Most developers treat GST as a non-event. It goes out on your costs, it comes back through your activity statements, and over the life of a project it nets to roughly nothing. So why fund it at all?
The answer is timing. You pay the GST on a builder’s progress claim the day it falls due. You get it back weeks or months later, after you lodge the relevant business activity statement (BAS) and the Australian Taxation Office processes the refund. In between, that money has to come from somewhere, and “somewhere” means your equity, your facility, or a line set up specifically to carry it. Multiply a 10% impost across a multi-million dollar construction programme and the GST you are temporarily out of pocket can run well into seven figures.
This guide is about one decision that flows from that reality: when you size your debt and equity, do you model your costs inclusive or exclusive of GST? It is a question that sounds academic until two funders take different positions on it, your equity partner assumes a third, and your feasibility spreadsheet turns into a reconciliation nightmare. We have set out how funders, developers and accountants each tend to see it, where the market agrees, and where it genuinely does not. None of this is tax advice. It is a map of how the funding question is actually handled in the Australian market.
How the GST funding gap actually arises
What carries GST and what does not
In a standard profit-motivated development run through a GST-registered entity, most cost lines carry GST that you can generally claim back as input tax credits: construction and the builder’s margin, consultants such as architects, engineers, planners and surveyors, selling and leasing fees, legal and conveyancing work, and your contingency. A handful of items typically do not carry claimable GST, including government charges such as stamp duty and most council and planning fees, council rates and land tax, and your finance costs. Interest is an input-taxed financial supply, so there is generally no GST to claim on it.
On the income side, selling new residential premises or commercial stock is usually a taxable supply, so you remit GST on what you sell. Existing residential property and residential rent sit outside this as input-taxed supplies, which matters enormously and which we return to below.
The activity statement lag
Here is the engine of the whole problem. Under accrual accounting, the GST on a progress claim is brought to account when the builder issues the claim, not when you eventually recover it. The recovery only lands after you lodge the BAS for that period and the refund is processed.
On a quarterly cycle, that gap can be long. RSM Australia puts the worst case at “a potential four-month lag between payment and refund,” and notes that many developers move to a monthly cycle because, despite the extra administration, the refunds during the construction phase come through faster. Hoffman Kelly makes the same point: input tax credits on construction costs can leave temporary cashflow gaps that need funding, and lodging monthly rather than quarterly can speed up refunds and improve liquidity during the build.
That lag is what turns a theoretical wash into a real funding line. At any given moment during construction you are carrying the GST on every invoice you have paid since your last refund landed. The bigger the build and the longer the cycle, the bigger that running balance.
The funder’s lens: end value is almost always struck net of GST
A lender sizes a facility against what it could recover if it had to step in and sell the asset. Recoverable GST is not part of that recoverable value. If a financier took possession of completed stock and sold it, it would have to account for GST to the ATO, so counting the GST-inclusive end value would flatter the loan-to-value ratio and overstate the security. For that reason, the gross realisation value (GRV) cap is almost always struck net of GST.
This is the closest thing to a consensus rule in the market. Development Finance Partners works to a completed value net of GST when applying its loan-to-value-on-completion test. York Finance frames its end-value cap as a percentage of gross realised value excluding GST. Innovate Funding states that GST is normally excluded from the GRV calculation but can be funded through construction drawdowns, with the input tax credits supporting cashflow during the build. Melbourne Finance & Equity Group describes lenders deducting GST from gross sales before applying the GRV percentage.
The headline ratio is therefore usually a net-of-GST number. Where lenders diverge is on the cost side, which is where the funding gap actually bites, and on whether any GST facility counts inside or outside their key ratios.
It is not universal, though. Some lenders quote on a GST-inclusive basis. Assured Management applies its loan-to-valuation ratio to a gross realisation figure that includes GST, and can arrange a facility that lets a developer draw against expected GST refunds to fund the cost to complete. Some brokers price the choice explicitly: Bluesky Financial Group advertises leverage of up to 65% of GRV including GST or 70% excluding it, which is a neat illustration that the GST basis is worth roughly five points of headline gearing. Most of the lenders quoting on these bases are non-bank or private financiers, where this kind of structuring flexibility tends to be more common; our private lenders guide walks through how that part of the market operates. The practical lesson is that the basis is negotiable and lender-specific, and you cannot assume it. Always get it in writing.
