Last Updated: November 2025
Disclaimer: This guide provides general information only and does not constitute tax, legal, or financial advice. Professional indemnity requirements, instant asset write-off thresholds, and contractor classification tests change regularly. Registration requirements and architectural practice rules vary by state. Always verify current requirements with your state's architects registration board, consult with a registered tax agent for tax matters, and seek legal advice for contractual and practice matters specific to your circumstances.
Architecture and design firms face unique bookkeeping challenges that differ substantially from standard businesses. Unlike retail or manufacturing, architectural practices must recognise stage payment revenue correctly, track council and certification fee disbursements, manage work in progress across multi-month design projects, handle professional indemnity insurance allocation, and navigate complex project profitability calculations.
The Australian Institute of Architects reports that poor financial management is a leading cause of practice failures, with inadequate project costing and failure to bill work in progress cited as major contributing factors. Architecture firms often complete excellent design work but deliver weak profitability because project costs are not tracked accurately, disbursements are not recovered promptly, and scope changes are not billed as variations.
This comprehensive guide explains how to manage bookkeeping for architecture and design firms in Australia, covering stage payment billing, council fee disbursements, WIP management, professional indemnity allocation, consultant fee recovery, and the specific requirements that separate architectural bookkeeping from general business accounting.
Architecture and design firms require a specialised chart of accounts separating stage payments, project types, disbursements, and consultant fees.
Architecture firm revenue should be separated by project type and billing model:
Residential Architecture:
Commercial Architecture:
Specialised Services:
Other Revenue:
This separation allows you to analyse profitability by project type, calculate average fees per project category, and identify which architectural services deliver best margins.
Architecture firms have specific expense categories:
Direct Project Costs (recovered from clients):
Staff Costs:
Professional Costs:
Technology and Software:
Occupancy and Equipment:
WIP represents design time, consultant fees, and disbursements incurred but not yet billed.
Current Assets:
When you invoice the client at each stage, WIP transfers to Accounts Receivable and corresponding revenue is recognised.
Architecture projects typically span 6-18 months and use stage-based fee structures aligned with current AIA Client Architect Agreement recommendations.
Most architecture projects follow these stages per AIA guidelines:
Stage 1 - Pre-Design (Inception and Feasibility): Initial brief, site analysis, feasibility, preliminary budget (typically 5-10% of total fee)
Stage 2 - Concept Design: Schematic design, concept drawings, preliminary specifications (typically 15-20% of total fee)
Stage 3 - Design Development: Developed design, detailed specifications, refined budget (typically 20-25% of total fee)
Stage 4 - Contract Documentation: Working drawings, specifications, tender documentation (typically 30-40% of total fee)
Stage 5 - Contract Administration: Tender management, site inspections, variations, practical completion (typically 15-20% of total fee)
Percentages vary based on project complexity and fee agreement.
Example: Residential renovation project
Revenue recognition: Invoice and recognise revenue when each stage is completed (or at interim points within stages for large projects).
Accounting treatment:
Fixed fee: Architect quotes set fee for defined scope. Architecture firm bears risk if project takes longer than estimated.
Example: Commercial fitout design - Fixed fee $95,000 for complete design and documentation services.
Percentage of construction cost: Fee calculated as percentage of estimated (or final) construction cost. Common for larger or complex projects where scope is uncertain.
Example: New commercial building
Percentage typically ranges from 4-8% for commercial, 8-12% for residential, higher for complex or heritage projects.
Risk: If construction cost increases during design, fee increases. If construction cost decreases, fee decreases. Final fee may not be certain until project is tendered or built.
For large projects, invoice at interim points within stages rather than waiting for full stage completion.
Example: Stage 4 Documentation for large commercial project
This improves cash flow and reduces large WIP balances.
Architecture firms pay various fees and consultant costs on behalf of clients. These must be recovered accurately.
Architects pay development application fees, building certification fees, and modification fees to councils and private certifiers.
