Xero setup for Australian builders: chart of accounts, GST, projects

TL;DR

Xero is the volume Australian cloud-accounting platform across the construction industry. Residential builders, Class 2 apartment builders, commercial contractors, and most small-to-mid construction businesses use it. Paired with Buildxact (estimating + job-management) it covers the back office for a builder doing anything from 5-30 small jobs per year up to a Class 2/3 mid-rise commercial run. The setup that matters is the chart of accounts customised for builder workflow (COGS broken into trade categories, separate income lines for variations, retention held, deposit deposits), GST registration (mandatory if turnover exceeds $75,000/year), the choice between tracking categories vs Xero Projects for per-job costing (Projects is the structured option, tracking categories the lightweight one), subbie ABN checks before paying (mandatory under ATO rules to avoid the 47% no-ABN withholding), and RCTI (Recipient-Created Tax Invoice) workflows for subbie payments where the builder issues the invoice on behalf of the subbie. The two job-killers: no ABN check on a subbie (you must withhold 47% if they have no ABN; missing this exposes the builder to ATO penalty), and mixing personal and business expenses through the same bank account (creates BAS errors and ATO scrutiny). The Australian Taxation Office sets the BAS reporting cadence at monthly, quarterly, or annual depending on turnover (ATO BAS, verified 2026-05-13).

Chart of accounts

A construction-business chart of accounts has more cost-of-goods-sold detail than a generic small-business COA. The typical structure (same shape whether you’re a residential chippy, a Class 2 builder, or a small commercial contractor):

Account category	Builder-specific lines
Income	Building contracts, variations, retention held (liability), deposits received (liability), other income
Cost of goods sold (COGS)	Materials, subbie labour, plant hire, site costs, freight, design fees
Expenses	Wages, super, workers comp, vehicle, fuel, insurance, accounting fees, software (Buildxact, Xero), advertising
Assets	Plant and equipment (with depreciation), work-in-progress on incomplete jobs
Liabilities	GST payable, PAYG withholding, super payable, retention held, customer deposits, supplier creditors
Equity	Owner’s draw, retained earnings

Xero offers a “Construction” chart of accounts template at setup; this gets the builder ~80% of the way. The remaining 20% is customising for the specific business model (volume project builder, custom one-off, renovation specialist, Class 2 apartment builder, or small commercial contractor).

GST registration

Mandatory if expected annual turnover is $75,000 or more. Any builder running more than a handful of jobs will pass this threshold quickly; register at setup. The two GST methods:

Method	When you owe GST
Cash	When you receive payment
Accrual (also called non-cash)	When you issue an invoice (or receive a supplier invoice)

Builders typically use accrual because progress claims and final invoices are issued before payment, and the GST liability follows the invoice date. Cash basis works only for small turnover (under $10M).

BAS reporting frequency: typically quarterly for builders. The ATO sets it based on turnover (verified 2026-05-13, ATO BAS).

Tracking categories vs Xero Projects

Per-job costing in Xero is the central tracking question. Two methods:

Feature	Tracking categories	Xero Projects
What it is	A label applied to every transaction; you can run reports per category	A separate Projects module with estimates, time, expenses, and invoicing
Cost	Included in Xero plans	Available on Established / Premium plans, add-on cost
Granularity	Limited (max 2 active categories × max 100 options each)	Unlimited projects
Time tracking	Manual entry against the category	Built-in time tracking with timer
Expense allocation	Per transaction	Per transaction, with allocation rules
Reporting	Tracking-summary report	Project profitability report; estimate vs actual
Best for	Small builders (under 10 concurrent jobs)	Builders running 10+ jobs needing structured tracking

For most builders running 3-10 jobs at a time (residential, Class 2 apartment, or small commercial), Xero Projects is worth the upgrade once the volume justifies it. For sole-trader chippies running one job at a time, tracking categories are sufficient.

