the buyer and depends on how you acquired the land. On a $1.8 million spec home in Sydney’s south, the difference can exceed $70,000.

TPAR — the report that cross-matches your subbies

Businesses in building and construction must lodge a Taxable Payments Annual Report (TPAR) by 28 August each year, listing every contractor paid during the year — name, ABN, gross amount, GST. The ATO data-matches TPAR against the contractors’ own returns. Two consequences: you must lodge it (penalties apply for late or missed TPARs), and your subbies’ reported income is now visible to the ATO, so the cash-job culture carries genuine audit risk on both sides. Details on the ATO’s TPAR page.

Project cash flow — the discipline that keeps builders alive

Construction insolvencies in NSW are rarely caused by losses; they are caused by timing. Our cash flow framework for Sydney building clients:

Claim early, claim fully. Lodge progress claims on the contract date, every time, with no missed variations. Unclaimed variations are the most common profit leak we see — often 3–5% of contract value.
Map the tax calendar against the project calendar. Quarterly BAS (28 October, 28 February, 28 April, 28 July for self-lodgers; roughly four extra weeks through a registered agent except the December quarter), super by the 28th after each quarter, TPAR by 28 August, income tax instalments. Each of these must be funded from project cash that is already committed elsewhere unless planned.
Separate the GST and super the day you are paid. A second bank account holding one-eleventh of receipts plus the super accrual ends the “BAS shock” cycle permanently.
Watch the equipment timing. The $20,000 instant asset write-off applies per asset for eligible small businesses to 30 June 2026 (the May 2026 Budget proposed making it permanent from 1 July 2026, though that is not yet law). A $19,500 trailer deducted immediately versus a $75,000 excavator depreciated over years is a cash flow planning decision, not just a tax one.

Worked example — the Penrith builder’s subbie review

A Penrith residential builder, turning over $2.6 million, engaged eight regular subcontractors paid a combined $1.1 million per year, plus $480,000 of on-the-books wages. He believed payroll tax did not apply — “they’re all ABN subbies.” A structured review found: three of the eight were paid almost entirely for their own labour, worked exclusively for him, and could not delegate. For super purposes they were employees — roughly $42,000 per year of unpaid superannuation guarantee accruing, with director personal liability attached. For payroll tax, six of the eight contracts were relevant contracts with no exemption available; combined with wages, his NSW taxable wages were around $1.38 million — about $180,000 over the $1.2 million threshold, a payroll tax exposure of roughly $9,800 per year, growing each year he did not register.

The remediation: registering for payroll tax and lodging voluntarily before Revenue NSW came knocking (substantially reducing penalty exposure), commencing super for the three labour-only subbies, and restructuring two contracts so delegation and quoting practices matched the genuine subcontracting relationship. Total cost of fixing it proactively was a fraction of the back-assessment, interest and penalties an audit would have produced — and the director penalty risk on super came off his personal balance sheet.

A Trinity insight from 22 years in practice

In 22 years of acting for builders, the pattern is consistent: construction businesses do not fail at tax time, they fail in the third week of a month when a progress claim slips, a retention does not release, and the BAS, super and wages all fall due together. The builders who survive downturns are not always the most profitable — they are the ones whose accountant made them claim on time, quarantine GST and super weekly, and review the subbie file once a year before the regulators did. Boring discipline, repeated quarterly, is the entire secret.

What this means for you

If your jobs run longer than one BAS quarter: you need a WIP schedule — your P&L and your tax planning are otherwise built on the wrong numbers.
If you have retentions outstanding: reconcile them now; track them as a separate receivable and diarise the release dates.
If you pay regular ABN subcontractors: have each relationship tested against the super, payroll tax and contractor rules before Revenue NSW or the ATO tests it for you.
If your combined wages plus relevant contractor payments approach $1.2 million: you may have an NSW payroll tax registration obligation today.
If you build and sell new homes: get margin scheme advice before exchange — it cannot be fixed afterwards.
If BAS time is always a scramble: set up the separate GST/super account this week. It is the single highest-impact habit in construction finance.

How Trinity can help

Trinity Accounting Practice runs construction-specific accounting for Sydney builders, trades and subcontractors: WIP and job profitability reporting on Xero, retention tracking, subcontractor classification reviews, payroll tax registration and lodgement, TPAR preparation, margin scheme advice and quarterly cash flow planning mapped to your project pipeline. Through Virtual CFO Services Australia we also provide ongoing management reporting for builders who have outgrown annual-only accounting.

Book a construction accounting chat with the Trinity team →

General advice only. This article contains general information current as at June 2026 and does not constitute tax, financial or legal advice. It does not take into account your personal circumstances, objectives or needs. Before acting on any information in this article, you should consider its appropriateness to your situation and seek professional advice from Trinity Accounting Practice or another qualified adviser. Liability limited by a scheme approved under Professional Standards Legislation.