Example: Development application for residential renovation
Accounting treatment: When architect pays these fees, record as WIP Disbursements (asset). When client is invoiced, transfer to revenue to recover the cost.
Transaction flow:
Some firms invoice disbursements with a small markup (5-10%) to cover administration. Others recover actual costs only.
Architects engage engineers (structural, services, hydraulic) and other consultants (town planners, heritage, sustainability).
Example: Consultant fees for commercial project
Treatment options:
Option 1 - Architect as Principal: Architect engages consultants directly, pays them, and recovers cost from client (with or without markup). Architect is responsible for consultant performance.
Accounting: Record consultant fees as WIP Disbursements, recover from client as revenue.
Option 2 - Architect as Agent: Client engages consultants directly (architect facilitates), client pays consultants directly. Architect not involved in consultant payments.
Accounting: No accounting entries for architect. Consultants bill client directly.
Most residential and small commercial projects use Option 1. Large commercial and government projects often use Option 2.
Council fees, certification fees, and consultant fees paid on behalf of clients include GST.
Example: Council DA fee $2,850 including GST
When architect pays council, claim $259 as input tax credit. When billing client for reimbursement, charge $2,850 including $259 GST output tax. Net GST effect is zero per ATO's disbursement vs reimbursement distinction.
Critical: Always pass GST through correctly. Charge client the full amount including GST and remit the GST component to ATO.
Professional indemnity (PI) insurance is mandatory for registered architects and represents a significant cost. PI requirements are set by state registration boards.
Each state's architects registration board sets minimum PI insurance requirements:
Premium costs depend on:
Typical premiums (November 2025):
Some firms allocate PI insurance costs to projects to understand true project profitability.
Allocation method 1 - Percentage of revenue: Allocate PI insurance based on project revenue as percentage of total firm revenue.
Example: Annual PI insurance $32,000, project revenue $85,000, total firm revenue $1.8 million
Allocation method 2 - Risk-based: Allocate higher percentage to higher-risk projects (commercial, complex, contract administration) and lower to low-risk (residential concept design only).
Most small firms do not allocate PI to projects but rather treat it as general overhead. Larger firms may allocate for more accurate project profitability.
Architecture projects frequently experience scope changes. Billing variations promptly is critical to profitability.
Original scope should be clearly defined in engagement letter or contract. Common scope changes include:
1. Identify scope change: Recognise when client request falls outside original scope.
2. Advise client: Explain that request is outside scope and will require additional fee.
3. Quote variation: Provide written quote for additional fee (fixed price or hourly estimate).
4. Obtain approval: Get written client approval before proceeding.
5. Perform work: Complete variation work.
6. Invoice promptly: Bill variation immediately or with next stage payment.
Example: Residential project variation
Working on variations without approval: Architect does additional work assuming client will pay, client disputes charge later.
Not documenting variations: No written variation agreement, no evidence of what was agreed.
Bundling variations into next stage: Variations get lost in stage payments, architect forgets to charge.
Best practice: Quote and invoice variations separately from stage payments for visibility and accountability.
Architecture firms engage both registered architects and unregistered draftspeople, architectural graduates, or designers. Classification affects billing rates and legal requirements per state registration acts.
When billing clients, distinguish between work performed by registered architects vs others:
Example: Project team rates
For fixed fee projects, team mix affects profitability. Using higher proportion of draftspeople and graduates (supervised by registered architect) improves margin.
Architecture firms commonly incur various expenses in the course of earning business income. Whether these expenses are deductible depends on your specific circumstances and how they relate to your income-earning activities. This section provides general examples only - always consult your registered tax agent for advice specific to your situation.
Common business expenses architecture firms may incur include:
- Professional costs: Professional indemnity insurance, architects registration fees (state registration boards), professional memberships, continuing professional development courses
- Software and technology: CAD software subscriptions (AutoCAD, Revit, ArchiCAD), rendering software, project management and specification software, Building Information Modelling tools
- Equipment: Large format printers and plotters, computers and high-performance workstations, design and presentation equipment. Current instant asset write-off threshold is $1,000 for businesses with aggregated turnover under $10 million. Assets above this are typically depreciated (3-5 years for computers, 5-10 years for plotters). Check ato.gov.au for current rates.
