Subbie payments and statements: the builder's operational checklist
How to pay subcontractors correctly: RCTI agreements, remittance advice, TPAR obligations, ABN withholding, super for contractors, and Xero workflow.
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Paying subbies is a compliance minefield disguised as an accounting task. Three things hurt builders most: not sending a payment schedule in time under the Security of Payment Act (full claim becomes payable, defences locked out), withholding PAYG at 47% from a subbie who forgot to include their ABN on the invoice (your BAS problem, not theirs), and missing the 28 August TPAR deadline (late lodgement penalties from the ATO). Get the RCTI agreement signed before work starts if you want to generate the invoices yourself. Send remittance advice the day you pay. Check ABN, GST status, and whether super is owed before the first payment hits.
When you do this
Every time you pay a subcontractor. The checklist below applies whether the payment is a milestone, progress claim, or final account. There are additional once-per-year obligations (TPAR, super reconciliation) and once-per-engagement obligations (RCTI agreement, ABN check) layered on top of the per-payment steps.
Who’s involved
- Builder (you) as the payer
- Subcontractor as the payee
- ATO, for TPAR, PAYG withholding, and super
- The subbie’s super fund, if super is owed
Steps
1. Before the first payment: checks and setup
ABN check. Verify the subcontractor’s ABN is valid and registered for GST using the ABN Lookup tool before you pay (verified 2026-05-11). If the subbie is not registered for GST, you cannot accept a tax invoice from them. If they have no ABN on the invoice and no written statement explaining the exemption, you must withhold 47% from payments over $75 ex-GST and pay it to the ATO (verified 2026-05-11, ATO, Withholding if ABN is not provided).
Employee vs contractor classification. Before paying as a contractor, satisfy yourself the arrangement is a genuine contractor relationship. Following the High Court decisions in CFMMEU v Personnel Contracting [2022] HCA 1 and ZG Operations v Jamsek [2022] HCA 2, the primary test is the terms of the written contract. Key indicators of a contractor (not employee): paid for a specified result, supplies their own tools, can subcontract or delegate the work. Getting this wrong creates back-pay, PAYG, and super liability for the entire engagement. The ATO has building and construction-specific guidance at ato.gov.au, employee or contractor, building and construction (verified 2026-05-11).
Super obligation check. Even if a subbie is a genuine contractor, you may owe them superannuation. If the contract is mainly for their labour (more than half the dollar value is for personal labour and skills, not materials or equipment) and they personally do the work, the super guarantee applies at 12% of ordinary time earnings for 2025-26 (verified 2026-05-11, ATO, Super for independent contractors). The super guarantee rate is 12% from 1 July 2025 onwards (verified 2026-05-11, ATO, Super guarantee).
RCTI agreement (if you want to generate the invoices). A Recipient Created Tax Invoice (RCTI) lets you, the builder, issue the tax invoice on behalf of the subbie rather than waiting for them to invoice you. Useful for milestone payments where you’ve assessed the value of work done. To use RCTIs for building and construction work: both you and the subbie must be registered for GST, there must be a signed written agreement meeting the requirements of the Recipient Created Tax Invoice Determination 2023 (LI 2023/20), and the RCTI must be issued within 28 days of the supply or value determination (verified 2026-05-11). Building and construction services (including construction, alteration, repair, restoration, maintenance, demolition of buildings or structures, and supply of related materials) are eligible under the Determination. Sign the agreement before work starts, not retrospectively.
2. Per-payment steps
Receive or generate the claim. Either accept the subbie’s written progress claim (required under the Security of Payment Acts) or issue an RCTI if you have the agreement in place. Under the NSW Security of Payment Act, a valid progress claim must be in writing and must include the statutory endorsement. Check the claim is served on or after a reference date (see reference date).
Serve a payment schedule if withholding any amount. If you are paying less than the claimed amount, you must serve a written payment schedule within 10 business days of receiving the claim (NSW) (verified 2026-05-11, NSW Government, Responding to a payment claim). Include your reasons for withholding. Reasons not in the schedule cannot be raised in adjudication. See subbie payment terms for the full statutory payment window table.