Many Australian builders use Buildxact for job costing and Xero only for the financial books, with Xero Projects acting as a fallback when Buildxact data isn’t synced. The two pair well; see business/buildxact-estimating-workflow for the integration detail.

Bank feeds and supplier setup

Set up bank feeds for every business account: operating account, GST holding, savings (if separated), credit cards. Bank feeds pull transactions daily into Xero for reconciliation.

For each supplier:

1. Add them as a contact with ABN captured
2. Check ABN via ABN Lookup at the first transaction
3. Set default expense account (most supplies go to one of the COGS categories)
4. Set payment terms (typically 30 days)

For subcontractors:

1. Same as suppliers PLUS
2. Verify they’re GST registered if their invoice includes GST
3. If they’re not GST registered, the invoice has no GST line and you don’t claim a credit
4. If they have no ABN, you must withhold 47% of the gross payment and remit to ATO (verified 2026-05-13, ATO No-ABN withholding)

RCTI: Recipient-Created Tax Invoice

In construction generally (residential, Class 2 apartment, and commercial subcontracts), the builder often issues the invoice on behalf of the subbie rather than waiting for the subbie to send one. This is called a Recipient-Created Tax Invoice (RCTI).

The ATO permits RCTI use if:

1. A signed RCTI agreement is in place between the builder and the subbie
2. The subbie’s ABN is captured and verified
3. The RCTI follows ATO format requirements (clearly marked as “Recipient-Created Tax Invoice”)
4. The builder retains the RCTI in business records

RCTI streamlines builder cashflow: the builder approves the work, generates the invoice in Xero, pays the subbie, and the GST flow follows the document. Common practice across construction subbie payments at any scale.

Common setup defects

• No ABN check on a subbie at first transaction. If the subbie’s ABN is invalid (or they’re not GST registered when claiming GST), the builder may be denied input tax credits at BAS time. Always verify ABN at contact creation.
• Personal and business expenses mixed: builder pays personal Bunnings purchases from the business credit card; BAS reconciliation is contaminated; ATO scrutiny if audited. Fix: separate cards strictly.
• GST registered but turnover below $75K: registering for GST too early creates compliance overhead without benefit. Register only when turnover crosses (or is about to cross) the threshold.
• Tracking categories not set on all transactions: some transactions miss the category tag; the per-job report excludes them; job profitability appears artificially better than reality. Fix: set defaults at supplier creation; review uncategorised at month-end.
• Retention held captured as income instead of liability: retention is money owed to the builder but held by the client (typically 5% for 12 months past completion). It’s a liability for the client, not income for the builder until released. Fix: separate liability account for retention received.
• Deposits received treated as income at receipt: deposit money is a liability until earned. Capture as liability; recognise as income as work is performed and invoiced.
• Superannuation paid late: contractor / employee super must be paid by 28th of the month after each quarter. Penalty interest applies on late super.
• Workers compensation premiums not paid: WorkCover NSW, WorkSafe Victoria, etc. require premiums based on payroll. Missing premium triggers cover gap and significant penalty.

Standards and references

1. Australian Taxation Office, Business activity statements (BAS). https://www.ato.gov.au/business/business-activity-statements-bas (verified 2026-05-13).
2. Australian Taxation Office, No-ABN withholding rules. https://www.ato.gov.au/business/payg-withholding/payments-you-need-to-withhold-from/payments-to-suppliers/ (verified 2026-05-13).
3. Australian Business Register, ABN Lookup. https://abr.business.gov.au/ (verified 2026-05-13).
4. Xero, Xero for builders and tradies. https://www.xero.com/au/industries/construction/ (verified 2026-05-13).

References

• Australian Taxation Office

Related

• Xero job costing
• Xero project mode
• Buildxact estimating workflow
• BAS / GST timing for builders

See also

• ABN (glossary)
• GST (glossary)
• RCTI (glossary)
• Job costing (glossary)
• Xero (glossary)

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Last updated: 2026-05-13. Verified: 2026-05-13. Quarterly review for ATO rules and Xero feature changes.