When you work as a contractor on an ABN, there is no employer-employee relationship. You invoice the business for your services, lodge your own tax return, and handle your own super. As a PAYG employee, your employer withholds tax, pays super guarantee on top of your salary, and provides entitlements like paid leave and workers compensation cover.
This distinction matters because many of the costs an employer absorbs for an employee become your responsibility as a contractor. The headline rate on a contract might look higher, but once you account for GST, super, insurance, and lost entitlements the gap often narrows — and sometimes reverses.
If your annual GST turnover reaches $75,000, you must register for GST. Once registered, you charge 10% GST on your invoices and remit it to the ATO through quarterly or monthly Business Activity Statements (BAS). A common mistake is treating GST-inclusive revenue as income — only 10/11ths of a GST-inclusive payment is actually yours. On a $110 invoice, $10 is GST that you owe to the ATO.
You can claim GST credits on business purchases (equipment, software, insurance, home office costs), which reduces the net amount you remit. If your turnover is below $75,000 you can still voluntarily register, which lets you claim credits but adds BAS compliance.
Employees receive super guarantee (SG) from their employer at 12% of ordinary time earnings in 2025-26. As a contractor, nobody pays this for you. If you want the same retirement outcome, you need to make voluntary concessional contributions yourself.
The upside is that personal concessional contributions are tax-deductible up to the $30,000 annual cap (which includes any employer SG if you also have PAYG work). Contributions are taxed at 15% inside super rather than your marginal rate, so for anyone in the 32.5% or higher bracket the tax saving is meaningful. The downside is that this money is locked away until preservation age.
Contractors can deduct expenses that are directly related to earning their income. Common deductions include:
These deductions reduce your taxable income, which is why a contractor on the same gross revenue as an employee can end up with a lower tax bill. However, the deductions only help if you actually incur the expenses — they are not free money.
The biggest hidden cost of contracting is the loss of paid entitlements. A full-time employee typically receives:
When you take a day off as a contractor, you earn nothing. If you are injured and cannot work, there is no safety net unless you hold your own income protection insurance. These costs are real and should be factored into any rate comparison.
Contracting tends to come out ahead when your day rate is meaningfully higher than the employee-equivalent salary — a common rule of thumb is at least 30-50% more to offset lost entitlements and self-funded super. It also works well when you have significant deductible expenses (home office, equipment, travel) that an employee cannot claim.
Flexibility is the other major draw. Contractors can choose clients, set hours, and structure work around personal priorities. For many people, this non-financial benefit is the real reason to go ABN — even if the raw dollar comparison is roughly equal.
Not necessarily. Contractors and employees pay the same individual income tax rates. However, contractors can claim business deductions that reduce taxable income, which often lowers the effective tax rate. On the other hand, contractors must self-fund super and have no paid leave, so the total cost picture is more complex than headline tax alone.
Yes. You need an Australian Business Number to invoice clients and avoid having 47% withheld from your payments under the no-ABN withholding rules. Registering an ABN is free through the Australian Business Register.
You must register for GST once your GST turnover reaches $75,000 in a 12-month period (or $150,000 for non-profit organisations). You can voluntarily register below this threshold if you want to claim GST credits on business purchases.
A common benchmark is 12% of your pre-tax income, matching the current super guarantee rate employers pay. This amount is tax-deductible as a concessional contribution (up to the $30,000 annual cap). Some contractors set aside more to compensate for the lack of employer contributions over their career.
