How to Set up as a Sole Trader (Independent Contractor) in Australia
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In Australia, a self-employed person who provides services to clients is considered an independent contractor. If you are planning on becoming an independent contractor in Australia, there are a few steps you have to follow to ensure you are working in compliance with Australian laws and regulations. This article is to guide you through the process of becoming self-employed in Australia.
Disclaimer: This article doesn't substitute legal advice. Information in this article was collected from Australian government websites and other online resources. Always check the official websites or seek legal help before taking action.
An independent contractor may work as an individual (sole trader) or open their own company. In Australia, independent contractors generally use the sole trader business structure. In both cases, you have to register in order to get the mandatory Australian Business Number (ABN).
This article focuses on independent contractors (sole traders), not people with registered companies. Sole traders are the only owners of their businesses and are legally responsible for every aspect of the business, including bearing the risk of making a profit or a loss.
Individual Tax File Number (TFN)
You need an Individual Tax File Number (TFN) to pay your taxes in Australia. Your TFN will be attributed to you by the Australian Tax Office. To get it, you have to register online. As a sole trader, you only need an Individual TFN, not a Business TFN.
Australian Business Number (ABN) and business name registration
Australian Business Number (ABN) identifies your business to the government and helps with tax and other business-related activities. You can apply online at the Australian Business Register (ABR), which is a branch of the Australian Taxation Office, and you will receive your ABN immediately. This number must be visible on all documents related to your work, such as invoices, receipts, etc.
Keep in mind that not everyone is entitled to an ABN. You are entitled to an ABN if you are carrying on or starting an enterprise in Australia, making supplied connected with Australia's indirect tax zone, or if you are a Corporations Act company. You're not entitled to an ABN for work that you carry out as an employee – including as an apprentice, trade assistant or laborer – even if you or your employer calls it contracting.
As a sole trader, you are carrying on or starting an enterprise in Australia, and therefore are entitled to an ABN.
To get an ABN, you must fall into one of the categories:
- run a business as a sole trader, partnership or company
- be in an association, a cooperative or a trust.
You also can easily register your business name at the same time, given if you aren't trading under your personal name. You are required to have the ABN to be able to register a business name. You can check if a business name is available on this website.
Goods and Services Tax (GST)
Good and Services Tax (GST) is a 10% sale tax applied to most goods and services. You need to register for GST if:
- your GST turnover exceeds $75,000 (see below to calculate it)
- you want to claim fuel tax credits
- you provide taxi or limousine travel (for example, Uber is also considered as taxi travel). The turnover here is irrelevant.
Your GST turnover is the total of your turnover for the current month and the previous 11 months, excluding:
- amounts you receive for the sale of a business asset (such as the sale of a capital asset)
- any sale you make, or are likely to make, solely as a consequence of ceasing to carry on a company
Goods and Services Tax registration
If your business is registered for GST, the 10% tax needs to be collected from your customers.
You can register online to pay for GST. If you don't fall under the above-mentioned categories, you can skip this step, as the registration for GST is optional in your case.
Pay As You Go (PAYG) installments
If you want to spread your tax installments throughout the year, you may opt for the Pay As You Go tax installments. In order to do so, you can register online on the Australian Business Register website.
Licenses and registrations
You may need local, state and federal licenses, registrations and permits to run your business as an independent contractor in Australia. Use the Australian Business License and Information Service (ABLIS) to know which requirements are relevant to your case.
Independent contractors need their own insurance coverage. You can choose insurance coverage here.