How much tax does a contractor pay in Australia?

Contractors and sole traders pay tax at the same individual income tax rates as employees. On $120,000 gross revenue (ex-GST minus expenses), you would pay approximately $26,632 in income tax plus $2,000 Medicare levy. The key difference is that contractors must manage their own tax payments via PAYG instalments rather than having tax withheld by an employer.

Do I need to register for GST as a contractor?

You must register for GST once your annual GST turnover reaches $75,000. Below this threshold, registration is voluntary. If registered, you charge 10% GST on your invoices (1/11th of the total) and remit it to the ATO via your Business Activity Statement (BAS). You can also claim GST credits on business purchases.

What is the difference between a contractor and an employee for tax purposes?

Employees have tax withheld by their employer and receive super, paid leave, and workers compensation. Contractors must pay their own tax (via PAYG instalments), arrange their own super contributions, and do not receive paid leave. A contractor typically needs to earn 30-50% more than an equivalent employee salary to account for these missing benefits.

Can contractors claim super as a tax deduction?

Yes. Sole traders and contractors can make personal concessional (before-tax) super contributions and claim them as a tax deduction. The concessional contribution cap is $30,000 per year for 2025-26. You must lodge a Notice of Intent to Claim with your super fund before lodging your tax return or rolling the money over.

What business expenses can a contractor deduct?

Contractors can deduct expenses directly related to earning their income, including: home office costs, equipment and tools, vehicle and travel expenses, professional development, insurance (income protection, public liability), accounting fees, software subscriptions, phone and internet, and marketing costs. The expense must be for business purposes and you must keep records.

Do contractors pay the Medicare levy?

Yes. Contractors pay the 2% Medicare levy on their taxable income, the same as employees. The levy is exempt if taxable income is below $26,000, and a reduced shade-in rate applies between $26,000 and $32,500. The Medicare Levy Surcharge (1-1.5%) may also apply if you earn over $93,000 and don't have private hospital cover.

Contractor Tax Calculator Australia 2025-26

Calculate your tax, GST obligations, and take-home pay as a sole trader, freelancer, or ABN holder. See how much to set aside for tax and GST, and compare your rate to an equivalent employee salary.

Last verified: 1 July 2025

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General information and estimates only — not legal, financial, or tax advice. Always verify with the Fair Work Ombudsman (13 13 94) or a qualified professional.

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