Last Updated: November 2025
Disclaimer: This guide provides general information only and does not constitute tax, legal, or financial advice. R&D Tax Incentive rates, contractor classification tests, and instant asset write-off thresholds change regularly. Always verify current requirements at business.gov.au and ato.gov.au, and consult with a registered tax agent and legal adviser for advice specific to your circumstances.
IT consulting and technology services firms face unique bookkeeping challenges that differ substantially from traditional businesses. Unlike retail or manufacturing, tech companies must track project-based billing, manage contractor vs employee classifications, navigate R&D Tax Incentive claims, recognise SaaS revenue correctly, and handle GST treatment for exported software services.
The Australian Small Business and Family Enterprise Ombudsman reports that technology startups and consulting firms have higher failure rates in years 2-3 than established industries, with cash flow mismanagement and incorrect contractor payments cited as major contributing factors. Tech companies often have strong revenue but weak profitability because project costing, contractor payments, and revenue recognition are handled incorrectly.
This comprehensive guide explains how to manage bookkeeping for IT consulting and technology services in Australia, covering project billing, contractor management, R&D Tax Incentive compliance, SaaS revenue recognition, and the specific requirements that separate technology bookkeeping from general business accounting.
Technology firms require a specialised chart of accounts separating project revenue, recurring revenue, contractor costs, and development expenses.
Technology services revenue should be separated by type and billing model:
Project-Based Revenue:
Recurring Revenue:
Other Revenue:
This separation allows you to analyse project profitability, calculate monthly recurring revenue (MRR), track annual recurring revenue (ARR), and identify which service types deliver the best margins.
Technology firms have specific expense categories:
Direct Project Costs:
Staff Costs:
Technology and Tools:
Professional Costs:
For project-based work, WIP represents development time and costs incurred but not yet billed to clients.
Current Assets:
When you invoice the client, WIP transfers to Accounts Receivable and corresponding revenue is recognised.
For SaaS and recurring services, deferred revenue represents payments received in advance for services not yet delivered.
Current Liabilities:
As you deliver the service each month, deferred revenue is released to income.
Technology firms use different billing models depending on project type, client relationship, and risk profile.
Client pays a set fee for defined scope. You bear the risk if development takes longer than estimated.
Example: Website and CRM integration project
If actual hours exceed estimate, you absorb the loss. Fixed price requires accurate scoping and change management.
Revenue recognition: Recognise revenue based on percentage of completion (hours incurred / total estimated hours) or when milestones are achieved, depending on contract terms.
Example using percentage of completion:
Client pays for actual hours worked at agreed hourly rates plus materials (cloud costs, third-party tools).
Example: Ongoing development support
Revenue recognition: Revenue is recognised as hours are worked and costs are incurred.
Client pays fixed monthly fee for ongoing support, maintenance, or consulting hours.
Example: Managed services retainer
Revenue recognition: Recognise $8,500 revenue each month as service is provided. If client prepays annual retainer ($102,000), record as deferred revenue and release $8,500 monthly.
Client pays when specific project milestones are achieved.
Example: Custom software development
Revenue recognition: Recognise revenue when each milestone is achieved and invoiced, or use percentage of completion if milestones don't align with actual work performed.
Technology firms heavily use contractors for developers, designers, and project-based roles. Misclassifying employees as contractors creates significant financial and legal risks.
The ATO and Fair Work Commission use multiple factors to determine if a worker is genuinely a contractor or actually an employee. According to the ATO's practical compliance guideline PCG 2023/2, key factors include:
Factors indicating genuine contracting:
Factors indicating employment:
If a worker is classified as an employee (or is actually an employee despite being called a contractor), you must pay superannuation guarantee (12% current rate).
Example: Developer paid $150,000 annually as "contractor" but actually an employee
Misclassification can result in back payment of super, SGC of up to 200% of the shortfall, and penalties from Fair Work. These are matters where legal advice may be appropriate.
