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ABN Contractor Tax Guide 2025-26

Everything Australian tradies need to know about working as an ABN contractor — GST, BAS, deductions, super, and staying on the right side of the ATO.

Working as an ABN contractor in the trades — whether you are a sole trader electrician, a company-director plumber, or a sub-contractor carpenter — changes your tax obligations significantly compared to being a PAYG employee. You become responsible for your own tax, super, GST, and record keeping. This guide covers everything you need to know to stay compliant and maximise your deductions.

PAYG Employee vs ABN Contractor — Key Differences

The first thing to understand is how being an ABN contractor changes your relationship with the tax system:

Factor	PAYG Employee	ABN Contractor (Sole Trader)
Tax withheld	Employer withholds tax (PAYG)	You manage your own tax
Super	Employer pays 11.5% SG	You may need to pay your own super
GST	Not applicable	Must register if turnover > $75k
Tools & equipment	Claim as work deductions (under $300 instant write-off)	Claim as business expenses (up to $20k instant asset write-off)
Vehicle	Limited to work travel only	Broader business-use claims
Home office	Fixed rate ($0.67/hr)	Actual costs or simplified method
Tax return	Individual tax return (simple)	Individual + business schedule
PAYG instalments	No	Usually required (quarterly)
Liability protection	Employer's responsibility	Personally liable (unless company structure)

GST Registration

As an ABN contractor, you must register for GST if your annual turnover (total income from your business) is $75,000 or more. Once registered:

• Add 10% GST to your invoices (unless the work is GST-free, such as some residential rent or exports)
• Claim GST credits on business purchases — materials, tools, vehicle expenses, insurance, accounting fees
• Lodge quarterly BAS — Business Activity Statements every 3 months
• Pay the net GST — GST you collected minus GST you paid on business purchases

Quarterly BAS — What You Need to Do

If you are GST-registered, you must lodge a Business Activity Statement (BAS) every quarter. The ATO will set your lodgment frequency (usually quarterly, but monthly is optional). BAS key dates:

Quarter	Period	BAS Due
Q1 (Jul–Sep)	1 July – 30 September	28 October
Q2 (Oct–Dec)	1 October – 31 December	28 February
Q3 (Jan–Mar)	1 January – 31 March	28 April
Q4 (Apr–Jun)	1 April – 30 June	28 July

Your BAS reports:

• GST collected — on your sales/invoices for the quarter
• GST paid — on your business purchases for the quarter
• Net GST — the difference (pay or refund)
• Other obligations like PAYG withholding (if you have employees) and FBT

Business Deductions for ABN Tradies

As an ABN contractor, you can claim a much wider range of deductions than a PAYG employee. Here are the key categories:

Materials & Supplies

The cost of materials, supplies, and consumables used in your trade is fully deductible. This includes timber, pipes, wiring, fittings, adhesives, sealants, paint, screws, nails, and any other materials consumed in the course of your work. You can claim the cost of materials in the same financial year you purchased them, regardless of when the job is completed.

Subcontractors

Payments to subcontractors you hire to help complete a job are deductible business expenses. This includes:

• Hiring other tradies on a sub-contract basis
• Labour hire charges
• Payments to apprentices or casual helpers

Equipment Hire

Hiring equipment for specific jobs is a straightforward deduction. Common tradie equipment hire costs include:

• Scaffolding and access equipment
• Concrete pumps and mixers
• Excavators, bobcats, and earthmoving equipment
• Cherry pickers and EWP hire
• Generator and compressor hire
• Tile cutters and specialised machinery

Vehicle Expenses

ABN contractors have more flexibility with vehicle claims than PAYG employees. You can choose between the cents-per-km method (88¢/km, max 5,000 km) or the logbook method (actual expenses × business-use percentage). As a contractor, you can also claim:

• Vehicle insurance premiums (business use portion)
• Registration and CTP insurance (business use portion)
• Fuel, oil, servicing, tyres (business use portion)
• Depreciation on the vehicle (business use portion)
• Interest on vehicle loans (business use portion)
• Carrying signage on your vehicle (may increase business-use percentage)

Insurance

Business insurance premiums are fully deductible:

• Public liability insurance — $500–$2,000/year depending on trade and coverage
• Professional indemnity insurance — $300–$1,500/year
• Tool and equipment insurance — $200–$600/year
• Income protection insurance (personal policy, not super-held) — premiums are deductible
• Workers' compensation insurance (if you have employees) — mandatory in all states

Other Business Expenses

Beyond the main categories, ABN tradies can claim a wide range of other business expenses:

Expense	Deductible?	Notes
Accounting & bookkeeping fees	✅ Yes	Including BAS preparation and tax return fees
Phone & internet (business portion)	✅ Yes	Keep a 4-week diary to establish business %
Work-related training & courses	✅ Yes	Must maintain or improve current trade skills
Office supplies & admin	✅ Yes	Invoices, stationery, software subscriptions
Business bank account fees	✅ Yes	Monthly account keeping fees
Marketing & website	✅ Yes	Business cards, signage, website hosting
Trade publications & subscriptions	✅ Yes	Industry magazines, technical standards
Travel to meet clients or quote	✅ Yes	Site visits before winning a job
Clothing with your business logo	✅ Yes	Branded workwear is deductible

Superannuation Obligations

As an ABN contractor, your super obligations depend on your structure. The key things to know:

• Sole traders are not required to pay super to themselves (unlike employees), but making personal deductible contributions to your own super fund is highly recommended. You can contribute up to $30,000 per year (2025-26 concessional cap) and claim a tax deduction for it.
• If you hire employees (including family members), you must pay 11.5% super guarantee on their ordinary time earnings.
• Personal deductible contributions reduce your taxable income at your marginal rate, while the super fund pays only 15% tax on contributions. This can save thousands in tax.

