Last Updated: December 2025
Property development requires sophisticated bookkeeping that tracks costs across multi-year projects, manages complex GST treatment including margin scheme elections, and meets stringent lender reporting requirements. Unlike standard businesses with regular revenue cycles, developers must allocate costs across multiple lots or units, recognise revenue only when specific criteria are met, and maintain detailed records for both tax and finance compliance purposes.
Industry data shows that poor financial management is a leading cause of developer insolvency, with cash flow timing mismatches and cost overruns cited as primary factors. Projects can appear profitable on paper while the developer runs out of cash waiting for settlements. Accurate project accounting is essential for both profitability analysis and business survival.
This guide explains how to manage bookkeeping for property development in Australia, covering project accounting, GST treatment including the margin scheme, development finance compliance, understanding financial statements, and the specific requirements that distinguish development accounting from general business bookkeeping.
Property developers require a chart of accounts that tracks costs and revenue by project, and within each project, by stage, lot, or unit. This granularity enables accurate profit calculation on each sale.
Property Sales include residential lot sales (land subdivisions), residential unit sales (apartments, townhouses), commercial property sales (offices, retail), industrial property sales (warehouses, factories), and mixed-use development sales.
Other Revenue includes rental income during holding periods before sale, interest earned on deposits held in trust, project management fees if developing for third parties, and option fees forfeited by purchasers.
Development costs are capitalised to the project as an asset rather than expensed, building a cost base that is released as cost of goods sold when properties settle.
Land Costs include purchase price, stamp duty on acquisition, legal and conveyancing fees on purchase, due diligence costs (surveys, environmental reports), and holding costs during planning phase (rates, land tax, interest).
Development Costs include council development contributions and infrastructure charges, planning application fees and consultant costs, DA and BA approval costs, architect and design fees, engineering consultant fees (civil, structural, hydraulic, electrical), surveyor fees, town planning consultant fees, and project management costs.
Construction Costs include head contractor building contracts, variation orders, site establishment and preliminaries, landscaping and common area works, and defect rectification provisions.
Finance Costs include interest on development finance (capitalised during development), loan establishment and line fees, valuation and quantity surveyor costs required by lender, and bank guarantee fees.
Selling Costs include marketing and advertising, sales commission (typically 2% to 3%), display suite costs, legal fees on sales, and settlement agent fees.
Property development requires meticulous tracking of all costs by individual project, with further allocation to each saleable lot or unit.
Each project should have a unique code with sub-codes for each lot or unit. All costs must be allocated either directly (costs specific to one lot) or proportionally (shared costs allocated by area, value, or number of lots).
Example: 20-lot residential subdivision.
Total Project Costs:
Average cost per lot: $450,000
However, lots are not equal. Corner lots and premium positions should be allocated higher costs reflecting their higher sale prices. A common method is to allocate costs in proportion to expected sale prices.
Example allocation: Lot 1 (corner, premium) expected sale $650,000 out of total project sales $11,000,000 represents 5.9% of value. Allocated costs: $9,000,000 x 5.9% = $531,000.
All capitalised costs sit in Work in Progress (a current asset if the project will complete within 12 months, otherwise non-current) until properties are sold and settled.
Example: At 30 June, project has incurred $6,500,000 in costs with no settlements yet completed. Balance sheet shows Development WIP asset of $6,500,000.
When sales settle, the allocated cost for each lot transfers from WIP to Cost of Goods Sold, with the sale price recorded as revenue.
Revenue is recognised when control of the property passes to the buyer, which for Australian property sales is typically at settlement (not contract exchange). Until settlement, deposits received are recorded as liabilities (Deposits Held) not revenue.
Example: Lot 5 sold for $520,000. Contract exchanged 1 March with 10% deposit. Settlement 1 June.
1 March (exchange): Debit Trust Bank $52,000, Credit Deposits Held (liability) $52,000. No revenue recognised.
1 June (settlement): Debit Bank $468,000, Debit Deposits Held $52,000, Credit Sales Revenue $520,000. Debit Cost of Goods Sold $445,000, Credit Development WIP $445,000.
Gross profit on Lot 5: $520,000 minus $445,000 equals $75,000 (14.4% margin).
GST on property transactions is complex, with different rules applying depending on whether the property is new residential, commercial, or sold under the margin scheme.