Genuine contractors typically use these payment models:
- Day rate: $800-$1,500 per day depending on expertise (senior developers, architects, DevOps specialists)
- Hourly rate: $150-$300 per hour for consulting or part-time engagements
- Project-based: Fixed fee for defined deliverables (feature development, integration, migration)
- Revenue share or equity: For startups (this creates different considerations - consult legal and tax advisers)
To ensure genuine contractor relationships:
If you need someone to work set hours using your equipment integrated into your team, they may be an employee. Seek legal advice on contractor arrangements if uncertain.
The R&D Tax Incentive provides tax offsets for eligible research and development activities. For technology firms developing new or improved products, processes, or services, this can add significant cash flow.
To claim the R&D Tax Incentive, you must:
Core R&D activities (experimental activities generating new knowledge):
Supporting R&D activities (directly related to core R&D):
Does NOT qualify as R&D:
For companies with aggregated turnover less than $20 million, the refundable offset is 18.5 percentage points above the company tax rate:
Example: Tech startup with $500,000 eligible R&D spend
If company is loss-making, the $217,500 is received as cash refund.
Note: R&D Tax Incentive rules are complex. Consult with a registered tax agent and R&D specialist for advice specific to your activities.
To claim R&D Tax Incentive, you must maintain detailed records:
ATO and AusIndustry audit R&D claims. Poor record-keeping results in claims being reduced or rejected.
- Claiming business-as-usual development: Building features using known methods is not R&D. Must demonstrate genuine technical uncertainty and experimentation.
- Poor time tracking: Claiming 100% of developer time as R&D when they also do client work, bug fixes, and maintenance. Must track actual R&D hours.
- Missing registration deadline: Must register with AusIndustry within 10 months of year end. Missing deadline means entire claim is lost.
- Inadequate documentation: Cannot reconstruct what was "R&D" retrospectively. Must document experimental approach and technical uncertainty contemporaneously.
SaaS businesses receive subscription payments in advance but must recognise revenue over the subscription period as service is delivered.
Client pays monthly. Revenue is recognised in the month service is provided.
Example: Client starts $499/month subscription on 15 January
Client pays upfront for 12 months. Revenue must be spread over 12 months.
Example: Client pays $4,800 for annual subscription on 1 July
Accounting entries:
Client commits to 2-3 year contract. Revenue is recognised as service is delivered, typically monthly.
Example: 3-year enterprise contract at $25,000/year, paid annually
Some SaaS products charge based on usage (API calls, storage, transactions). Revenue is recognised as usage occurs.
Example: API service charges $0.01 per call
Revenue is recognised in October (when service consumed), not November when paid.
GST treatment varies depending on service type and whether customer is in Australia or overseas.
Services provided to Australian businesses and consumers are taxable at 10% GST:
Example: Software development invoice for Australian client
You charge $5,000 GST and remit to ATO on next BAS.
Services exported to overseas customers are GST-free when the service is provided to a non-resident who is outside Australia when the service is performed, or the service is provided to a non-resident outside Australia.
Requirements for GST-free treatment (per GST Act 1999 Section 38-190):
Example: SaaS subscription to US-based company
You do not charge GST on exported software services.
If you have both Australian and overseas customers, you must track sales separately for GST purposes.
Example: SaaS business monthly revenue
You can claim GST input tax credits on business expenses related to making taxable supplies (Australian customers) and GST-free exports.
Example: Monthly expenses
Whether you have Australian or overseas customers, you claim input tax credits on business expenses.
Technology firms use significant cloud infrastructure (AWS, Azure, Google Cloud). Proper allocation between client projects, internal use, and R&D is critical.
Cloud costs directly attributable to client projects should be recorded as project costs and billed to clients (if T&M or cost-plus contracts).
Example: E-commerce platform development
Cloud costs for internal product development, testing, and R&D should be separated.
Example: SaaS product development
Cloud costs for running your SaaS product (customer production environment) are operating expenses.
