Independent contractors provide services like consultancy, maintenance, or cleaning under their own payment terms and work arrangements. Contractors’ tax obligations differ quite significantly from those of employees, and their responsibilities extend into documentation and filing additional financial documents to the Australian Taxation Office.
As an independent contractor, you must ensure you hit ATO deadlines and pay the correct amounts. Read on to learn four tips our chartered accountants use.
Get an ABN and Understand Your Obligations
Most commonly, independent contractors will register as a sole trader with an Australian business number (ABN). This will prevent hirers from withholding tax from the total payment, but will shift the obligation to you to manage your tax obligations yourself.Over time, as profits are realised and lodged, you may be moved into the PAYG instalment system, whereby tax instalments will be required on a quarterly basis. These will likely align with GST and BAS reporting requirements. Note that you must register for GST if you turnover, or think you will turnover, more than $75,000 per annum.
As a sole trader, we would recommend that you determine and list your tax commitments and insert respective deadlines into your calendar. Schedule regular bank reconciliations and explore accounting or bookkeeping solutions to enable you to balance figures and complete business activity statements (BAS).
List Deductible Expenses
Just as important as turnover are deductible expenses, which prevent you from overpaying taxes. ATO allows quite a large range of business and professional deductibles, such as:
- Depreciating assets like computers, vehicles, furniture, and machines (such as payment terminals or printers)
- Legal costs
- Marketing expenses
In addition to understanding which expenses are deductible, it is also important to know which expenses most impact cash flow. These include tax obligations, loan repayments and other costs associated with running your contracting enterprise.
Prepare Retirement Funds
As an independent contractor, you’re responsible for retirement planning and saving sufficient funds. Unlike an employee, you don’t have a superannuation guarantee. Hirers are not employers so do not contribute to your super fund.
Fortunately, the government offers several initiatives to encourage the likes of sole traders to contribute towards superannuation or retirement funds. We strongly suggest you speak to your accountant or financial advisor around rules and implications.
Get Advice From Professional Accountants
Whether it is business structure, keeping track of expenses, or planning for retirement, we strongly suggest that independent contractors seek professional advice.
Our forward-thinking accounting and business advisory services strive to keep you on top of your tax obligations, maximise your deductions and ensure you are well set up for retirement and the future. Contact our team of chartered accountants to see how we support your individual needs.