New residential premises and commercial property sales are generally taxable at 10% GST calculated on the full sale price.
Example: New apartment sold for $880,000 including GST. GST component: $80,000. Net sale price: $800,000.
The developer claims input tax credits on GST paid on development costs, then remits the difference to the ATO.
The margin scheme allows GST to be calculated on the margin (sale price minus original purchase price) rather than the full sale price. This is beneficial when the land was purchased from a vendor who was not required to charge GST (such as an individual or deceased estate).
Example without margin scheme: Land purchased for $2,000,000 (no GST on purchase from private vendor). After development, lots sold for total $5,500,000 including GST.
GST on full sale: $500,000
Example with margin scheme: Same scenario, but margin scheme elected.
Margin: $5,500,000 minus $2,000,000 equals $3,500,000. GST on margin: $318,182 (1/11th of $3,500,000).
Saving: $181,818.
The margin scheme election must be made in writing before settlement. Once elected, it cannot be reversed. Purchasers of margin scheme properties cannot claim input tax credits.
Sales of commercial property as a going concern (with existing lease and tenant) can be GST-free if both parties agree in writing and the property is sold with an ongoing lease.
Developers claim input tax credits on GST paid during development. These are claimed progressively through BAS lodgements, creating GST refunds during the development phase when costs are incurred but no sales have settled.
Example: Quarter incurs $440,000 in development costs including $40,000 GST. No settlements in quarter. BAS shows $40,000 GST refund.
This reverses when sales settle and GST on sales exceeds remaining input tax credits.
Development finance lenders impose strict reporting and compliance requirements that directly impact bookkeeping practices.
Lenders require regular cost to complete reports showing total project budget, costs incurred to date, costs committed but not yet paid, and forecast costs to completion.
Example Cost to Complete Report:
Budget: $9,000,000Incurred to date: $5,200,000Committed (contracts signed): $2,800,000Forecast remaining: $1,000,000Total forecast cost: $9,000,000Variance to budget: Nil
Any variance must be explained and may trigger loan covenant discussions.
Lenders require quantity surveyor certification of construction progress before releasing draw-down funds. The QS certifies the percentage of work complete, and the lender releases funds up to that percentage of the construction facility.
Example: Construction facility $4,000,000. QS certifies 45% complete. Lender releases up to $1,800,000 (less previous draws).
Most development lenders require minimum pre-sales (properties sold and exchanged but not yet settled) before funding construction. Typical requirements are 80% to 100% debt coverage through pre-sales.
Example: Construction debt $4,000,000. Lender requires 100% pre-sale coverage. Developer must have exchanged contracts totalling at least $4,000,000 before construction funding is released.
Development finance interest is typically capitalised (added to the loan balance) rather than paid monthly during the development phase. This continues until sales settlements generate cash flow.
Example: Loan balance $3,000,000. Monthly interest at 8% equals $20,000. Interest is capitalised, increasing loan balance to $3,020,000.
This capitalised interest is also a project cost, allocated to lots and included in cost of goods sold.
Property development P&L statements differ significantly from standard businesses because costs are capitalised rather than expensed, and revenue only appears when settlements occur.
Revenue shows only settled sales, not exchanged contracts. This can create periods of zero revenue during active development followed by large revenue when settlements cluster.
Example: Development with 20 lots. Year 1 shows zero revenue (development phase). Year 2 shows $11,000,000 revenue (all settlements complete in 6-month period).
Cost of goods sold equals the capitalised costs allocated to lots that have settled. This is released from WIP as each sale completes.
Example: 20 lots settle with total allocated costs of $9,000,000. Cost of goods sold: $9,000,000. Gross profit: $11,000,000 minus $9,000,000 equals $2,000,000 (18% margin).
Operating expenses include non-capitalised costs of running the development business such as office rent, administration salaries, accounting and legal fees (not specific to projects), insurance, and marketing (non-project-specific).
Net profit equals gross profit minus operating expenses. Development businesses should target gross margins of 15% to 25% depending on project risk and market conditions.
Gross margin percentage indicates project profitability. Return on capital employed measures efficiency of capital deployment. Development timeframe affects annualised returns (a 20% margin over 3 years is less attractive than 15% over 18 months).
The balance sheet for a property developer looks very different from other businesses, with large asset values tied up in development WIP and significant liabilities for development finance.