Example: SaaS business cloud costs
Track this metric (infrastructure cost per customer) to monitor gross margin.
For agencies managing multiple client environments, allocate costs by client using tagging or separate accounts.
Example: Managed services provider
Technology 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 technology firms may incur include:
- Professional costs: Professional indemnity insurance, cyber liability insurance, professional memberships (ACS, Engineers Australia), industry certifications (AWS, Azure, Google Cloud)
- Software and tools: Development tools, project management software, collaboration tools, design tools, testing platforms, code repositories, CI/CD platforms
- Cloud infrastructure: AWS, Azure, Google Cloud costs. Note that costs for client projects (billable) have different treatment than internal use or R&D (consult your tax agent)
- Professional development: Technical training, conferences, certifications, online courses
- Equipment: Computers, monitors, development hardware. Current instant asset write-off threshold is $1,000 for businesses with aggregated turnover under $10 million. Assets above this are typically depreciated. Check ato.gov.au for current thresholds and rates.
- Home office: If working from home with dedicated space exclusively for business
- Motor vehicles: For consultants attending client sites
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.
Technology firms use specialised tools for project management, time tracking, and financial management.
Jira: From $8.15 per user per month. Tracks project tasks, sprints, and development work. Best for development teams using Agile methodologies.
Harvest: From $12 per user per month. Time tracking and invoicing for project-based businesses. Integrates with Xero or QuickBooks. Best for consulting and development firms billing time and materials.
Float: From $6 per person per month. Resource scheduling and capacity planning. Best for firms managing multiple projects simultaneously.
Xero: From $40 per month (Growing plan at $78/month recommended for tech firms). Cloud accounting with project tracking (Xero Projects add-on $20/month). Handles multi-currency for overseas clients. Best for most Australian tech firms.
MYOB: From $69 per month. Alternative to Xero with similar capabilities.
Most tech firms use combination:
Monthly cost for 10-person team: Approximately $300-500/month for full stack.
Paying developers as contractors when they are actually employees creates superannuation and other obligations.
Cost: Business with 5 developers paid $150,000 each as "contractors" but actually employees would owe $90,000 in superannuation (12% x $150,000 x 5) plus SGC and penalties if discovered.
Solution: Review working arrangements against ATO contractor vs employee tests (PCG 2023/2). If workers use your equipment, work set hours, cannot work for others, and are integrated into your business, they may be employees. Seek legal advice if uncertain.
Building software or providing services without tracking actual costs vs revenue means you cannot identify which projects or clients are profitable.
Cost: Agency doing $2 million revenue may show $300,000 profit overall but be losing money on 40% of projects.
Solution: Implement project tracking in accounting software. Track all time and costs by project. Review profitability monthly.
Conducting eligible R&D activities without claiming the tax incentive means missing substantial cash refunds.
Cost: Tech company spending $400,000 on eligible R&D that doesn't claim loses $174,000 refund (43.5% of $400,000).
Solution: Identify eligible R&D activities early in year. Track R&D time and costs separately. Engage R&D tax adviser to prepare claim. Register with AusIndustry before deadline.
Recording annual subscription payments as revenue when received rather than spreading over subscription period overstates current year profit.
Cost: SaaS business receiving $500,000 in annual subscriptions in June records entire amount as June revenue. Actual revenue should be $41,667 in June with $458,333 deferred.
Solution: Record subscription payments as deferred revenue (liability). Release to revenue monthly as service is delivered.
Charging GST on software services exported to overseas customers when they should be GST-free overstates GST payable and makes pricing uncompetitive.
Cost: SaaS business with $300,000 annual revenue from overseas customers incorrectly charging 10% GST remits $30,000 to ATO unnecessarily.
Solution: Understand GST-free export rules (Section 38-190 GST Act). Do not charge GST on services provided to overseas customers. Track domestic vs export sales separately.
