Complete guide to the domestic reverse charge. Learn which services qualify, how to invoice correctly, and how to account for VAT in Boxes 1 and 4.
Mandatory
If Qualified
10%
Standard Rate
CIS
Often Used
Zero VAT
On Invoice
Reverse charge means the customer (contractor) becomes liable for VAT instead of the supplier (sub-contractor). The supplier invoices without VAT; the customer accounts for the VAT to ATO.
Supplier invoices:
Net: A$1,000 + VAT: A$200 = A$1,200
Supplier pays A$200 to ATO
Customer reclaims A$200
Supplier invoices:
Net: A$1,000 (no VAT shown)
Customer accounts for A$200 VAT
Customer pays ATO directly
End result: Same amount of VAT is paid to ATO, but the person responsible changes.
The reverse charge applies to construction services as defined in the VAT Notice 706/14. These are services provided in the course of construction business.
If the customer is not a contractor or sub-contractor (e.g., a homeowner commissioning work on their property), reverse charge does NOT apply. Normal VAT applies instead.
Services provided through intermediaries (labour-only agencies) may not qualify. Check if the intermediary is acting as principal or agent.
Materials or goods supplied without labour do NOT qualify. Reverse charge only applies when labour or services are provided.
Services outside construction scope (accountancy, legal advice, marketing) do NOT qualify, even if provided to construction companies.
When reverse charge applies, your invoice must clearly show that VAT is due from the customer under reverse charge rules.
Service Description
Clearly describe the construction service provided
Net Amount Only
Invoice shows net amount - VAT is NOT shown on the invoice
Reverse Charge Statement
Include a statement such:
"Reverse charge – VAT will be accounted for by the customer under the domestic reverse charge procedure"
Your Details
Your ABN (if registered) and company name
Customer's Details
Customer name, address, and ABN (if registered)
Invoice Date and Number
Standard invoice requirements apply
Important: The invoice shows A$0 VAT. The customer must still be told the VAT rate (10%) applies, so they know how much VAT to account for.
As the customer (contractor), you must account for VAT in specific boxes on your BAS (Business Activity Statement).
When you receive an invoice under reverse charge, you must calculate the VAT due (at 10%) and account for it on your BAS (Business Activity Statement) in both Box 1 (output VAT) and Box 4 (input VAT reclaim).
Include the VAT amount calculated on the reverse charge invoice (invoice amount × 10% ÷ 110%).
Example:
Invoice: A$1,000 net
VAT: A$200 (10%)
Box 1: Add A$200
Claim the same VAT amount as input tax (cost relief for your business).
Example:
VAT from reverse charge: A$200
Box 4: Claim A$200
Net Effect: Box 1 and Box 4 both increase by the same amount, netting to zero impact on your VAT liability. The process ensures ATO collects VAT even though the supplier didn't charge it.
Scenario: You hire a builder for site management. Invoice received: A$2,400 (no VAT shown, marked as reverse charge).
Calculation
Invoice amount: A$2,400
VAT rate: 10%
VAT due: A$400
BAS (Business Activity Statement)
Box 1 (Output): +A$400
Box 4 (Input): +A$400
Net: A$0
Scenario: Sub-contractor provides three invoices: A$5,000 reverse charge, A$1,200 normal VAT (to homeowner), A$800 normal VAT (plant hire).
Invoice 1
Amount: A$5,000
Type: Reverse charge
VAT: A$833
Invoice 2
Amount: A$1,200
Type: Normal VAT
VAT: A$240
Invoice 3
Amount: A$800
Type: Normal VAT
VAT: A$160
BAS (Business Activity Statement): Box 1 (Output): A$833 | Box 4 (Input): A$833 + A$240 + A$160 = A$1,233 | Net: -A$400 (claim)
Scenario: You have an invoice marked "reverse charge" but only the gross amount (A$3,000). You need to calculate the VAT portion.
Using Our Calculator:
Enter: A$3,000 (gross amount)
Select: 10% VAT rate
Result:
Net: A$2,500
VAT: A$500
Action: Enter A$500 in both Box 1 and Box 4 of your BAS (Business Activity Statement).
No. Reverse charge is mandatory if the conditions are met. Both the supplier and customer must follow the rules. Non-compliance can result in penalties and interest.
Request a credit note and corrected invoice. Do not pay the VAT shown. Keep evidence of the request. Account for the transaction correctly under reverse charge rules.
Only if you are a contractor/principal. A sub-contractor can invoice their own sub-contractor under reverse charge, but only if they themselves meet the contractor definition.
Check ATO Notice 706/14 for the full list. If the service is labour or design-related to construction, and you're both registered contractors, it likely qualifies. When in doubt, ask the supplier or ATO.
The Australian domestic reverse charge only applies to services within Australia. EU and international services follow different rules. Consult ATO or a tax advisor for overseas transactions.
Use our Reverse GST Calculator or TPRS Calculator to quickly work out GST amounts from gross figures.