Building allowance a rort?

Depending on the tiling shop your builder is going through, you may be able to get the tiles at trade prices and find yourself another tiler. We had a flooring allowance of $6.2k from the outset of the signed contract, but our dodgy builder tried to do a ‘variation’ and charge us another $1.2k on top towards the end of building. We told him to remove the allowance from the contract. Allowances can be removed from a contract, so you have that power. We got the files we wanted at trade price as Beaumont Tiles didn’t care who bought the tiles as long as they got to sell the tiles and were more than happy to give us trade price. Likewise we hired their best tiling customer to do our tiling and our house will be tiled for $6.3k and not $7.4k. The only negative in saving yourself $ and getting the tile/s you want is needing to get the tiling done once the house has been handed over to you. Our builder is also a vindictive bastard and has dragged out the handover instead of taking the tiling time off.
As my maintenance period has only just started I will ‘ name and shame ‘ the builder in a Riot Act post in several months, but lets just say this builder is a ‘dog’ (hint: think of a dog breed for the building company name in NSW). Stay right away unless you want to be ripped off!

Doc Dogg said :

Sounds similar to when you buy a car using the dealers “ultra low 5% finance”. Sure you get cheaper finance but you need to pay the RRP for the car, no discounts, no negotiated freebies and there are usually fees for everything built into the loan. In the end if you had negotiated hard and brought your own finance you walk away with a cheaper and better deal.

Of the tile choices you have, are there any that list for under $30m2? It goes without saying that there is a deal going on between the builder and the tile supplier to line both their pockets. Tax issues aside, the builder would be paying 1/3 of the listing price. My parents are building 2 houses at the moment and they were able to negotiate a 50% discount on their tiles based on that (plus the tile shop let them borrow their truck to deliver them as long as my dad returned it full of fuel), I’d be surprised if a high volume builder couldn’t do better than that.

If it was me I’d be approaching the builder and asking them to renegotiate the price of the tiles.

Youre right the builder will be paying 1/3 of the list price. I mentioned earlier when i didnt identify myself as buying through a builder i was offered a decent reduction without even negotiating. Re the selection it’s open to us to choose any tile in those shops, there’s definately choices under the allowance amount (at full retail price). We’re not looking at extravagent stuff, and anythiing decent retails for about the same as or just over the allowance.

buildingquoteHQ said :

Figuring out the GST is missing the point. These types of “allowances” in building contracts are usually dealt with as “Prime cost” (PC) items. A PC is an item that the cost of at the time of entering the contract is unknown. If the eventual cost is less than what the PC allowed then the difference should be deducted from the contract sum as a credit to the client and visa versa if the cost is more than the PC in which case the builder may charge a margin on the difference. Check what terms the builder uses; i think both the MBA and HIA contract work this way.

To the best of my knowledge all of the builders who have subscribed to buildingquote.com.au use PC’s this way; and many will actually pass on their trade price to the clients.

Suprise suprise the HIA contract doesnt list any pc items – so obviously they get around having to refund any amounts under the allowance. Good lesson for others check this clause.

Sounds similar to when you buy a car using the dealers “ultra low 5% finance”. Sure you get cheaper finance but you need to pay the RRP for the car, no discounts, no negotiated freebies and there are usually fees for everything built into the loan. In the end if you had negotiated hard and brought your own finance you walk away with a cheaper and better deal.

Of the tile choices you have, are there any that list for under $30m2? It goes without saying that there is a deal going on between the builder and the tile supplier to line both their pockets. Tax issues aside, the builder would be paying 1/3 of the listing price. My parents are building 2 houses at the moment and they were able to negotiate a 50% discount on their tiles based on that (plus the tile shop let them borrow their truck to deliver them as long as my dad returned it full of fuel), I’d be surprised if a high volume builder couldn’t do better than that.

If it was me I’d be approaching the builder and asking them to renegotiate the price of the tiles.

Figuring out the GST is missing the point. These types of “allowances” in building contracts are usually dealt with as “Prime cost” (PC) items. A PC is an item that the cost of at the time of entering the contract is unknown. If the eventual cost is less than what the PC allowed then the difference should be deducted from the contract sum as a credit to the client and visa versa if the cost is more than the PC in which case the builder may charge a margin on the difference. Check what terms the builder uses; i think both the MBA and HIA contract work this way.

To the best of my knowledge all of the builders who have subscribed to buildingquote.com.au use PC’s this way; and many will actually pass on their trade price to the clients.

screaming banshee said :

What is the emoticon for pinching your nose between your eyes?

If you are indeed a slumlord I’m not surprised you are having trouble grasping the legality of taxation, assuming however that your probably aren’t, why don’t you tell us what you do for a crust and we’ll try and put it into familiar terms for you.

Enlighten me then genius? In simple terms for my simple mind.

> they seem to be avoiding some gst

Yes, it’s fraud. The invoice states a higher price ($35) than was actually paid ($27) so the builder can claim a GST credit on the difference.

Ignore the snark from the pundits. This isn’t capitalism. You’re not stupid. It’s just tax fraud. Happens just about everywhere, not just in construction.

milkman said :

Holden Caulfield said :

Thoroughly Smashed said :

Holden Caulfield said :

OMG I bet the tile company doesn’t pay $30/m2 or even $22m2. They must be stopped!

It’s called capitalism. There’s even a Wikipedia entry, maybe you should check it out.

And never mind the TPA, I guess.

Where is the problem? The problem is the added margin has become visible to the end consumer.

The builder isn’t a charity. He’s hardly going to be the only person in the world to pay one price for a product only to on-sell it at a greater price.

If we want everyone to have a good income, this is what happens. Stuff costs money, deal with it.

No problem with stuff costing money, but in my opinion (and experience) the builder should concentrate on making his money from building rather than taking a few dollars off the top of allowances. Not good for client confidence i would have thought.

What is the emoticon for pinching your nose between your eyes?

If you are indeed a slumlord I’m not surprised you are having trouble grasping the legality of taxation, assuming however that your probably aren’t, why don’t you tell us what you do for a crust and we’ll try and put it into familiar terms for you.

dtc said :

GST is paid on the cost of the item purchased. The list price of an item is irrelevant – for example, if the list price of a computer is $1000 and you negotiate to pay $900, you arent cheating on GST if you only pay $90 credit.

So if your builder pays $22 and you pay $5, the total price paid is $27. Its irrelevant that there exists some theoretical price of $35, because no one paid that.

If the builder pays $22 and charges you $30, then the GST paid is $3 (by you to the builder) – the difference between $22 and $30 is the builders profit. The store then charges you 50c GST on the balance. So the total GST is $3.50.

The builder doesnt ‘pay’ the GST, as its offset agains the GST the builder collects (from you) – only you (as the final consumer) pay the GST.

In other words, either you are only charged $27 (builders $22 plus the $5 from the shop) or you are charged $35 (the $30 you have paid to the builder and the $5 you have paid to the shop). Its what you pay, not what the ‘middle men’ pay, that determines the final GST.

So basically the tile shop cant pretend they are charging the builder $30m2 + me $5m2 for a total purchase price of $35m2. That defies logic anyway that they’d charge a builder more than a bloke off the street.

If the builder is buying for $22m2 then onselling to me for $30m2, then the tile shop has made their sale to the builder (not me) @$22m2 so has no right to try and invoice me another $5m2. So therefore i dont follow how you work out the $3.50 possible GST above ($3 GST to builder, 50c to tile shop – they cant both sell me the same good?)