Contractor vs Employee Tax Australia

Contractors pay tax on business profits using an ABN, while employees pay tax through PAYG wages with tax withheld by their employer.

Secondary Answer Block

The difference is control and responsibility.

Employees:

• Paid wages or salary

• Tax taken out automatically

• Limited tax deductions

• Super paid by employer

Contractors:

• Invoice using an ABN

• No tax withheld

• Claim broad tax deductions Australia

• Manage their own tax, GST and super

If you’re doing an online tax return Australia, this distinction determines whether you complete a simple salary return or a full Business Schedule.

Employee vs Contractor – Key Differences

Why This Matters for Your Tax Return

This is where people get it wrong.

If you’re treated like a contractor but act like an employee (or vice versa), you can:

• miss tax deductions

• underreport income

• get compliance issues with the ATO

The structure drives everything in your tax return Australia.

Common Mistake

“I got paid without tax taken out, so I must be a contractor.”

Wrong.

You need to look at:

• who controls the work

• who supplies tools

• whether you can delegate

If it walks like an employee, the ATO may treat it like one.

Where Most Contractors Win

Contractors who do this properly:

• track income through the year

• keep clean records

• claim legitimate tax deductions

That’s where the maximum refund actually comes from — not guessing at tax time.

Quick FAQ

Can I be both an employee and contractor?
Yes. Many people have both income types in the same tax return.

Do contractors always pay more tax?
No. They just manage it differently and have more deduction opportunities.

Do I need an ABN to be a contractor?
In most cases, yes.

Start your contractor tax return here:
https://www.gotax.com.au/contractor-tax-return

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About This Article

Author: GoTax Editorial Team
Topic: Tax Returns / Contractor vs Employee
Audience: Contractors, freelancers, employees transitioning to ABN work
Purpose: Clarify tax treatment and improve return accuracy