Contractors Beware: Don't Get Caught Out on Tax and GST

By Tina Zawila

If you're working as an individual contractor, it's vital that you understand your taxation obligations—and the risks of ignoring them.  

Many employees may think that switching from an employee to a contractor is the ticket to more money with higher rates on offer.  However, what they fail to consider is their taxation obligations (both income tax and GST) and that they are usually forgoing leave entitlements and sometimes compulsory superannuation contributions.  Failing to understand the contract arrangement can cost you in the long-run, and failure to meet your taxation obligations can lead to significant ATO fines and penalties.

Know the Difference: Contractor vs Employee

Just because you invoice for your work doesn’t mean you’re a contractor in the eyes of the law. The distinction between being a contractor and an employee is critical—not just for income tax, but for superannuation, insurance, and workers’ compensation.

Registering for GST

If your annual turnover exceeds (or is expected to exceed) $75,000, you must register for GST, lodge regular Business Activity Statements (BAS) and pay any amounts owing. This applies even if you only work for one business. Charging GST without being registered is illegal—and not charging it when required can also land you in hot water.

Other Essentials: Insurance and WorkCover

As a sole contractor, you're running your own business. That means you’re responsible for your own public liability insurance and, depending on your state, possibly your own WorkCover policy.

The Danger of Avoidance

Putting your head in the sand—by not lodging tax returns, not submitting BASs, or failing to register for GST—won’t make your obligations disappear. In fact, it often leads to audits, backdated liabilities, interest, and penalties. The longer you wait, the worse it gets.

Tax laws can be complex and getting it wrong can be costly. If you're unsure about your obligations or need help catching up, speak with a qualified tax adviser. It's much easier—and cheaper—to get it right from the start than to fix it later.

The professional team at UHY Haines Norton CQ is here to help.   Call us today on 07 4972 1300.