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GST on builder's margin in HIA Cost Plus Contracts
Elements of the overall contract price
There are two elements that form the overall contract price for the Cost Plus Contract – the cost of the work and the builder’s profit.
The “cost of the work” is defined in the Cost Plus Contract under clause 3.2 to include:
- the costs of labour and cleaning;
- the net costs of all subcontracts;
- the net cost for supervision;
- the cost for travelling in doing the work;
- fees payable to statutory authorities;
- fees for professional services (e.g. surveyors, engineers etc);
- premiums payable for insurances;
- net cost of building materials, temporary structures and cartage;
- costs for plant, equipment and services (wholly for the works);
- costs to repair, replace and/or rebuild any damage or loss as a result of causes beyond the control of the builder; and
- any GST payable on the supply of works.
The builder’s profit is the money that you are charging the owner on top of the cost of the work. You can charge the owner a lump sum, which is a set fee for the whole job, or a profit percentage based on the cost of the building works. This should be specified under Item 8 of the contract.
GST on builder’s margin
Unless an additional amount is stated for GST on top of the builder’s fee, it is taken that the builder’s fee is GST inclusive. This applies whether your fee is a lump sum or expressed as a percentage.
Do not double tax
You should be careful to take into consideration any input tax credit you are entitled to before adding profit and GST. Only charge GST on the actual cost you have incurred and not on GST that you have paid.
Calculating the builder’s fee inclusive of GST
There are three steps involved in calculating the value of a payment claim using a profit percentage.
Step 1
Add up the net cost (GST exclusive) of the cost of the work.
Example :
| Item | Net cost (ex. GST) |
| Timber |
$12,000.00 |
| Labour | $11,590.00 |
| Insurance | $3,200.00 |
| Cost of the work | $26,790.00 |
Step 2
Apply GST to the cost of the work.
Example :
| Item | Cost |
| Cost of the work | $26,790.00 |
| GST (10%) | $2,679.00 |
| Total cost incl. GST | $29,469.00 |
Step 3
Apply the profit percentage.
Example :
| Item | Cost (incl. GST) |
| Total cost | $29,469.00 |
| Profit percentage (15%) | $4,420.35 |
| Total payment claim | $33,889.35 |
To find out more, contact HIA's Contracts and Compliance team
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