✅ Updated 2026

Working as a subcontractor gives you the flexibility of self-employment while working for other builders and tradies. But it comes with specific tax and legal obligations that catch many tradies off guard. Here's what you need to know.

📋 In This Article

  1. →Employee vs subcontractor
  2. →ABN and invoicing
  3. →Tax obligations
  4. →Superannuation for subcontractors
  5. →Sham contracting — avoid this
  6. →Insurance you need
  7. →FAQs

Employee vs Subcontractor — The ATO's Test

The ATO doesn't just accept whatever label you and the contractor agree on. They apply their own multi-factor test to determine whether you're genuinely a contractor or really an employee. Getting this wrong has serious consequences.

You're more likely to be a genuine subcontractor if you:

  • Can work for multiple clients
  • Provide your own tools and equipment
  • Can subcontract the work to others
  • Are paid per task or project, not per hour
  • Bear financial risk if the work isn't done correctly

ABN and Invoicing

As a subcontractor you must have an ABN and invoice the contractor correctly. Your invoice should include: your ABN, your business name, the date, a description of work done, the amount charged and the GST component (if you're GST-registered).

If you don't provide an ABN, the contractor is legally required to withhold 47% of your payment and send it to the ATO. This is the No-ABN withholding rule — it's designed to prevent cash payments that avoid tax. Get your ABN before you start subcontracting.

Tax Obligations

As a subcontractor you're self-employed, which means:

  • Nobody withholds tax for you — you're responsible for setting money aside
  • Set aside 25–30% of every payment for income tax
  • You'll eventually be put on PAYG instalments (quarterly tax payments) once your income reaches a threshold
  • You claim all your work-related deductions the same as any sole trader

Superannuation for Subcontractors

Here's what catches many tradie subcontractors off guard: if you're paid mainly for your labour (rather than for a result), the contractor hiring you may be required to pay your superannuation — even if you have an ABN and invoice them.

The ATO's test: if 50% or more of your contract value is for your labour, you're likely entitled to super contributions from the contractor. This applies even if your contract calls you a subcontractor. If the contractor isn't paying your super, check with the ATO or your accountant.

Even if you're not entitled to employer super contributions, you should be contributing yourself. Super contributions are tax deductible for self-employed tradies — one of the best tax strategies available.

Sham Contracting — Avoid This Situation

Sham contracting is when an employer labels a worker as a contractor to avoid paying entitlements (annual leave, sick pay, super) when they're really an employee. It's illegal under Australian law and the ATO and Fair Work Commission both pursue it actively.

If you suspect you're being misclassified as a contractor when you're really an employee — you use the employer's tools, work set hours, only work for them, and they control how you work — seek advice from Fair Work Australia or a workplace relations lawyer.

Insurance You Need as a Subcontractor

Most head contractors require you to carry your own public liability insurance before you set foot on site. Your policy needs to be in your own name — the contractor's policy doesn't cover you as a subcontractor. Get covered in 10 minutes with BizCover →

Does a subcontractor need a different ABN to a regular sole trader?

No — it's the same ABN. Your ABN identifies your business regardless of whether you're working directly with homeowners or subcontracting to a builder. Just make sure your ABN is active and in your correct name or business name.

Can a subcontractor claim the same tax deductions as other tradies?

Yes — all the same deductions apply. Tools, vehicle (logbook method), PPE, licences, training, phone and home office. The fact that you're working for other contractors rather than directly with end clients makes no difference to your deductions.

What's the Taxable Payments Annual Report (TPAR)?

If you're a contractor in the building and construction industry, the business that pays you may be required to report your payments to the ATO via a TPAR. This is how the ATO checks that subcontractors are declaring their income. Make sure all income on your tax return matches what your clients have reported.

→ Related: Best Business Bank Accounts for Australian Tradies 2026 — compare fees, features and zero-fee options.

→ Related: Best Business Bank Accounts for Australian Tradies 2026 — compare fees, features and zero-fee options.

Employee vs Subcontractor — The ATO Tests

FactorEmployeeSubcontractor
ABNNot requiredRequired — must provide to principal contractor
SuperPaid by employer (12%)Your own responsibility
Tax withheldEmployer withholds PAYGYou manage your own tax
ToolsUsually employer providesProvide your own
Work hoursSet by employerGenerally set your own
Can work for othersUsually noYes — not exclusive
InvoiceNo — receives payslipYes — must issue invoice with ABN

Sham contracting is illegal. If you are being treated like an employee (fixed hours, employer tools, no ABN required, told how to do the work) but paid as a contractor, your principal may be breaching the law. The ATO can reclassify the arrangement — leaving the principal liable for back super and PAYG. Know your rights.

Tax and Super Obligations as a Subcontractor

As a subcontractor you are self-employed. This means:

  • No tax is withheld from your payments — you manage your own income tax through PAYG instalments
  • No employer super — you must fund your own retirement. Consider contributing to super voluntarily to claim the tax deduction
  • You must have an ABN — without one the principal must withhold 47% from every payment
  • GST registration required once turnover exceeds $75,000
  • Taxable Payments Annual Report (TPAR) — the principal contractor must report payments to subcontractors to the ATO each year. The ATO uses this to cross-check your income — declare everything.

Insurance Subcontractors Must Have

Most principal contractors require subcontractors to have their own public liability insurance before stepping on site. Having your own policy also protects you personally if something goes wrong that is your fault.

→ Get subcontractor public liability insurance via BizCover →

Do subcontractors get paid super?

Generally no — as a genuine subcontractor you are self-employed and responsible for your own super. However, in some circumstances the ATO considers certain contractors employees for super purposes (e.g. if you work exclusively for one person in their business). Check the ATO website or speak with your accountant if unsure.

