What are my taxation obligations?
Your taxation obligations
As an independent contractor, you may have to pay tax at a different rate to employees. You may also have to arrange to pay your own tax.
Tax File Number (TFN)
A TFN is a unique number issued by the Tax Office to individuals and organisations that is used to administer tax. If you are operating as a sole trader you must use your individual TFN. If you are part of a partnership or a registered company you will need to apply for a separate TFN.
Australian Business Number (ABN)
An ABN is a unique 11 digit identifying number that independent contractors use when dealing with other businesses. Obtaining an ABN is advisable before undertaking work as an independent contractor, otherwise businesses may legally withhold 46.5% of payments from you.
Goods and Services Tax (GST)
GST is a consumption tax charged at the rate of 10% on the value of the taxable supply of most goods, services and other items sold or consumed in Australia. As an independent contractor you may need to register for GST.
Personal Services Income (PSI)
PSI is income that is mainly a reward for personal efforts or skills, and can affect your tax obligations as an independent contractor.
Pay-roll tax
Pay-roll tax is a state tax on the wages paid by employers. Many state and territory payroll tax laws define wages to include payments to independent contractors. Hirers of independent contractors should check with your state and territory revenue office to determine whether payments to your contractors are considered wages subject to pay.
What to do...
- Visit the Contracting essentials page on the Tax Office website.
- Obtain the Tax basics for small business booklet from the Tax Office website.
- Check with your state or territory Revenue Office for information on pay-roll tax and independent contractors.
- See our Taxation topic.
- Call the Tax Office on 13 28 66.