Make payment. Pay by EFT. Keep the payment reference (bank transaction ID) against the invoice in your accounting system.
Send remittance advice. Send a remittance advice to the subbie the same day or next business day after payment. Include: your business name and ABN, the subbie’s name, each invoice number paid, the amount for each invoice (net, GST, gross), total paid, payment date, and your bank reference number. Most accounting software (Xero, MYOB) generates this automatically. It is professional courtesy, not a legal requirement, but it materially reduces payment disputes and helps the subbie reconcile their receivables quickly.
Update your accounting system. In Xero: enter or match the subbie’s invoice to a bill under Purchases, assign it to the relevant job or project in Xero Projects or via tracking categories (cost codes), mark the bill as paid, and reconcile against the bank feed. The bill should be coded to the correct account (subcontractor labour, subcontractor materials, or split if the invoice itemises both) for accurate job costing. Xero’s Bills workflow provides the accounts payable trail the ATO expects.
Retention (if held). If you are holding retention, note the retained amount against the claim in your records and advise the subbie of the net payment and the retention held. Agree the release date in the subcontract (typically tied to practical completion and/or end of the defects liability period).
3. Annual obligations
Taxable Payments Annual Report (TPAR). If your business earns 50% or more of its income from building and construction services, you must lodge a TPAR by 28 August each year (verified 2026-05-11, ATO, Building and construction services TPAR). Report: each contractor’s name, ABN, address, gross amount paid (including GST), and GST amount. The TPAR is how the ATO cross-checks that subbies are declaring their income. Lodge via your accounting software’s TPAR report or through ATO Business Portal. The 28 August deadline is fixed; late lodgement attracts penalties.
Super reconciliation. At or before the quarterly due date (28 days after each quarter end), confirm super contributions for any labour-only contractors have been paid to their nominated fund and received by the fund. Note that from 1 July 2026, the payday super regime requires contributions to be paid within 7 business days of each payday rather than quarterly.
Documents needed
| Document | When | Who prepares it |
|---|---|---|
| RCTI agreement | Before first payment, if using RCTIs | Builder |
| Progress claim | Each payment event | Subbie (or RCTI from builder) |
| Payment schedule | When withholding any amount | Builder |
| Remittance advice | On each payment | Builder |
| TPAR | By 28 August each year | Builder |
| Superannuation contribution | Each quarter (or payday from July 2026) | Builder |
Common holds
| Hold | Cause | Fix |
|---|---|---|
| ABN not on invoice | Subbie forgot or is not registered | Ask subbie to reissue with ABN; if genuinely none, get Statement by a Supplier and withhold 47% |
| Not registered for GST | Small subbie, turnover under $75k | Cannot use RCTI; accept invoice without GST; no GST credits to claim |
| Super owed on labour-only contract | ”Contractor” is mainly providing labour, not a result | Calculate super on labour portion; pay to their fund quarterly |
| TPAR data missing | Payments not tracked by contractor during year | Run report from accounting software; chase missing ABNs before August |
| Remittance not sent | Forgotten step | Set up accounting software to auto-send remittance on bill payment |
References
- ATO, Recipient-created tax invoices (verified 2026-05-11)
- ATO, Recipient Created Tax Invoice Determination 2023 (LI 2023/20) (verified 2026-05-11)
- ATO, Withholding if ABN is not provided (verified 2026-05-11)
- ATO, Building and construction services, TPAR (verified 2026-05-11)
- ATO, Super for independent contractors (verified 2026-05-11)
- ATO, Super guarantee rates (verified 2026-05-11)
- ATO, Employee or contractor, building and construction industry examples (verified 2026-05-11)
- NSW Government, Responding to a payment claim under Security of Payment (verified 2026-05-11)
Related
- Subbie payment terms
- Engaging a subcontractor: the basics
- Progress claims
- Security of Payment Act NSW
- Progress claim (glossary)
- Payment schedule (glossary)
- Retention (glossary)
See also
- Subbie quote pack
- Retentions clause
- Adjudication process
- Adjudication (glossary)
- Practical completion (glossary)
- Reference date (glossary)
Last updated: 2026-05-11. Verified: 2026-05-11. Quarterly review for currency.