What happens if I work without an ABN?

The principal contractor is required to withhold 47% from your payments and send it to the ATO. You then claim this back through your tax return — but it ties up cash flow unnecessarily. Always have and quote your ABN.

Can I claim the same deductions as other self-employed tradies?

Yes — as a self-employed subcontractor you have access to the same deductions as any other self-employed tradie: vehicle costs, tools, insurance, licences, super contributions and more.

## ABN, Invoicing and Cash Flow — Getting the Basics Right Once you've got your ABN sorted, the real work begins. Many tradies underestimate how much admin sits behind a successful subcontracting operation. The difference between staying on top of things and drowning in paperwork often comes down to systems you set up in the first week. **Getting your ABN is non-negotiable.** You need one to legally operate as a subcontractor and claim GST. The process takes about 10 minutes online through the ATO website, and it's free. Without it, you can't invoice properly, and clients won't pay you — especially larger building companies that require ABN details before cutting a cheque. **Invoice discipline separates pros from amateurs.** Every job, every invoice, every payment needs to be recorded. This isn't just about keeping the ATO happy — it's about knowing whether you're actually making money. Too many tradies finish a job thinking they've earned $5,000, then realise they've spent $3,500 on materials and labour costs once they sit down with a calculator. Your invoices should include: - Your name and ABN - Invoice number and date - Clear description of work completed - Amount (GST-inclusive if you're registered) - Payment terms and your bank details - A due date (typically 7-14 days for subcontractors) Cash flow is the heartbeat of subcontracting. Unlike permanent employees, you don't get paid fortnightly — you get paid when clients pay you, which can be 30-90 days after invoicing. This gap kills businesses. If you're waiting 60 days to get paid for a job but need to pay your own suppliers upfront, you'll burn through savings quickly. Build a buffer. Aim for at least 4-6 weeks of operating expenses in a dedicated business account before you take on big jobs. This sounds obvious, but most tradies learn this lesson the hard way. **Tools make invoicing manageable.** Software like Tradify handles invoicing, job costing, and payment tracking in one place. You can invoice clients straight from the app, track which payments are overdue, and see profitability per job in real time. Alternatively, Xero is a solid accounting platform that integrates with your bank and tracks everything for tax time. ## Insurance and Liability — Don't Skip This Subcontractors often assume the main contractor's insurance covers them. It doesn't. If something goes wrong on site — you damage property, someone gets injured, or a defect shows up months later — you need your own cover. **Public liability insurance** is essential. It covers you if you accidentally damage someone's property or injure someone while doing your work. Most building companies won't even let you on site without a current policy. Costs typically range from $600–$1,500 per year depending on your trade and turnover. **Tools and equipment insurance** protects your gear if it's stolen, damaged, or lost on site. This is separate from public liability and often overlooked by tradies who've just bought expensive power tools or equipment. **Professional indemnity insurance** is sometimes required, especially if you're working on structural or design-related tasks. Check your contract — some clients mandate it. **Income protection insurance** is less common but worth considering. If you get injured and can't work, who pays your bills? As a subcontractor, there's no sick pay. Income protection covers a percentage of your lost earnings while you recover. Getting quotes from providers like BizCover takes 10 minutes and gives you peace of mind. Compare policies on coverage limits, excesses, and what's actually included — not all public liability policies are created equal. ### Insurance Comparison for Tradies | **Insurance Type** | **Why You Need It** | **Average Annual Cost** | **Typical Coverage Limit** | |---|---|---|---| | Public Liability | Covers damage/injury to clients/property | $600–$1,500 | $5M–$20M | | Tools & Equipment | Protects your gear on and off site | $300–$800 | Depends on sum insured | | Income Protection | Replaces income if you're injured/ill | $800–$2,000 | Up to 75% of income | | Professional Indemnity | For design/advice-related work | $400–$1,200 | $250K–$5M |

💡 PRO TIP:

Many building companies have preferred insurance providers or requirements in their contracts. Ask before you commit to a policy — you might be able to save money by bundling or finding a provider that meets their specific requirements.

## FAQ

Do I need to register for GST as a subcontractor?

You must register for GST if your annual turnover reaches $75,000. Even below that threshold, registration can be beneficial because you can claim input tax credits on business expenses — essentially getting back the GST you pay on supplies and equipment. Most subcontractors register early to keep things simple and appear more professional to clients.

What happens if a client doesn't pay me?

As a subcontractor, you have limited options. First, follow your contract's payment terms — most specify payment within 14-30 days. If payment is overdue, send a payment reminder, then a formal demand letter. You can escalate to a debt recovery service or small business commissioner, but legal costs often outweigh what you're owed. Prevention is easier: require deposits for larger jobs, invoice immediately upon completion, and consider personal guarantees or security deposits for new clients. Some tradies use debt factoring services, which buy your invoices upfront at a small discount.

Can I claim home office expenses as a subcontractor?

Yes. You can claim a portion of home office expenses if you use dedicated space for admin work — invoicing, quoting, scheduling, etc. The ATO allows either the simplified method ($1.75/hour of work from home, up to $45/week) or detailed method (calculate actual costs like rent, utilities, internet, and claim a percentage based on office square footage). Keep records of hours worked from home. Most tradies use the simplified method for simplicity.

--- **Getting the subcontracting setup right from day one saves headaches later.** Focus on clean invoicing systems, cash flow management, and proper insurance. The admin might feel tedious compared to actually doing the work, but it's what keeps subcontractors profitable and protected. Set up your systems now — use accounting software, track expenses religiously, and review your finances monthly. In 12 months, you'll have crystal clarity on what's working and where you're losing money.