Should I charge myself labour?
If you’re building your own house, should you charge yourself for tax purposes?
9 October 2024
Q: We are about to build a new home to live in and retain our current home as well. I am a self-employed builder. I have been advised I still need to charge labour to the build or risk having to pay tax if the new house is old down the track. I was not planning on charging my labour as I generally have time around my other work. I am a small business owner and have no history of being a developer. Is this advice right?
A: I do not see this advice as being correct. There is no necessity for you to charge for your labour. In fact, if you do so it will be to your disadvantage because you will return GST on your labour charges, without any ability to claim it back on the other side. You will also pay income tax on any margin.
It appears to me your adviser is concerned about the possibility of the new home being “tainted” due to you being a builder. Whether or not that is the case depends firstly on whether you are in the business of erecting buildings or not. If you are a “labour only” builder, or focused on renovations, rather than building full dwellings from the ground up, then you will not be in the business of erecting buildings and tainting will not be an issue. Even if you are in the business of erecting buildings, a property that you build for your own personal occupation is generally exempt. There are some conditions on this, including that the land must be less than 4,500 sq m in size, but there is no requirement for a self-employed builder to charge for the labour in order to get this residential exemption. I suggest you get advice from an alternative source.
Matthew Gilligan