The four ways lenders fund the GST on costs
Once the end-value cap is set net of GST, the cost-side question remains: how does the GST on progress claims and other costs actually get paid while you wait for refunds? Development finance broker HoldenCAPITAL sets out four mechanisms that between them cover most of what you will see in the market. The framing that ties them together is that GST is not really a project cost at all but a self-liquidating one: money you must carry in your cashflow even though it ultimately returns to you.
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The developer self-funds it. Progress claims are drawn from the facility net of GST, and you top up the GST portion to the builder from your own cash, then claim the refund back to your own account. Under this approach a lender will often want you to hold a cash reserve from your equity sufficient to cover the GST on roughly the first couple of months of project costs, since that is the period before your first refunds start cycling back.
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A separate GST overdraft. A dedicated overdraft, secured by the project, funds the GST and is repaid each month as refunds arrive. The important variable here is whether the financier counts that overdraft inside its loan-to-value and loan-to-cost tolerances or sits it outside them. Some insist it fits within the maximum ratios; others allow it outside, recognising that it is self-liquidating.
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A GST line inside the project facility. The facility itself carries the GST as a cost line. A common structure allows the first couple of months of claims to be funded GST-inclusive, after which each progress claim is adjusted down for the refund you should by then have received on the claim from two months earlier.
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A temporary gearing excess on land. For GST payable on the land acquisition, some funders require you to cover it from your own resources, while others permit a short-term gearing excess on the undertaking that you claim the refund and apply it straight to reducing the debt.
From a developer’s point of view, the most comfortable of these is generally a GST facility that sits outside the lender’s key ratio calculations, because it preserves your headline leverage for actual project costs rather than consuming it with money you are only ever holding temporarily. Whether you can get that depends on the lender and your bargaining position.
The developer’s lens: the mixed position problem
The reason this matters so much in practice is what happens when your capital stack does not speak with one voice. Picture a senior construction facility that funds progress claims net of GST, sitting alongside a mezzanine tranche or an equity partner whose documents are silent on GST. The senior lender pays the GST-exclusive invoice amount, you top up the GST from your float, the refund arrives one to four months later, and you recycle it. Meanwhile your equity partner has modelled total project cost on a GST-inclusive basis and your quantity surveyor’s cost plan is inclusive again. Three parties, three implicit treatments, and a feasibility model that no longer reconciles.
This is the mess worth designing out. The cleanest discipline is to treat GST as its own cashflow line in the feasibility rather than burying it inside cost and revenue figures. Once GST has its own line, with refunds timed to your BAS cycle, you can see the peak GST you are carrying, the interest cost of carrying it, and the point at which it unwinds, and you can present that consistently to every funder regardless of how each one chooses to treat it. This is exactly what feasibility software should take off your hands. Feasly models the GST margin scheme and lets you build your funding stack with consistent loan-to-cost and loan-to-value treatment, so a project’s GST-inclusive and GST-exclusive numbers stay aligned rather than drifting apart.
When might you reasonably not bother? On a small project where the GST you are ever carrying is comfortably inside your cash buffer, setting up a dedicated GST facility is overkill; you fund it from equity and move on. The calculus changes as the GST on costs grows large relative to the equity you have available, at which point how your lender treats GST stops being a technicality and starts determining how much cash you need at the table.
The accountant’s lens: shrinking the gap before you fund it
A good property tax adviser will tell you that the cheapest GST to fund is the GST you do not have to carry for long. Several levers change the size and duration of the gap, and they are worth settling before you draw a facility, not after.
BAS frequency is the big one. The ATO requires monthly GST reporting once turnover reaches $20 million, and allows businesses below that threshold to elect monthly reporting voluntarily. Lodging monthly rather than quarterly is the single most cited way to speed up input tax credit refunds and shorten the carry, at the cost of more frequent paperwork. For a development entity in heavy construction spend, that trade is usually worth it.
Entity and grouping structure can simplify the flows. Where related entities are grouped for GST, supplies between them are generally disregarded, which can reduce the GST cycling through the project. Using a single registration across genuinely separate ventures, by contrast, is a common way to create avoidable mess.
