Taking deposits: how much, how to invoice, and the GST timing

A deposit is invoiced like any other amount: its own invoice, its own number, referencing the quote the customer accepted. How much you can ask for depends on the work and, for residential building work, on a cap your state sets. When the GST on it is reported depends on what the payment actually is - a genuine security deposit and a first instalment of the price are treated differently, and the difference is in the agreement, not the label.

That last point is the one that catches people out, so it gets its own section below. Everything else about deposits is straightforward once the paperwork is set up.

General information, not tax advice. The ATO is the authority - see ato.gov.au or ask a registered tax or BAS agent.

Why take a deposit

Two reasons, and only one of them is about cash.

The obvious one is funding. On a job with real materials cost, a deposit means you are not lending the customer several thousand dollars of tiles, timber or licence fees for six weeks. A profitable business can still run out of money doing that repeatedly.

The less obvious one is information. A customer who agrees to the work and then will not pay a deposit has told you something useful about how the final invoice is going to go, at the point where your exposure is a phone call rather than a completed job. That signal costs nothing to collect and is available only if you ask.

A deposit also does something quieter: it converts an accepted quote into a job the customer has committed to. Until money moves, both sides are still deciding.

How much is normal, and what your state allows

For residential building work, the ceiling is set by law rather than by custom. In NSW, under home building law, the maximum deposit that can be requested is 10 per cent, and that applies to both small jobs and large ones, per the NSW Government’s guide to providing home building contracts. Every state and territory has its own building legislation and its own limits, so check the rule where you work before putting a percentage in a template.

Outside regulated building work there is no fixed figure. The common basis is materials plus a margin: enough to cover what you have to buy before you can start, plus something for the time you are committing. On design, consulting and other project work with little material cost, a share of the fee up front is normal and the number is a commercial decision rather than a legal one.

Two things matter more than the percentage. The deposit amount belongs in the quote, not in a conversation, so that accepting the quote is accepting the deposit - the same logic that puts payment terms and variations there, covered in how to write a quote for a trade job. And the quote needs to say when the balance falls due, because “on completion” and “14 days after completion” are different arrangements and only one of them is in writing.

Invoicing the deposit

The deposit gets a real invoice. Not a line on the quote, not a text message with your BSB.

It carries the same fields as any other invoice: your name and ABN, the date, a description, the amount, a due date, and your payment details. If you are registered for GST it is a tax invoice and it must show the GST amount or carry the “total price includes GST” statement (the statement is only available where GST is exactly one-eleventh of the total), exactly like the balance invoice will.

Two details make the paperwork read as one job later:

• Describe it as a deposit against the quote. “Deposit, 25% of accepted quote Q-104, bathroom renovation, 12 Oakleigh St” tells the customer’s records and yours what this money is for.
• Number it in your normal invoice sequence. A deposit invoice is not a special document type and does not get a special number. Reusing the quote number here is a common way to break two sequences at once, as in invoice numbering rules and systems.

The GST timing: security deposit or part payment

This is the part worth reading slowly, because the two look identical in the bank and are treated differently for GST.

The ATO’s ruling GSTR 2006/2 deals with deposits held as security for the performance of an obligation. It says that subsection 99-5(1) “prevents a security deposit from being treated as consideration for a supply until such time that the deposit is either forfeited because of a failure to perform the secured obligation or applied as all or part of the consideration for a supply”, and that under subsection 99-10(1) the GST payable is attributable to the tax period in which the deposit is forfeited or applied. In plain terms: for a genuine security deposit, the GST timing follows the forfeiture or the application of the money to the job, not the day it arrived.

The ruling is equally clear that not every up-front payment is that. Quoting the High Court, it describes a deposit as a token given as an ‘earnest to bind the bargain’, and distinguishes it from paying the first instalment of a total price to be paid over time, which is a part payment. Paragraph 34 puts it directly: “A payment that is not intended to act as an earnest to ensure the contract is completed is not a security deposit.” Where Division 99 does not apply, the ordinary attribution rules do, and those depend on whether you account for GST on a cash or non-cash basis - see the ATO’s accounting for GST page. The ruling also says the amount of a deposit must be reasonable for it to be a security deposit at all.

For most small jobs, none of this changes the number you report, because the deposit is applied to the job in the same quarter it is paid. It starts to matter when a deposit is taken in one BAS period and the work happens in another, or when a deposit is forfeited. If your deposits routinely straddle quarters, that is a specific question for a registered tax or BAS agent about your own contracts rather than something to settle from a blog post. The quarterly mechanics are in GST registration and BAS for sole traders.

Invoicing the balance and reconciling

The final invoice shows the full price, the deposit already paid, and the amount now owing. All three, on the same document. Showing only the balance saves a line and creates a query, because the number will not match the quote the customer approved and the person paying it is often not the person who approved it.

A workable layout: line items and totals as quoted, plus any approved variations as their own lines, then “Less deposit paid, invoice INV-0142, 3 September” and then the balance due with its date. The customer can reconcile it against their own records without ringing you, which is the entire purpose of an invoice beyond the legal minimum.

If the job ran over several stages, the same principle applies to each progress claim: show what has been invoiced to date, what this claim is for, and what remains.

Refunds and forfeited deposits

If the customer cancels, what happens to the deposit is governed by the terms they accepted and, for consumers, by the Australian Consumer Law sitting over the top of them. Broadly, a term letting you keep a deposit is more likely to hold up where it was in the agreement before the money was paid and where the amount reflects what the cancellation actually costs you rather than operating as a penalty, but how that applies to a particular contract is not something to settle from a blog post. For a disputed cancellation on a substantial job, your state or territory consumer affairs body and a lawyer are the right places to go, not a template clause.

Where a deposit is forfeited, GSTR 2006/2 puts the GST in the period the forfeiture happens. Where you refund it in full and the supply never went ahead, there is generally no taxable sale to report, and if you have already reported something on it the correction runs through an adjustment on a later activity statement, per the ATO’s page on adjusting GST. A partial refund after work has started is a different question and worth putting to a registered tax or BAS agent.

How Apsis helps

Apsis treats the deposit and the balance as ordinary invoices against the same client and the same accepted quote, numbered in one sequence, so both show up in the invoice list with their own status and you can see at a glance which jobs have been part-paid and which have not. The quote’s line items carry into the invoice rather than being retyped, so the total the customer approved is the total they get billed. Quotes, invoices, and expenses with receipt uploads are all on the free plan, which covers 5 clients and 20 invoices a month, so the supplier receipts you paid for out of the deposit sit with the same job.