Most independent contractors take care of their own tax liabilities (instead of the employer withholding employees’ tax under the PAYG withholding system) and therefore may require an Australian business number (ABN) to avoid having tax deducted at maximum rates from payments made by recipients of the contracting service. Contractors may also need to register for GST.
As a contractor, you have to register for GST if your GST turnover is at or above the GST turnover threshold of $75,000 (exclusive of GST) and $150,000 (exclusive of GST) or more for non-profit organisations. Your GST turnover is your gross business income excluding:
- GST included in sales to your customers
- Sales that are not for payment and are not taxable supplies (some supplies to associates for instance)
- Sales not connected with a business that you carry on
- Input taxed sales you make (such as financial sales or supplies of residential premises by way of rent or sale)
- Sales not connected with Australia.
There are a couple of alternative turnover tests which can take into account the previous 12 months as well as projections for the next 12 months. Contact this office if you are unsure whether you meet any of the turnover tests.
Contractors may also have to include personal services income in their individual tax return if their contractor services are being provided to the client via an entity (and the contractor is an ’employee’ of that entity which has the contract with the end client).
For further information on the distinction between independent contractors and employees, visit the Tax Office website and the Fair Work Ombudsman website. The Tax Office has an online tool that can help, although it is written from the point of view of a business when hiring a new staff member. Or the following table can help you decide your status as a worker. There is no single criterion that can conclusively determine if you are an employee or an independent contractor, but rather a range of combined factors.
| Criterion |
Employee |
Independent contractor |
| Do you have control over the way a task is performed? |
No |
Yes |
| Do you supply/maintain your own tools or equipment? |
No |
Yes |
| Do you work standard hours? |
Yes |
No |
| Are you integrated into the organisation? |
Yes |
No |
| Do you work at your employer’s place of business? |
Yes |
Yes/No |
| Are you paid on task completion rather than receiving wages based on time worked? |
No |
Yes |
| Do you incur any loss or receive any profit from the job? |
No |
Yes |
| Do you accept responsibility for any defective or remedial work that was your own doing? |
No |
Yes |
| Are you free to work for others at the same time? |
No |
Yes |
| Do you accept that work lasts for the term of each particular task or contract? |
No |
Yes |
| Do you have the right to employ or sub-contract any aspect of your work to another person? |
No |
Yes |
| Do you have the right to employ an apprentice or trainee in the execution of contracts? |
No |
Yes |
| Do you understand the arrangement with you as a contract for services? |
No |
Yes |
| Does your employer deduct tax from you pay? |
Yes |
No |
| Do you provide your own public liability and sickness and accident insurance cover? |
No |
Yes |
| Do you receive paid holidays or sick leave? |
Yes |
No |
| Do you receive superannuation entitlements? |
Yes |
No |
| Do you submit tax invoices for payment? |
No |
Yes |
| Do you file GST returns? |
No |
Yes, but you may not have to if you’re earning less than $75,000 per annum (exclusive of GST) |
| Are you paid at the end of each contract or project? |
No |
Yes |
| Do you carry out work under a business name, partnership or company structure? |
No |
Yes |