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ATO Tax Implications for Contractors


Contractors and employees are in two different boats because they have different working arrangements. While contractors are afforded certain flexibilities, such as choosing and sourcing their clients, these flexibilities also come with some obligations. For instance, the Australian Taxation Office notes that contractors are responsible for business tax registrations, like GST, especially if they meet the threshold. Contractors with annual incomes over $75,000 must pay GST tax. They must also file their annual tax returns and sort superannuation themselves. In addition, their income may also be subject to the personal services income rules.


Superannuation for Contractors


Superannuation refers to the proportion of wages an employer pays into a superfund to help employees save for retirement. While superannuation is primarily for employees, some contractors might also be eligible.


The Australian Taxation Office notes that contractors paid wholly or principally for their labour are considered employees for superannuation purposes. Their clients must pay them super similarly to employees. Similarly, contractors are eligible for superannuation contributions if they perform the contract work themselves and are paid for the hours worked rather than a specified result.

GST for Contractors


According to the Australian Government’s Business website, contractors are responsible for paying Goods and Services Tax (GST). Contractors must register for GST if their annual turnover exceeds $75,000, and those working with non-profit organisations must also register for GST if their income surpasses $150,000.


Personal Services Income Rule


The Australian Taxation Office notes that Personal Services Income (PSI) is a reward for an individual’s efforts or skills. However, it’s important to note there are special tax rules around PSI that contractors should know. These rules are designed to improve the tax system’s integrity and equity, preventing people from reducing their taxable income by diverting income received from personal services through corporations, trusts, and partnerships.

PSI can affect contractors, especially if over 50 per cent of their income is received as a reward for their skills and services rather than generated by selling assets or goods. Contractors can learn more about the PSI rules and if they apply by visiting ATO’s PSI page. If PSI rules apply, it’ll affect how you report your taxable income and claimable deductions.


PAYG Withholding


Contractors earning over a specific amount might also have to PAYG instalments. The Australian Taxation Office notes that organizations are required to help their stakeholders, including contractors, fulfill their tax obligations to the ATO. As a result, contractors can enter a voluntary PAYG withholding agreement with clients.


Get Started with Achieve Corp


Managing tax obligations can be challenging for contractors, especially when accounting for personal services income rules, superannuation contributions, and GST registrations. As a result, many contractors seek assistance from payroll processing service companies to help them fulfill their tax obligations.


If you’re looking for assistance with your payroll management and tax minimization, Achieve Corp can help you. The company is one of the top-rated Australian payroll service providers and specializes in payroll services for contractors.


Achieve Corp has a qualified team with the experience and capabilities to meet each contractor’s unique needs. It doesn’t matter whether you’re an IT or an independent contractor—we’ve got you covered. Achieve Corp has over 18 years of experience and has cemented itself as a leading payroll services provider for contractors. Contact us today to find out how we can help you.

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