Subcontracting as a Tradie — Tax, Super and What to Watch Out For

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.

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 →