Going concern treatment can remove the land-side GST gap entirely. Acquiring a site as a GST-free going concern means no GST is payable on the purchase, so there is nothing to fund and nothing to claim back on acquisition. It interacts with the margin scheme and with duty, though, since duty is generally calculated on the GST-inclusive price, so it is a decision to make with advice rather than a default.
The margin scheme is significant enough that it gets its own section below, because it changes not just the tax outcome but the shape of your funding need.
JD Scott + Co sums up the mindset shift well: GST, planned for from the feasibility stage, is as much a cashflow tool as a cost, and the developers who get caught out are usually the ones who treated it as an afterthought.
The margin scheme and your net GST position
The margin scheme changes how much GST you remit when you sell. Instead of one-eleventh of the full sale price, GST is one-eleventh of the margin, broadly the sale price less what you paid for the land. The effect on the numbers can be large. The ATO’s own example has a new apartment selling for $900,000: full-rate GST is $81,818, while margin-scheme GST on a $400,000 margin is $36,363, a reduction of more than half. HLB Mann Judd runs a similar comparison on townhouses where the margin-scheme GST comes in at less than half the full-rate figure.
Why does this matter for funding rather than just for profit? Because the smaller the GST you remit on sale, the smaller your net GST position across the project and the less you need to fund on the revenue side, including at settlement. It does not directly shrink the construction-phase gap, since you still pay GST on building costs and wait for the credits either way, but it materially reduces the cash that leaves the project when stock settles.
There is an important nuance that experienced developers will recognise from how cheaper land flows through a feasibility. Because the margin scheme taxes the margin, buying land more cheaply produces a larger margin and therefore a larger GST liability on sale, which partially offsets the saving on the land. Modelling the margin scheme properly, rather than applying a flat GST assumption, is one of the things Feasly is built to do, precisely because this interaction trips up custom spreadsheets.
The conditions matter and are easy to get wrong. The sale has to be a taxable supply, you generally cannot have claimed a GST credit on the land purchase, and both parties must agree to use the margin scheme in writing before settlement. It cannot be applied retrospectively, so the time to confirm eligibility is before you sign the land contract, not when you come to sell. The detail is covered in our GST margin scheme guide.
GST at settlement: the change that made this worse
Until mid-2018, a developer collected the GST on a sale at settlement and held it until the BAS for that period fell due, which gave a useful short-term working-capital buffer. Since 1 July 2018 that buffer is gone. Under the GST at settlement rules, the purchaser of new residential premises or potential residential land withholds the GST and pays it directly to the ATO, typically one-eleventh of the contract price, or 7% of the contract price where the margin scheme applies. You still report the sale on your BAS and the withheld amount is credited against your liability, but you no longer get to hold the cash in the meantime.
The measure was an integrity response to phoenix behaviour, where some developers collected GST on sales and wound up before remitting it, and that context is not controversial. The cashflow side effect for legitimate developers is real, though. PKF notes that the GST proceeds that were previously available for short-term cashflow are now retained by the purchaser from the outset. It is one more reason to treat GST as something to be funded deliberately rather than assumed away.
There is a smaller trap inside the margin scheme version. The 7% withholding can exceed the GST you actually owe on the margin, so you can end up over-withheld and waiting on the difference to come back through your BAS. On the ATO’s own figures, a property with a $400,000 margin carries about $36,363 of margin-scheme GST, yet 7% of a $900,000 price is $63,000 withheld, leaving roughly $26,637 to be refunded later. It nets out, as ever, but only after a delay you have to fund.
The build-to-rent trap: input-taxed rent and Division 129
Everything above assumes you are building to sell. The moment renting enters the picture, the GST logic inverts, and it catches more developers than it should.
Selling new residential premises is a taxable supply, so you can claim the input tax credits on construction. Renting residential premises, by contrast, is an input-taxed supply, which means no GST is charged on the rent and, critically, the input tax credits on the associated costs are not available. So a project conceived as build-to-sell, with all the construction GST claimed and refunded along the way, creates a problem if you then decide to hold and rent some or all of the stock. The change in purpose triggers an increasing adjustment under Division 129, effectively clawing back credits you have already claimed and had refunded.