- Professional development: Architecture conferences and seminars, design tours and study trips, technical training
- Project-specific costs: Council and certification fees (recovered from clients as disbursements), consultant fees paid on client's behalf (recovered from clients), travel to remote sites, printing and reproduction costs
- Home office: If working from home with dedicated space exclusively for practice
- Motor vehicles: For architects attending sites and client meetings
For specific advice on what you can claim and how to claim it, consult your registered tax agent. Visit ato.gov.au for general ATO guidance.
Architecture firms use specialised design, documentation, and practice management tools.
- Autodesk Revit: From $4,400 per year per licence. BIM software for 3D design and documentation. Industry standard for commercial projects.
- Autodesk AutoCAD: From $2,970 per year per licence. 2D and 3D CAD software for documentation.
- Graphisoft ArchiCAD: From $3,600 per year per licence (pricing varies). BIM software popular with residential architects.
- SketchUp: From $449 per year (Pro). 3D modelling for concept design and presentation.
- Lumion: From $2,600 per licence (one-time), $1,000+ annual maintenance. Real-time rendering.
- Enscape: From $900 per year per licence. Real-time rendering plugin for Revit, SketchUp, Rhino, ArchiCAD.
- V-Ray: From $800 per year per licence. Photorealistic rendering.
- ArchiOffice: From $125 per month. Architecture-specific practice management with project tracking, time tracking, and invoicing. Best for small to medium practices (2-20 staff).
- BQE Core: From $65 per user per month. Project management, time tracking, and accounting for architecture and engineering firms.
Xero: From $78 per month (Growing plan). Cloud accounting with project tracking (Xero Projects add-on $20/month). Best for most Australian architecture firms.
Small practice (5 staff):
Providing additional design services outside original scope without billing variations means losing money on projects.
Cost: Practice doing average $12,000 in unbilled variation work per project across 20 projects annually loses $240,000 in revenue.
Solution: Define scope clearly in engagement letter. Identify scope changes when they occur. Quote variation, get written approval, perform work, invoice immediately. Track variations separately from stage payments.
Recording council fees and consultant fees as business expenses rather than client disbursements overstates expenses and understates profit.
Cost: Practice paying $180,000 in council fees and consultant fees annually but recording as expenses (rather than disbursements to be recovered) shows artificially low profit by $180,000.
Solution: Record all client-related fees paid on client's behalf as WIP Disbursements (asset). When client is invoiced, transfer to Disbursement Recovery Revenue per ATO's disbursement guidance.
Completing design stages without billing promptly creates aged WIP that becomes difficult to collect.
Cost: Practice with $120,000 in WIP over 90 days old (stages completed but not invoiced) may only collect 70%, writing off $36,000 in legitimately completed work.
Solution: Invoice immediately when each stage is completed. For large projects, use progress billing within stages. Review aged WIP monthly and invoice anything over 30 days.
Failing to track all project costs (time, disbursements, consultant fees) against specific projects means you cannot identify which project types or clients are profitable.
Cost: Practice cannot identify that residential renovations average 18% margin while commercial fitouts average 32% margin.
Solution: Use project tracking in accounting software. Allocate all time, all disbursements, and all consultant fees to specific projects. Review project profitability when projects complete.
Engaging registered architects as contractors when they work full-time exclusively for the practice creates superannuation obligations.
Cost: Practice with two "contractor" architects paid $140,000 each but actually employees would owe $33,600 in superannuation (12% x $140,000 x 2) plus SGC and penalties.
Solution: Review contractor arrangements against ATO tests (PCG 2023/2). Seek legal advice if classification is uncertain.
Completing projects without tracking actual time spent means you cannot evaluate whether fixed fees are profitable.
Cost: Practice quotes fixed fee $48,000 for residential project (estimated 160 hours at $300/hour). Actual time spent is 220 hours. Effective rate is $218/hour (28% below target).
