# How to record retention on a subcontractor bill

Find the retention rate in the contract. On each claim, work out the amount held back, record the bill at full value with the retention as a liability, pay the rest and keep a schedule per subcontractor. Release it when the contract says.

## Short answer

1. Work out the retention on each claim from the contract.
2. Record the bill in full and move the retention to a liability.
3. Pay the net amount.
4. Keep a retention schedule and release the money when the contract says.

## What retention is

Retention is an amount you hold back from a subcontractor's progress claim until the work is finished or defects are fixed. It is a debt you owe the subcontractor. It stays a liability on your books until you release it.

The [retention schedule calculator](/free-tools/retention-schedule-calculator/) builds the running schedule for each subcontractor. The [construction invoice compliance checker](/free-tools/construction-invoice-compliance-checker/) checks that the claim itself is a valid tax invoice.

## Why it matters

Retention is easy to lose track of. A job with five subcontractors and ten claims each has fifty small deductions. If you do not record them, you do not know what you owe at practical completion.

Releasing late can also breach the contract. A subcontractor who waits for money you hold may stop work on your next job.

## The steps

1. **Find the retention terms.** Read the contract. Note the rate, any cap, the release points and who signs off. A common pattern is half at practical completion and half at the end of the defects period.
2. **Work out the retention on each claim.** Multiply the claim value before GST by the rate. A claim of A$14,400 at 5% gives A$720.
3. **Check the claim first.** Confirm the work, earlier claims and the ABN before you record anything. See [how to verify a subcontractor progress claim before you pay it](/how-to/verify-a-subcontractor-progress-claim-before-you-pay-it/).
4. **Record the bill at full value.** Code the claim to the job cost account with the GST shown on the tax invoice. Add a second line for the retention as a negative amount coded to a retention payable liability account, with no GST on that line. The bill total is now the net amount you pay.
5. **Pay the net amount.** Pay the claim less the retention. The bill shows what you owe now.
6. **Keep a schedule per subcontractor.** For each claim, list the claim value, the retention held and the running total. The total must match the retention payable balance for that subcontractor in your ledger.
7. **Release on time.** When a release point is met, get sign off, then enter a bill for the released amount. Code it against retention payable, not to job cost. Pay it.
8. **Reconcile each month.** Run the retention payable account and compare it with your schedules. The two must agree.

## GST on retention

The way GST works on retained amounts depends on the contract and your accounting basis. This guide shows GST on the full claim, which matches the tax invoice the subcontractor issues. Ask your accountant whether to claim the GST on the retained part when you receive the claim or when you release it. See the [ATO on when you can claim a GST credit](https://www.ato.gov.au/businesses-and-organisations/gst-excise-and-indirect-taxes/gst/claiming-gst-credits/when-you-can-claim-a-gst-credit).

## Where Pulsify fits

Pulsify reads the progress claim, checks the ABN and flags a changed bank account. When a claim is matched to a purchase order, a panel shows how much of the order has been claimed and what is left. Retention balances and releases stay in your accounting system or schedule.

## Worked example

Example Concrete Pty Ltd has a A$48,000 contract with 5% retention. Three claims have been made. All amounts are before GST.

| Claim | Claim value | Retention held at 5% | Paid now | Retention balance |
|---|---|---|---|---|
| 1 | A$9,600 | A$480 | A$9,120 | A$480 |
| 2 | A$12,000 | A$600 | A$11,400 | A$1,080 |
| 3 | A$14,400 | A$720 | A$13,680 | A$1,800 |

On claim 3 the bill is entered as:

- Subcontractor cost A$14,400.00
- GST A$1,440.00
- Retention held -A$720.00
- Bill total A$15,120.00

At practical completion the contract releases half of the retention. The released amount is A$1,800 / 2 = A$900. The business enters a bill for A$900 against retention payable and pays it. A$900 stays held until the end of the defects period.

## Common mistakes

- **Deducting retention with no record.** You cannot release what you cannot see.
- **Releasing it late.** This can breach the contract and upset the subcontractor.
- **Coding the release to job cost.** The cost was recorded on the claim. The release moves the liability.
- **Not agreeing GST treatment.** Settle it with your accountant before the first claim.
- **Keeping one schedule for the whole job.** Keep one per subcontractor.

## Next step

Use the [retention schedule calculator](/free-tools/retention-schedule-calculator/) first. Then read how to [verify a subcontractor progress claim before you pay it](/how-to/verify-a-subcontractor-progress-claim-before-you-pay-it/). [Book a call to find out how customers have saved hours per week after switching.](/contact/)

## Common questions

### How much is retention?

The contract sets the rate and any cap. Read yours before the first claim.

### Does retention change GST?

It can. It depends on the contract and your accounting basis. The ATO says you need a tax invoice to claim a GST credit on purchases above A$82.50. Ask your accountant when to claim the GST on the retained amount.

### Where do I keep the retention schedule?

Keep retention balances and releases in your accounting system or a spreadsheet. Pulsify reads the claim, checks the ABN and matches it to a purchase order.

Source: https://www.pulsify.tech/how-to/record-retention-on-a-subcontractor-bill/ (last checked 2026-10-20)