2.4 What is the GST treatment of payments for building projects where the consideration is paid on a progressive basis?

For source of ATO view, refer to:

• paragraphs 105 to 114 of GSTR 2000/29 Goods and services tax: attributing GST payable, input tax credits and adjustments and particular attribution rules made under section 29-25
• paragraphs 30 to 34 of GSTR 2000/35 Goods and services tax: Division 156 - supplies and acquisitions made on a progressive or periodic basis.

ATO position

The GST treatment of payments for building projects will depend on whether or not the supply is a progressive supply. The GST Act allows for GST to be attributed on a progressive basis where the relevant supply is made on a periodic or progressive basis and consideration is provided on a periodic or progressive basis. An advance payment for materials, for example, would not satisfy these elements. The building contract may be treated as a progressive supply where it meets the characteristics of such a supply as illustrated in Example 2 below. Further guidance on this can be found in GSTR 2000/35 at paragraphs 105 to 114. For more information about attribution of the GST payable on a progressive or periodic supply see paragraphs 30 to 34 of GSTR 2000/29.

Examples

A supply of a building project contracted for a total consideration of $110,000,000. The completion date is 1 July 2002 and the project commenced after 30 June 2000.

Example 1. Basic attribution (not a progressive supply)

The first payment of $20,000,000 to be made on 10 August 2000, the balance to be paid on completion of the project.

(a) Builder accounts on a non cash basis and has monthly tax periods
The builder issues a tax invoice for the first payment of $20,000,000 on 1 August 2000. The GST that the builder must include in their BAS for the tax period of August 2000 is $10,000,000 (1/11th of the total consideration for the project). The entire GST attributable to the total consideration for the project will be triggered by the first payment in accordance with the basic attribution rules. The builder will have to attribute the GST to this tax period, even if they had not received the payment, as GST is triggered by the earlier of invoice or any payment.

(b) Builder accounts on a cash basis
In this case the GST attributable on the supply is 1/11th of $20,000,000 in accordance with the basic attribution rule. The balance of the GST payable on the total consideration for the project would be attributable to the tax period(s) in which the rest of the payment was received.

Example 2. Special attribution rule (progressive supply)

Progress payments are to be linked to stages of completion of the project. Four equal payments of $27,500,000 are to be made based on agreed stages.

(a) Builder accounts on a non cash basis
GST of 1/11th of $27,500,000 will be attributable to each of the earlier tax periods in which the builder issues an invoice or receives any payment. Where the relevant supply is made on a progressive basis and consideration is also provided on a progressive basis, the building contract may be treated as a progressive supply. The GST Act allows for GST to be attributed on a progressive basis.

(b) Builder accounts on a cash basis
GST will be attributable to each of the tax periods in which the builder receives any payments. If the builder only receives the four progressive payments, GST of 1/11th of $27,500,000 will be attributable to each of the tax periods in which the builder receives the payments.