Solution: Track time on all projects even if billing is fixed fee. Compare actual hours to estimated hours. Calculate effective hourly rates. Use this data to improve future fee estimates.
How should architecture firms bill stage payments?
Architecture projects typically use stage-based fees aligned with AIA Client Architect Agreement recommendations: Pre-Design (5-10% of fee), Concept Design (15-20%), Design Development (20-25%), Contract Documentation (30-40%), and Contract Administration (15-20%). Invoice when each stage is completed per AIA guidelines. For large projects, use progress billing within stages (25%, 50%, 75%, 100%) to improve cash flow. Record stage payments as revenue when completed and invoiced.
What is the difference between fixed fee and percentage of construction cost billing?
Fixed fee means the architect quotes a set price for defined scope, bearing the risk if the project takes longer than estimated. Percentage of construction cost means the fee is calculated as a percentage (typically 4-12% depending on project type) of the estimated or final construction cost. Fixed fee provides certainty. Percentage fee adjusts if project scope changes significantly but creates uncertainty until construction cost is known.
How should architecture firms treat council fees and consultant fees?
Council fees and consultant fees paid on behalf of clients should be recorded as WIP Disbursements (an asset) when paid per ATO's disbursement vs reimbursement distinction. When you invoice the client and recover these costs, record as Disbursement Recovery Revenue. This ensures these pass-through costs don't affect your profit. Some firms add a small markup (5-10%) to cover administration.
Should graduate architects and draftspeople be classified as contractors or employees?
This depends on the actual working arrangement per PCG 2023/2. Graduates and draftspeople who work full-time for the practice, use practice equipment and software, work set hours, and are integrated into the business are employees requiring superannuation (12% current rate). Most graduates and draftspeople working full-time for practices are employees. Consult your accountant or employment lawyer for advice on specific arrangements. This may also have implications under state registration acts.
How do I handle variations and scope changes?
Define original scope clearly in the engagement letter per AIA guidelines. When a client requests work outside this scope, immediately advise that this is outside scope and will require additional fee. Provide written quote for the variation. Obtain written client approval before proceeding. Complete the work and invoice promptly. Track variations separately for visibility.
Can architecture firms claim professional indemnity insurance?
Professional indemnity insurance premiums may be expenses related to earning practice income. Premiums typically range from $8,000-$100,000+ annually depending on practice size. Whether they are deductible depends on your specific circumstances. Consult your registered tax agent for advice. Note that professional indemnity insurance is mandatory for registered architects in all Australian states per registration board requirements.
What software do architecture firms need for bookkeeping?
Architecture firms need design software (Revit, AutoCAD, ArchiCAD), rendering software (Lumion, Enscape), and either architecture-specific practice management software (ArchiOffice, BQE Core) or general accounting software with project tracking (Xero with Projects add-on). The software should track time by project, manage disbursements, handle stage payment billing, and integrate with design tools where possible.
How should I track project profitability?
Use accounting software with project tracking. Create a project code for each engagement. Record all time worked (by team member with their billing rate), all disbursements (council fees, consultant fees), all direct costs, and allocate overhead. Compare total project costs to fees billed. For fixed fee projects, compare actual hours to estimated hours to calculate effective hourly rate.
What are typical professional indemnity insurance costs for architects?
Professional indemnity insurance costs depend on annual fee revenue, project types, claims history, and number of registered architects per state registration board requirements. Typical premiums (November 2025): small practice ($500k revenue) $8,000-$15,000, medium practice ($2M revenue) $25,000-$45,000, large practice ($5M+ revenue) $50,000-$100,000+. Residential work has lower premiums than commercial.
Can architecture firms claim vehicle expenses for site visits?
Architects attending project sites and client meetings may claim vehicle expenses using either logbook method (claim business percentage of all vehicle costs based on 12-week logbook) or cents per kilometre (claim up to 5,000 km at current ATO rate). Check ato.gov.au for current rates. Consult your registered tax agent for advice on which method suits your circumstances.
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