PAYG Instalments

The ATO usually requires ABN contractors to pay PAYG instalments quarterly. This is essentially pre-paying your expected tax bill so you do not get a giant bill at tax time. Key points:

• The ATO calculates your instalment amount based on your previous year's tax return
• You can vary the amount if your income has changed significantly
• Instalments are due quarterly (same dates as BAS if you are GST-registered)
• If you are not GST-registered, PAYG instalments are still usually required
• Failing to pay instalments on time incurs interest and penalties

Record Keeping for Contractors

ABN contractors must keep more thorough records than PAYG employees. The ATO requires you to keep records for 5 years from the date you lodge your return. For contractors, this includes:

Record Type	What to Keep	Why It Matters
Invoices issued	Copies of all invoices to clients, including ABN, date, amount, GST	Proves your income; GST reconciliation
Receipts for expenses	Supplier receipts, online order confirmations, credit card statements	Deduction substantiation
Vehicle logbook	12-week logbook (valid 5 years) or ongoing records	Vehicle deduction substantiation
Bank statements	Business bank account statements	Income and expense verification
BAS lodgments	Copies of lodged BAS returns	GST records
Super records	Notice of intent to claim, fund statements	Super deduction substantiation
Asset purchases	Invoices for tools, equipment, vehicles	Depreciation / instant write-off
Contractor payments	Invoices from subbies, ABNs, amounts paid	TPAR reporting, expense substantiation

Common Mistakes Tradies Make with ABN

After years of working with tradies, here are the most common ABN mistakes the ATO sees — and you should avoid:

1. Not Charging GST When Required

If your turnover exceeds $75,000, you must register for GST within 21 days. Continuing to invoice without GST after exceeding the threshold is illegal. You will still owe the ATO the GST you should have charged, even though you cannot go back and add it to invoices.

2. Mixing Business and Personal Expenses

Using the same bank account for business and personal transactions makes your records messy and increases audit risk. Open a separate business bank account and a separate credit card for business purchases. Even as a sole trader, having a dedicated account makes tax time dramatically easier.

3. Forgetting to Claim Everything

Many ABN tradies miss deductible expenses because they simply forget. Common missed deductions include: accounting fees (fully deductible), bank fees on business accounts, insurance premiums, phone and internet (work portion), trade publications, safety equipment, and training courses. Go through your bank statements line-by-line at tax time.

4. Not Setting Aside Money for Tax

This is the biggest trap for new contractors. When you are a PAYG employee, tax is taken out before you see the money. As a contractor, the full amount hits your bank account — and it is tempting to spend it. A simple rule: put 25–30% of every payment into a separate high-interest savings account. Do not touch it except for BAS and tax bills.

5. DIY Accounting Without Understanding GST

GST is not complicated, but it has traps. Common GST mistakes include: claiming GST on a vehicle purchase without adjusting for personal use, lodging BAS late (penalties apply), not reconciling GST at year-end, and mixing quarterly GST reporting with annual tax returns. A good bookkeeper or accountant who understands tradies is worth every cent.

6. Incorrectly Classifying Employees as Contractors

Hiring someone and treating them as a contractor when they are legally an employee (the "sham contracting" issue) can result in large back-payment bills for super, payroll tax, workers' comp, and leave entitlements. If the worker is under your control, uses your equipment, and works only for you — they may be an employee. Check the ATO's Employee/Contractor Decision Tool if unsure.

7. Forgetting TPAR

If you pay subcontractors $600+ total per year, you must lodge a Taxable Payments Annual Report by 28 August each year. Many tradies forget this and receive penalty notices from the ATO. TPAR reporting is mandatory in the building and construction industry.

Should You Operate as a Sole Trader or Company?

Most tradies start as sole traders, which is simple and cheap to set up. But as your income grows, a company structure may offer benefits:

Factor	Sole Trader	Company (Pty Ltd)
Setup cost	Free (ABN only)	$500–$1,500 (ASIC + setup)
Annual compliance	Simple — individual tax return	Company return + individual return
Tax rate	Your marginal rate (up to 45%)	Company rate 25% (for small business)
Liability	Unlimited personal liability	Limited liability
Asset protection	Low — personal assets at risk	Higher — company assets are separated
Income splitting	Limited	Flexible via dividends
Super	You arrange your own	You arrange your own

Summary — ABN Contractor Checklist

Item	Requirement
ABN registered	✅ Required to operate as a contractor
GST registration	✅ Required if turnover > $75k (or voluntarily)
GST on invoices	✅ Must add 10% GST if registered
Quarterly BAS	✅ Required if GST-registered
PAYG instalments	✅ Usually required
Separate bank account	✅ Strongly recommended
Accounting software	✅ Strongly recommended
Super contributions	✅ Recommended (deductible)
TPAR (if paying subbies)	✅ Required by 28 August
Tax withheld (if hiring employees)	✅ Required by law
Record keeping (5 years)	✅ Required by law
Professional indemnity insurance	✅ Recommended
Workers' comp (if hiring)	✅ Required in all states