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By: Jessica Brass, Mark Foster, Richard Nutt, Anika Reside
16 Jul 2026 9 min read
While many of these challenges are macroeconomic, the Australian tax system contains a number of underutilised levers that can partially mitigate their impact.
Labour shortages are widely recognised as the single most critical constraint on construction delivery. Demand for skilled workers continues to grow, driven by a $242 billion public infrastructure pipeline, housing targets and energy transition projects. However, the available workforce is not keeping pace, with Australia forecast to face a shortage of up to 300,000 construction workers by 2027.
At the same time, apprenticeship pipelines remain insufficient, migration has not fully recovered post-COVID, and an ageing workforce is exiting the industry. As a result, businesses are facing rising wages and contractor costs, project delays and longer build times.
For businesses operating under fixed-price contracts, these pressures can quickly erode margins and increase insolvency risk.
While tax cannot solve labour shortages, it can improve workforce attraction, retention and cost efficiency. Construction businesses can increase competitiveness through tax-effective remuneration alternatives, including:
In a constrained labour market, tax becomes a critical tool in ‘total reward’ optimisation, allowing employers to compete without simply increasing gross wages.
Fuel and energy costs have re-emerged as a major issue, particularly following global geopolitical volatility. An increase in fuel costs, especially in a vast geography such as Australia, puts significant pressure on margins – and the Australian construction industry is particularly exposed. Australian projects tend to be logistics intensive, materials are often transported multiple times, and heavy machinery and equipment are fuel dependent.
The Fuel Tax Credit (FTC) regime is an important concession for construction businesses, helping to offset fuel costs and improve cash flow when applied correctly.
A significant portion of fuel acquisitions may be eligible for FTCs at the higher rate (often exceeding 50 cents per litre), particularly where fuel is used in plant and equipment. While many businesses claim FTCs for heavy vehicles travelling on public roads at the road transport rate (approximately 20 cents per litre), additional opportunities are often overlooked, including:
With increased ATO scrutiny and the availability of improved GPS and telematics data, there is a growing expectation from the ATO that methodologies are accurate, supportable and regularly refreshed.
When applied correctly and in accordance with ATO guidance, FTCs can deliver material cash refunds and should be treated as a key focus area to ensure margins are not eroded through under-claiming.
For further information regarding FTCs, read this article.
Many construction businesses rely on imported materials and equipment. Ongoing trade disruption, tariffs, freight costs and currency fluctuations have increased the cost of sourcing these inputs, while supply chain disruption can also affect project timing and delivery. Together, these pressures are placing additional strain on project budgets, cash flow and margins. For businesses operating under fixed-price contracts, even modest increases in landed costs can have a significant impact on project profitability.
For companies with international supply chains, understanding the tariff implications can deliver significant commercial benefits. Effective management of customs classifications, tariff concession orders, free trade agreement entitlements and import valuation methodologies can help reduce landed costs, improve cash flow and enhance supply chain efficiency. Given the scale of capital expenditure and procurement activity across the construction sector, even small duty savings can translate into meaningful cost reductions on major projects. Businesses should also monitor emerging policy settings, such as potential carbon border measures or sector-specific tariffs, which may affect the landed cost of selected construction inputs in the future.
Even where projects remain profitable overall, construction businesses can face significant pressure on cash flow and working capital. Fixed-price contracts and lengthy project delivery cycles can create substantial funding challenges, with the timing of cash inflows and outflows often affecting project viability as much as overall profitability.
In this environment, the timing of tax liabilities and tax refunds can have a material impact on available cash flow. While tax measures may not directly reduce project costs, they can improve cash flow, reduce funding requirements and minimise unnecessary tax leakage.
GST is often viewed as a ’neutral’ given typically construction businesses make taxable supplies and are fully creditable on GST incurred. However, in construction it can have significant cash flow and margin implications depending on how projects are structured and administered.
Key areas where GST can be optimised include:
While GST may not always change the overall economics of a project, it directly impacts cash flow, funding requirements and risk, making it a key lever in a high-cost, low-margin environment.
Build-to-Rent (BTR) has emerged as a potential response to housing supply constraints, supported by a range of Federal and State tax incentives. However, from a cost perspective, GST remains a key friction point that can materially impact project feasibility.
Unlike build-to-sell developments, BTR projects that involve long-term residential leasing typically do not recover GST on land and construction costs. This effectively embeds GST as an additional cost in the development, which is particularly challenging in an environment of elevated construction costs and margin pressure.
In response, developers are increasingly exploring:
In a high-cost environment, GST should be considered early in the project lifecycle. Structuring decisions made at the outset can significantly influence GST recovery, development costs and overall project viability.
The way income is recognised for tax purposes on long-term construction contracts can have a significant impact on cash flow. Broadly, there are two methods available: the basic method and the estimated profits method.
Under the basic method, payments received or receivable in a year are generally assessable, with deductions allowed for losses and outgoings to the extent permitted by law. However, this can produce unintended outcomes where large upfront payments are received.
The estimated profits method instead spreads profit or loss over the life of a project based on its percentage of completion. This generally aligns more closely with how long-term construction projects are delivered and can result in a smoother recognition of income and expenses over the contract period.
Both approaches have advantages and disadvantages, and taxpayers can choose which method to apply. Given the potential impact on taxable income, tax liabilities and cash flow, it is important to assess the available options before adopting a particular method.
For construction groups operating through multiple entities, tax consolidation can provide an opportunity to improve cash flow. Where multiple Australian entities are 100 per cent owned (directly or indirectly) by an Australian head company, losses in one entity can generally be offset against profits in another.
This can reduce overall tax liabilities, improve group cash flow and, in some circumstances, result in an uplift in the tax cost base of assets.
The Australian construction industry continues to face significant pressure from labour shortages, rising fuel costs and supply chain disruption. Even where these challenges are being managed, working capital and cash flow can remain under strain.
While tax measures may not eliminate these pressures, they can play an important role in improving financial outcomes. Construction businesses that take a proactive and integrated approach to tax can strengthen cash flow, reduce funding pressures and help protect project profitability and viability.
Please reach out to your trusted Grant Thornton advisor to discuss further.
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