Not allocating cloud infrastructure costs between client projects, internal use, and R&D means incorrect project profitability and missed R&D claims.
Cost: Agency spending $15,000/month on AWS but not tracking which clients use which resources cannot bill costs accurately.
Solution: Use AWS tagging, separate accounts, or cost allocation reports. Track costs by client project, internal development, and R&D separately.
How do I know if a developer is a contractor or employee?
The ATO uses multiple factors from practical compliance guideline PCG 2023/2: Does the worker control how work is performed? Do they use their own equipment? Can they work for others? Do they bear business risk? If workers use your equipment, work set hours, work exclusively for you, and are integrated into your business structure, they may be employees requiring superannuation (12% current rate) and other entitlements. Consult your accountant or employment lawyer for advice on specific situations.
What is the R&D Tax Incentive and how much can I claim?
The R&D Tax Incentive provides tax offsets for eligible research and development. For companies with turnover under $20 million, the refundable offset is 43.5% (for 25% tax rate companies) of eligible R&D expenditure. Eligible activities include developing new software algorithms, creating new technical approaches, and experimenting with novel solutions. You must spend at least $20,000 on eligible R&D and register with AusIndustry within 10 months of year end. Consult an R&D tax adviser for eligibility assessment.
How should I recognise revenue for annual SaaS subscriptions?
When a customer pays an annual subscription upfront, record the full payment as Deferred Revenue (a liability). Each month, release 1/12th of the payment to revenue as the service is delivered. For example, a $12,000 annual subscription paid in July should be recorded as $12,000 deferred revenue, with $1,000 released to revenue each month from July through June.
Do I charge GST on software services to overseas customers?
Software services provided to overseas customers are generally GST-free per Section 38-190 of the GST Act when the customer is a non-resident located outside Australia. You do not charge GST on SaaS subscriptions, software development, or IT consulting provided to overseas customers. Services provided to Australian customers are taxable at 10% GST. Track domestic and export sales separately for BAS reporting.
Should I bill clients for cloud infrastructure costs?
For time and materials or cost-plus contracts, cloud costs directly attributable to the client project should be billed to the client as reimbursable expenses. For fixed-price projects, cloud costs are your responsibility and should be factored into your quoted price. For managed services, infrastructure costs are typically included in the monthly retainer or billed separately with a margin.
What records do I need to claim the R&D Tax Incentive?
You must maintain detailed contemporaneous records including project descriptions, technical documentation of experiments, time sheets showing hours on eligible R&D activities, financial records separating R&D costs from business-as-usual development, and evidence of technical uncertainty. Records must be created at the time R&D is conducted. Poor record-keeping results in claims being reduced or rejected. Consult an R&D specialist for specific requirements.
How do I track project profitability?
Use accounting software with project tracking capability (Xero Projects, Harvest, or practice management software). Create a project code for each client engagement. Record all time worked, all direct costs (contractors, cloud infrastructure, third-party tools), and allocate overhead. Compare total project costs to revenue billed to calculate gross profit margin. Review monthly.
Can I claim the instant asset write-off for computer equipment?
Current instant asset write-off threshold is $1,000 for businesses with aggregated turnover under $10 million. Computer equipment above this threshold must be depreciated over its effective life (typically 3-4 years). Check ato.gov.au for current thresholds and consult your tax agent before making equipment purchases.
What software do technology firms need for bookkeeping?
Technology firms typically need project management software (Jira, Asana), time tracking software (Harvest, Toggl), and accounting software (Xero or MYOB). Many firms integrate these tools so time tracked flows automatically to accounting software for invoicing and project costing. The right combination depends on your billing model, team size, and complexity.
How do I handle multi-currency billing for overseas clients?
Use accounting software with multi-currency capability (Xero, MYOB both support this). Invoice overseas clients in their currency (USD, EUR, GBP). When payment is received, your bank converts to AUD. Record both the invoice value (in foreign currency) and the received amount (in AUD). The difference is foreign exchange gain or loss.
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