Long Term
Construction Contracts
The ATO has specific views on income recognition in long-term construction contracts — requiring income to be recognised on a stage-of-completion basis across multiple income years, not deferred until project completion.
Income recognition in
long-term construction
A long-term construction contract is a contract spanning more than one income year. The ATO has published guidance — particularly Taxation Ruling TR 2018/3 — requiring that income from such contracts be recognised progressively on a stage-of-completion basis, not deferred until project completion.
This means builders and developers working on multi-year projects must assess the stage of completion at each income year end (30 June) and include the corresponding portion of the total contract price in assessable income — regardless of when cash is received.
- Income must be recognised progressively — TR 2018/3 is the governing ATO ruling
- The “expected outcome” method requires estimation of total contract profit at each year end
- Where the outcome cannot be reliably estimated — recognise recoverable costs only
- Progress claims received do not determine the amount recognised — the stage of completion drives income
- Loss contracts — losses may need to be recognised in the year they become foreseeable
- ATO audit programs specifically target long-term construction contracts in residential and commercial developments
- Records of stage-of-completion at each 30 June must be maintained and be capable of ATO scrutiny
MGS Private’s Assistance
Compliance advice and audit representation
Developing over multiple income years?
Long-term construction contract income recognition must be addressed at each 30 June year end. Brief MGS Private through your accountant.