Construction tax: employee or subcontractor on an ABN?

Every other chapter in this cluster takes one thing for granted: how you are paid. Employee or subcontractor is the first question on any site, and it is the one that changes everything that follows, what deductible means, what you lodge in July, whether GST is even yours to think about. Settle it before you read another word, and the rest of the guide lands where it should.

Why this is the first question on site

Every other page in this guide assumes one thing about you, and it is worth checking before you read another word. Are you a PAYG employee, or are you a subcontractor working under your own ABN? Construction runs on both, sometimes in the same crew on the same slab, and the answer decides what the word deductible means for you, what you lodge in July, and whether GST is something you have to think about at all. The industry carries one of the largest subcontractor workforces in the country, and plenty of workers move between the two through a single year, a wage job for one builder and their own invoiced work for another. Get this settled and the tools, travel and PPE rules in the rest of the guide land where they should. Leave it unsettled and you can spend the year following rules meant for the other side.

How to tell which one you are

You do not need to read a contract to work this out. Look at how the money actually reaches you and who calls the shots on the job.

• Is tax taken out before you are paid? If tax is withheld from each pay and an income statement turns up in myGov after the year ends, you are an employee. Someone is paying super in for you, and the builder or labour hire firm is carrying the tax on your behalf.
• Do you hold an ABN, send invoices and quote your own price for a result? If you bill for the work under your own ABN and collect the full amount with nothing held back, you are a subcontractor sorting your own tax.
• Whose gear, whose call, and can you hand it off? Supplying your own tools, controlling how and when the work gets done, and being free to send someone else to do it all point to a subcontractor. Being told when to start, using the site's plant and taking direction point to an employee.

One caution. The ATO weighs the whole arrangement, not the ABN in your wallet or the fact everyone on site calls you a subbie. An ABN by itself does not make you a contractor if the substance of the job is employment.

What the employed worker claims

If tax comes out before you see your pay, you are on the right page, because this whole guide is built for you. Your work at tax time is claiming back the job costs you covered yourself and no one paid back. For a construction employee that is the self-funded tools, immediate on anything $300 or under and depreciated above it, the hi-vis, steel-capped boots and hard hat, the sunscreen and sunglasses for the hours in the open, the driving between sites in a single day, the renewal of a licence you already hold, your union fee, the work share of your phone, and self-education that keeps your current trade current. All of it sits against your wages on the individual return, and the rest of this cluster works through each one in detail.

What changes if you are a subcontractor

If you invoice under your own ABN, you are not lodging a wages return. You are running a business, and the ground shifts in both directions.

• Every dollar of income is declared. All of it, however it arrives, goes on the return as business income.
• Your deductions run wider. A business can claim costs an employee never reaches, from public liability insurance to accounting fees to advertising for work, on top of the usual trade costs.
• GST starts at $75,000. Once your turnover hits $75,000 in a rolling twelve months you must register for GST, charge it on your invoices, and lodge a business activity statement, the BAS, through the year.
• The ATO already sees your income. Builders and head contractors report the payments they make to subcontractors through the taxable payments annual report, which is how the ATO already has most subbie earnings on file before you lodge.
• You may pay through the year, and PSI can apply. Depending on your income you can be placed on PAYG instalments rather than one bill at the end, and where the work is mostly your own labour the personal services income rules can shape how it is taxed.
• The instant asset write-off is open to you. A business can immediately deduct an eligible asset up to the cap the ATO sets, a concession an employee cannot touch. It is the one every generic trades tax article pushes, and it only applies once you are on an ABN.

That is the outline, not the manual. Running an ABN is a genuine set of obligations, wider than any single chapter can cover properly, and if this is you a registered tax agent who knows construction will pay for themselves, especially in the first year GST comes into it.

A word on sham contracting

Some workers are handed an ABN and treated as subbies, no super, no tax withheld, when the real substance of the job is employment. It happens across the industry, and it is not on you to police it. If your situation looks like a wage job dressed up as a contract, get advice, because even a labour-only worker usually has to be paid super by the business that hires them. That is worth knowing, and it is as far as this guide follows it, since the pages here are for the employee.

If you are both in the one year

A wage job on one build and your own invoiced work on another is a common shape in construction, and the fix is to keep the two apart. On the employee side sit your wages and the work deductions this guide covers. On the business side sit the money you invoiced and the business deductions that belong to it. Two clean sets of records, so neither one blurs the other when you lodge.

The records differ too

Wherever you land, the habit that saves you is logging the cost as it happens instead of reconstructing the year in July. What you keep is not identical, though. An employee keeps receipts for the tools and gear, a note of the work share on anything used for both work and home, and a logbook or kilometre record for the between-site driving. A subcontractor keeps full business records, income and expenses both, and the BAS lodgements once GST is in play. The ATO's free myDeductions app holds the basics on either side. A subcontractor's GST and BAS world sits wider than that, and a tax agent is the right hand there.

The bottom line

Work out which one you are first, because everything else follows from it. Look at how you are paid: tax withheld and super going in means you are an employee, and this guide claims your work costs against your wages. An invoice under your own ABN means you are running a business, with broader deductions and, past $75,000, GST and a BAS to run. Answer that one question and every hour you spend on your tax lands in the right place, rather than solving a problem that was never yours to solve.

General information only, not tax advice. Check the ATO or a registered tax agent for your situation.