Tax and retentions are essential for accurate payment processing in construction projects. This guide shows you how to apply tax at contract and line-item item levels, set up payment retentions, and understand how these work together in your payment calculations.
Before you start:
- Contract must be created with a contract standard set (required to access the Terms tab)
- All figures entered in Mastt should be before tax
- Tax is only applied on exports (payment certificates, schedules, change order letters)
Set Up Contract-Level Tax
Contract-level tax applies a single tax rate to all line items within a contract. This is the quickest method when all items have the same tax treatment.
Step 1: Navigate to Your Contract
- Click Cost in the left navigation bar
- Click Contract in the top navigation bar
- Click the Action button beside the contract you want to configure
Step 2: Access the Terms Tab
- Locate the tabs in the middle of the contract form
- Click the Terms tab
- Click the Payment Terms sub-tab
The Terms tab only appears after you've configured your contract standard.
Step 3: Enter the Tax Percentage
- Locate the Tax % field in the Payment Terms section
- Click into the Tax % field
- Enter your tax percentage:
- 0% for tax-free contracts
- Your applicable tax rate based on your region and contract requirements
Step 4: Save Your Changes
- Scroll to the bottom right of the form
- Click Update
A confirmation message appears showing the contract has been updated successfully. All line items in this contract will now have the specified tax rate applied automatically.
Set Up Line Item-Level Tax (Contracts and Changes)
Line item-level tax lets you apply different tax rates to individual line items within the same contract. This is useful when some items are taxable whilst others are tax-exempt.
Line-item tax works identically for both contracts and change orders.
Step 1: Navigate to Line Items
- Open your Contract or Change form
- Scroll down to the line items table
Step 2: Set Tax for Individual Line Items
- Scroll horizontally to locate the Tax % column (at the right end of the line items table)
- Click into the Tax % field for the line item you want to configure
- Enter the tax percentage for that specific line item (e.g., 0% for tax-exempt items, or your applicable tax rate for taxable items)
- Repeat for each line item requiring a specific tax rate
Line item-level tax overrides contract-level tax for that specific item. For example, if contract-level tax is set to 10% but a line item has 0% entered, that line item will be tax-exempt.
Step 3: Save Your Changes
- Scroll to the bottom right
- Click Update (or Add if creating a new contract)
Set Up Payment Retentions
Retentions are amounts held back from payment until certain conditions are met, such as project completion or the end of the defect's liability period.
Step 1: Access Retention Section
- Open your payment form
- Scroll to the bottom of the payment form
- Click the Retention accordion to expand it
Step 2: Choose Your Retention Method
You have two options for calculating retentions:
Retained This Payment (dollar amount)
- Click into the Retained this payment field
- Enter the exact dollar amount to be retained (e.g., $5,000)
Use this method when you know the exact retention amount or need to retain funds on change orders.
Percentage
- Click into the Percentage field
- Enter the percentage of contract line items to be retained (e.g., 10%)
This method only calculates on contract line items, NOT on change order.
Step 3: Save the Payment
- Scroll to the bottom right
- Click Update
A confirmation message appears showing the payment has been saved with retention applied.
Understanding Retention Rules
Percentage retentions only apply to contract line items
When you use the percentage method, Mastt only calculates retention on contract line items—change orders are excluded.
Retaining funds on change orders
To retain funds on change orders, use the Retained this payment field and enter the dollar amount manually.
Example: To retain 10% on both a $100,000 contract and $20,000 change:
- Contract retention: $10,000
- Change retention: $2,000
- Total to enter: $12,000
Per-payment calculations
Retentions are calculated individually for each payment. Each payment can have its own retention amount or percentage, giving you flexibility as the project progresses.
No line-item retentions
Mastt does not currently support line-item level retentions. Retentions apply at the payment level only.
How Tax and Retentions Work Together (H3)
When you export payment certificates or schedules, Mastt calculates amounts in this specific order:
- Remove retention amounts from the gross payment total
- Calculate tax on the amount remaining after retentions are deducted
- Apply tax to get the final payment amount
Calculation example:
Starting amount: $100,000
Retention (10%): -$10,000
Subtotal after retention: $90,000
Tax (GST 10%) calculated on $90,000: +$9,000
Final payment: $99,000
Tax is calculated on $90,000 (after retention), not on the original $100,000.
Best Practice
Review payment certificates carefully
Always check exported payment certificates to ensure tax and retention calculations are correct before sending to clients.
Troubleshooting & FAQs
Q: What if the Terms tab doesn't appear in my contract?
The Terms tab only appears after you've configured your contract standard. Open your contract, and in the Contract Details section, locate and complete the Contract Standard field first. Once set, the Terms tab will become available.
Q: Why isn't my percentage retention including change orders?
The percentage retention method only calculates on contract line items by design. To retain on change orders, use the Retained this payment field and enter the dollar amount manually.
Q: What if I need different retention amounts for different line items?
Line item-level retentions aren't currently available in Mastt. Retentions are applied at the payment level, which means the same retention treatment applies to all line items within that payment.
Q: How do I verify my tax and retention calculations are correct?
Export a payment certificate and review the breakdown. The certificate will show gross amount, retentions deducted, subtotal, tax applied, and final payment amount in the correct order.
Q: What if my Payment Certificates aren't calculating tax correctly?
If a payment certificate isn't calculating tax correctly, check that all line items and change orders have a tax rate set. If there is no entry in the Tax % field for a line item or changee order, then it is assumed to be Tax Free.
Need help? Contact Mastt Support for assistance with tax and retention configuration.