Hairdresser tax: employed or renting a chair on an ABN?

Why this is the first question

There is one thing to sort out before you tally up a single cost, and it quietly decides every other answer in this cluster. Are you a PAYG employee behind the chair, or are you renting that chair and running your own business on an ABN? That one fact changes what the word deductible means for you, which return you lodge come July, and whether GST is anywhere near your working life. So much of this industry rents a chair or a booth that plenty of stylists, barbers, colourists and beauty therapists are genuinely unsure which of the two they are. Nail it down and the tools, uniform and travel pages that follow read cleanly. Leave it fuzzy and you can spend the year following rules written for someone whose set-up is nothing like yours.

How to tell which you are

You do not need to comb through a contract to work this out. The way the money reaches you gives it away.

• Is tax taken out before the money lands in your account? If tax is withheld from each pay, an income statement shows up in myGov after the year closes, and the salon pays super in for you, you are an employee. Someone else is carrying the tax on your behalf, and you just see what is left.
• Do you pay the salon rent or a percentage and keep your own client takings, under your own ABN? If you hand the salon a set rent or a cut of what you make, bank the rest yourself, and sort your own tax afterwards, you are a chair-renter running a small business.

One thing trips a lot of people up. A commission-only arrangement can fall either way, and being handed an ABN does not settle it on its own. The ATO weighs the whole arrangement, not the label on it: who sets your hours and your prices, who supplies the tools and the products, and who carries the risk if a day is quiet. If the salon controls all of that, the substance is usually a job, whatever the paperwork says.

What the employed stylist claims

If tax comes out before you are paid, you are on the right page, because this whole cluster is written for you. Your job at tax time is claiming back the work costs you covered yourself and no one paid you for. For an employed stylist that is your own tools under the $300 rule, the gloves and apron that keep the colour off you, the laundering of a compulsory logo uniform, training that sharpens your current role, the work share of your phone, your association fee, and travel only where the work is genuinely mobile or runs across more than one salon. The catch worth naming is that your own grooming and the products you use on clients are largely private, so the pool you can claim is narrower than it first looks, and each of those pages works through where the line sits.

What changes if you rent a chair

If you pay to be there and keep your own takings, you are not filling in a wages return. You are running a small business, and the rules open up in both directions.

• All of it is business income. Every dollar a client pays you is declared as business income, whether it came by card, transfer or cash in the drawer.
• Your deductions run much wider. On top of the usual work costs, a business can claim the chair or booth rent, your own product stock and consumables, your equipment, booking and payment software, marketing to fill your book, and insurance.
• The instant asset write-off opens up. This is a business concession an employee cannot touch, so a $900 pair of shears can be written off in full the year you buy them rather than depreciated slowly over their life.
• GST arrives at $75,000. Once your turnover reaches $75,000 in a rolling twelve months you must register for GST, charge it on your services, and lodge a business activity statement, the BAS, through the year.
• You set aside your own tax and super. No one is withholding tax or paying super in for you, so putting money aside as you go is on you.

That is the shape of it, not the whole book. If this is you, the rules are broader and heavier than one chapter can properly cover, and a registered tax agent who works with chair-renters is worth the fee, most of all in the first year GST and BAS come into play.

If you are unsure, or a bit of both

Some stylists are labelled a chair-renter when the salon really runs their work like an employee, setting the hours, the prices and the roster and supplying everything. That is a genuine mix-up, and it matters, because your real status changes every other answer on these pages. If you cannot tell which you are, resolve that before anything else rather than pick a side and hope. Anyone truly unsure should get advice on their classification first, since claiming as the wrong one is a problem that grows quietly all year.

The records differ too

Whichever side you land on, the habit that saves you is noting each cost as it happens instead of piecing the year back together in July. What you keep is not the same, though. An employee keeps receipts for the tools and gear, a note of the work share on anything used for both work and life, and a logbook or kilometre record for any deductible travel. A chair-renter 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.

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

The bottom line

Work out which one you are first, because everything else follows from it. Check how you are paid: tax withheld and super going in means you are an employee, and this cluster claims your work costs against your wages. Paying rent for the chair and banking your own takings under an ABN means you are running a business, with broader deductions and, past $75,000, GST and a BAS to run. Do not let the label on your arrangement decide it, since the ATO weighs how the work actually runs. Settle that one question and every hour you put into your tax lands in the right place, instead of solving a problem that was never yours.