My previous article ‘GST included in construction costs for building calculation – A tax on a tax? Does it matter?’ considered a recent Queensland decision which included GST in the calculation of a builder’s portable long service leave levy liability for the purposes of the Building and Construction Industry (Portable Long Service Leave) Act 1991 (Qld) (Act).
Interesting proposed changes to the Act provide some long needed clarity on how the levy is to be calculated.
The Building and Construction Industry Levy – how is the “cost” of construction currently calculated?
By way of background, the purpose of the Act is to enable the provision of long service leave benefits to participants in the building and construction industry, who may work for many different employers over a long period of time.
The Act imposes a combined levy of 0.525% on the total cost of building and construction work, which is payable by the contractor engaged to carry out the work.
Currently, the levy is calculated by reference to the “cost” of the building and construction carried out, which is defined under section 73(1) of the Act as “the total of all costs that relate to the work directly or indirectly”
Jurisprudence on the reach of this phrase has been scarce. The recent decision of the Queensland Magistrates Court in Australia Pacific Pty Ltd v Building and Construction Industry Authority  QMC 4 provides some useful guidance. In that decision, GST was deemed to be included in the cost of building and construction.
The Construction and Tourism (Red Tape Reduction) and Other Legislation Amendment Bill 2014 (Qld) (Bill) proposes to exclude GST from the cost of building and construction work.
Further, the Bill makes clear that “cost” includes the direct and indirect cost of all materials manufactured, purchased, acquired or otherwise sourced interstate or overseas.
The amendments take effect from 1 July 2014.
Implications / Analysis
GST excluded from 1 July 2014 – Effect on ultimate levy liability
The amendment regarding the exclusion of GST accords with the view noted in the decision above that a “tax on a tax” is a negative policy outcome.
Importantly, any contractors and builders who have recently been including GST in their calculation of the levy may need to consider their liability.
Various other preparatory costs are to be excluded
Another significant change proposed in the Bill is that costs that relate to the preparation of an environmental impact statement and a feasibility study will be excluded.
Foreign costs definitely included in “cost” of building and construction in Queensland
An interesting argument raised by the applicant in Australia Pacific Pty Ltd v Building and Construction Industry Authority was that costs incurred for foreign materials should not be included in the building and construction costs for the purpose of the Act, which, it was said, was in part for “the benefit of Queensland workers building Queensland construction projects”.
Despite the court rejecting this argument, the new section 73 will put it beyond doubt that all direct and indirect foreign costs are to be included.