Current Assets include cash at bank, development WIP (if completion expected within 12 months), deposits paid on land acquisitions, GST receivable (input tax credits claimed but not yet refunded), and prepaid expenses.
Non-Current Assets include development WIP (if completion beyond 12 months), land held for future development, and property, plant, and equipment.
Example Developer Balance Sheet Assets:
Cash: $450,000Development WIP (Project A): $5,200,000Development WIP (Project B): $1,800,000GST Receivable: $180,000Land Held (Future Project): $2,500,000Total Assets: $10,130,000
Current Liabilities include accounts payable (contractor and supplier invoices), deposits held from purchasers (liability until settlement), development finance (if repayable within 12 months), GST payable, and accrued interest.
Non-Current Liabilities include development finance (if repayment beyond 12 months) and deferred tax liabilities.
Example Developer Balance Sheet Liabilities:
Accounts Payable: $380,000Deposits Held: $1,100,000Development Finance: $4,200,000Accrued Interest: $85,000Total Liabilities: $5,765,000
Equity represents the developer's investment in the business. Retained earnings accumulate as projects complete and profits are realised.
Example: Total Assets $10,130,000 minus Total Liabilities $5,765,000 equals Equity $4,365,000.
Lenders monitor loan-to-value ratios and debt coverage. LVR equals debt divided by asset value. Typical development facility LVR limits are 65% to 75%.
Example: Development finance $4,200,000. WIP value $7,000,000. LVR: 60% (within typical covenant).
Incorrect Cost Allocation
Risk Level: HIGH
Allocating costs equally across all lots when some lots have higher values or development costs creates incorrect profit calculations. Over-allocated lots show artificial losses while under-allocated lots show inflated profits.
Premature Revenue Recognition
Risk Level: HIGH
Recognising revenue at contract exchange rather than settlement overstates profit and creates compliance issues. Revenue is only recognised when control passes to the buyer at settlement.
Failing to Capitalise All Costs
Risk Level: MEDIUM
Expensing costs that should be capitalised to the project (such as interest during development or directly attributable staff costs) understates WIP value and distorts profit timing.
GST Margin Scheme Errors
Risk Level: HIGH
Failing to elect the margin scheme before settlement when eligible results in overpaid GST that cannot be recovered. Conversely, incorrectly applying margin scheme when not eligible creates ATO audit risk.
Poor Lender Reporting
Risk Level: HIGH
Inaccurate cost to complete reports or failure to track against budget can trigger loan covenant breaches, potentially resulting in facility cancellation during construction.
When should property development revenue be recognised?
Revenue is recognised at settlement when control of the property passes to the buyer, not at contract exchange. Deposits received at exchange are recorded as liabilities (Deposits Held) until settlement. This applies to residential lots, apartments, commercial, and industrial property sales.
What is the GST margin scheme and when should it be used?
The margin scheme calculates GST on the margin (sale price minus original purchase price) rather than the full sale price. It is beneficial when land was purchased from a vendor who was not required to charge GST, such as a private individual or deceased estate. The election must be made in writing before settlement and cannot be reversed.
How should development costs be allocated across multiple lots?
Costs should be allocated in proportion to expected sale values or relative area, not equally across all lots. Direct costs (specific to one lot) are allocated 100% to that lot. Shared costs (roads, services, landscaping) are allocated proportionally. The allocation method should be consistent and documented.
What financial reports do development lenders require?
Lenders typically require monthly or quarterly cost to complete reports showing budget versus actual costs, QS certification of construction progress before draw-downs, pre-sale reports showing exchanged contracts, and cash flow forecasts showing settlement timing and debt repayment.
How is development finance interest treated for accounting purposes?
Interest on development finance is capitalised to the project (added to WIP) during the development phase when there is no revenue. This capitalised interest becomes part of the cost base allocated to lots and is released to cost of goods sold when each lot settles.
Contact Scale Suite for a free project accounting review or development finance compliance assessment tailored to your property development business.
Disclaimer: This guide provides general information only and does not constitute financial, legal, tax, or property advice. Scale Suite is a registered BAS agent, not a registered tax agent. For tax advice specific to your circumstances, consult a registered tax agent. Property development involves complex tax and legal considerations that require specialist advice.
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