Special arrangements
Progressive supply
A progressive or periodic supply is one delivered or paid for in stages over time, such as construction work or a long contract, with GST accounted for as each stage is invoiced or paid.
A progressive supply is a supply that is made in stages, usually with payments linked to progress. Building and construction work is the classic case. A builder does not wait until the end of a year-long project to be paid, but issues progress claims as work is completed. The GST law recognises that it would be impractical to treat the whole project as supplied on the last day, so special timing rules apply.
The rules look at the individual progress payments. Generally, GST is attributed to the tax period in which the progress payment is made or an invoice for it is issued, depending on whether the supplier accounts on a cash or accrual basis. That means the supplier does not need to pay all the GST up front, and the customer claims credits as each tax invoice arrives, rather than at the end of the job.
The concept also covers periodic supplies, such as a lease payment, an ongoing service contract or a subscription that is paid monthly. Here each payment is treated as the consideration for a part of the overall supply, and GST is worked out on each part. If the contract is for a taxable supply, each instalment includes GST, and a tax invoice should be issued for each.
Contracts for progressive supplies need careful drafting. If the price is fixed in the contract and does not mention GST, the common position is that the price includes GST, which can mean a reduction in the amount the supplier actually keeps. Contracts should state clearly whether prices are GST-inclusive or exclusive. A supplier who underestimates GST on a long contract can end up with a margin much lower than planned.
If the GST status of the supply changes during the contract, for example because of a change in law or because the supplier registers for GST part-way through, the treatment of the remaining stages must be reviewed. A supplier that becomes registered mid-contract must work out which portion of consideration is for supplies made after registration, and this can have an impact on cash flow.
Retention money is another typical issue. Where the customer holds back a percentage until the end of the project, the GST treatment generally follows the timing of the progress claim or payment, not the date the retention is released. Keeping a clear schedule of claims and payments is helpful for both parties.
Because timing rules turn on the accounting method and the contract terms, this page is general information only. Check the details with the ATO or a registered tax professional.
Worked example
A registered builder agrees to build an extension for $330,000 including GST, in three equal progress claims of $110,000. Each claim carries GST of $110,000 divided by 11, which is $10,000. The builder reports $10,000 in the BAS for the period of each invoice, and the registered customer, if entitled, claims $10,000 for each tax invoice rather than $30,000 at the end.
Practical tips
- State clearly in the contract whether prices are GST-inclusive, because silence generally means the price includes GST.
- Issue a tax invoice for each progress claim so the customer can claim credits on time.
- Review your GST position if you register or cancel registration part-way through a long contract.