Grant Thornton illustrates the point with a developer who built apartments intending to sell, claimed all the construction GST, then sold most and leased the rest, and consequently had to make a Division 129 adjustment to reflect the portion retained for input-taxed leasing. The ATO accepts that premises genuinely held for a dual purpose, marketed for sale while also being rented, can attract partial credits, but the burden is on you to substantiate it.
For funding, the lesson is twofold. First, if there is any real chance you will hold rather than sell, that possibility belongs in your model as a downside, because it can mean repaying GST you have already spent rather than simply forgoing future credits. Second, a genuine build-to-rent project is a fundamentally different GST animal from build-to-sell and needs to be funded as one from the outset. We cover the wider trade-offs in our build-to-sell versus build-to-hold guide.
So what should you actually do?
There is no single correct basis that applies to every project, and anyone who tells you otherwise is overselling. What there is, is a sensible default and a set of decisions to make in the right order.
The working consensus across funders and advisers looks like this. Strike your end value net of GST, because that is how lenders will value your security regardless. Model your costs inclusive of GST on the cost side, because that is the amount you actually have to pay and fund while the credits catch up. Then track the GST itself as its own cashflow line so you can see the gap, fund it on purpose, and present it consistently to everyone in your capital stack. Beyond that default, the genuinely contested part, how a given lender funds the GST on costs and whether it sits inside or outside the ratios, is something you settle lender by lender rather than assume.
In practice that breaks down into three stages.
At feasibility, before you commit. Build the model with costs GST-inclusive and revenue net of GST, with GST as a tracked line rather than smeared across other figures. Confirm margin-scheme eligibility before you sign the land contract, and if you are eligible, make sure the written agreement is in the contract. Decide your intended exit honestly, and if holding is a real possibility, model the Division 129 clawback as a downside.
When you arrange finance. Ask every prospective lender the same questions in writing. Are your GRV and total-development-cost caps inclusive or exclusive of GST? How is the GST on progress claims funded, by net-of-GST drawdowns, a separate overdraft, or a self-liquidating line inside the facility? And does any GST facility sit inside or outside your loan-to-value and loan-to-cost tolerances? Aim for a GST line that sits outside the key ratios, and size a cash reserve to cover the GST on at least the first couple of months of costs if claims are funded net of GST.
During construction. Lodge your BAS monthly to shorten the refund lag and reduce both the GST you carry and the interest on it. Direct refunds straight back to the GST facility or your float, and reconcile your settlement statements, withheld amounts and BAS lodgements carefully so nothing falls through the gap.
Get those decisions right and GST stops being the thing that quietly blows out your peak funding requirement and turns your model into a reconciliation exercise. It becomes what it should be: a predictable, self-liquidating flow that you have sized for deliberately. For the financing structures themselves, our construction finance guide covers how the facility around all this is put together.
Frequently asked questions
Should my feasibility be built GST-inclusive or GST-exclusive?
The common approach is both, on different sides. Costs are typically modelled inclusive of GST, because that is what you pay and fund during the build, while revenue and your end-value cap are typically handled net of GST, because that is how lenders value the security. The key is to keep GST as its own cashflow line so the two views reconcile.
Does the margin scheme reduce the GST I need to fund during construction?
Not directly. The margin scheme reduces the GST you remit when you sell, which shrinks your net position and the cash leaving the project at settlement. You still pay GST on construction costs and wait for the input tax credits during the build, so the construction-phase funding gap is broadly unchanged.
Why would a lender exclude GST from the end value but still help fund it on costs?
Because recoverable GST is not part of what the lender could realise if it sold the asset, so it is excluded from the value the loan is sized against. The GST on costs, however, is real money you must pay during construction, so lenders still need a mechanism to fund it, even if they treat that facility as self-liquidating and sometimes keep it outside their headline ratios.
Can I ignore GST on a small project?
You can rarely ignore the obligation itself, but on a small project where the GST you are ever carrying sits comfortably inside your cash buffer, you may not need a dedicated GST facility. Funding it from equity and claiming the credits back through your BAS can be enough. The larger the GST on costs grows relative to your available equity, the more its treatment matters.
GST and property is one of the more fact-sensitive corners of Australian tax, and the right answer for your project turns on its specifics. Treat this guide as a map of how the funding question is handled rather than as advice, and bring a property-focused tax adviser in early, well before you sign the land contract and before you draw a facility.