Financial Planning for Tradies and Construction Workers in Australia

Many Australian tradies work under an ABN as subcontractors rather than as PAYG employees. The tax obligations, entitlements and risks differ significantly - and misclassification (genuine employee treated as contractor) is one of the ATO's highest priority enforcement areas.

• PAYG employee: Tax withheld by employer each pay, SG super contributions paid on your behalf (11.5% in 2024-25), entitled to sick leave, annual leave and workers compensation under relevant awards or enterprise agreements. Cannot claim business expenses directly - claim as work-related deductions on your personal return.
• ABN subcontractor: Responsible for your own tax - no PAYG withholding unless a PAYG variation is set up. Must pay own super (SG rules changed: from 1 July 2022, contractors paid wholly or principally for their labour are entitled to receive SG from the principal). Must register for GST if annual turnover exceeds $75,000. Can claim genuine business expenses (tools, vehicle, materials, home office). Must pay income tax via PAYG instalments once the ATO notifies you.
• Sham contracting - serious risk: A tradie who is genuinely an employee (works set hours, uses employer's tools, cannot subdelegate, works exclusively for one business) cannot be classified as a contractor simply because they hold an ABN. The ATO and Fair Work Commission both actively investigate sham contracting. Penalties for the business and the individual can be substantial.
• PSI - Personal Services Income rules: If you earn income primarily from your own labour and skills (as most tradies do), the PSI rules may apply. Under PSI, income attributed to your personal services is taxed in your hands regardless of whether it is channelled through a company or trust. The results test (multiple clients, own equipment, risk of loss) can exempt you - but must be carefully documented. If PSI applies, you cannot use a company or trust to split income with lower-income family members.
• PAYG instalments: Once your tax payable exceeds a threshold (approximately $1,000 net tax from business income), the ATO will notify you to pay PAYG instalments quarterly. This is NOT optional - failing to pay instalments results in penalties and interest. Set aside 25–30% of every payment received for tax and BAS obligations.

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Tradies have extensive legitimate deductions available - but each requires substantiation. Good record-keeping throughout the year eliminates stress at tax time and ensures you claim everything you are entitled to.

• Tools and equipment - instant asset write-off: The temporary full expensing (TFE) provisions that applied during COVID ended on 30 June 2023. From 1 July 2023, the instant asset write-off threshold reverted to $20,000 for businesses with turnover under $10 million (subject to annual Budget announcements - verify the current threshold before lodgement). Assets above the threshold are depreciated over their effective life (ATO Tax Ruling TR 2023/1). A $25,000 trade vehicle would be depreciated over its effective life rather than immediately written off.
• Logbook method for vehicles: If you use a vehicle for work (driving between job sites, to suppliers, to clients - NOT from home to your first job site), keep a 12-week logbook recording every work and personal trip. The logbook establishes a work-use percentage applied to all vehicle running costs (fuel, registration, insurance, servicing, depreciation). A logbook done once every 5 years is sufficient unless your usage pattern changes significantly.
• Cents-per-kilometre method: Alternatively, claim 88c/km (2024-25) for up to 5,000 work kilometres without a logbook. For tradies driving significant work distances, the logbook method typically produces a larger deduction.
• Tools under $300: Immediately deductible if predominantly used for work and cost under $300 per item. Keep receipts - even small tool purchases add up across a year.
• Home office: Tradies who quote jobs, manage schedules, or complete paperwork from home can claim 67c/hour (fixed rate method, full-year log required) or actual costs (occupancy + running). Only self-employed tradies running a home-based business can claim occupancy (rent/mortgage interest) - employees cannot.
• Protective clothing and PPE: High-vis vests, steel-capped boots, hard hats, safety glasses, gloves, and other protective equipment purchased personally are deductible. Sunscreen and sun protection for outdoor workers are deductible under ATO guidance for outdoor occupations.

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Self-employed tradies have no employer paying their super - it is entirely their responsibility. This creates both a risk (no automatic contributions) and an opportunity (full control over timing and amounts, with significant tax advantages).

• Personal deductible contributions: Self-employed tradies can contribute to super and claim a tax deduction for the full amount (up to the $30,000 concessional cap for 2024-25, including any employer SG received). A Notice of Intent to Claim a Deduction must be lodged with the super fund BEFORE lodging the tax return - missing this step means the contribution is non-concessional and the deduction is lost.
• Carry-forward concessional contributions: If your total super balance is below $500,000 at 30 June of the prior year, you can carry forward unused concessional cap space from up to 5 previous years. A tradie who contributed nothing for 3 years could have up to $90,000+ of unused cap available - allowing a very large tax deduction in a high-income year.
• Time contributions to match cash flow: Unlike PAYG employees, self-employed tradies can choose when to make contributions during the year - timing a large contribution to arrive before 30 June reduces the current year's taxable income and the associated tax bill.
• Superannuation fund choice: Compare funds using the ATO YourSuper comparison tool. Key metrics: total fees (admin + investment), insurance premiums, and MySuper investment performance over 5–7 years. CBUS (Construction and Building Unions Superannuation) is the industry fund aligned to the construction sector - competitive fees, relevant default insurance.
• EOFY tax planning: The week before 30 June is the tradie's most important financial window. Strategies: (a) make super contributions before 30 June; (b) prepay income protection insurance premiums (deductible in the year paid, up to 12 months in advance); (c) purchase and install depreciable equipment before 30 June; (d) defer invoicing for completed work to push income into the next financial year if your income will be lower then; (e) bring forward deductible expenses.

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Construction and building industry workers have access to portable long service leave schemes - a significant entitlement that many tradies are unaware of. Combined with adequate insurance, these form the financial safety net for the sector.

• Portable long service leave: Most Australian states operate portable long service leave schemes for the construction industry - meaning long service leave entitlements accumulate across multiple employers and can be claimed from the scheme regardless of which employer you worked for. Key schemes: CoINVEST (Victoria), QLeave (Queensland), NT Build (Northern Territory), ACT Long Service Leave Authority, Long Service Corporation (NSW). Workers must be registered with the relevant scheme - if you have worked in construction for 7–10 years across multiple employers, check whether you have unclaimed entitlements.
• Income protection - essential for self-employed: Self-employed tradies have no sick leave, no workers comp from an employer, and no income if they cannot work. Own-occupation IP (paying if you cannot work as a tradie specifically) is critical. APRA banned agreed value IP from 31 March 2020 - all new policies are indemnity value (up to 70% of prior 12 months income). For tradies with variable income, document income carefully so the indemnity calculation is maximised. Hold IP outside super - it must be in personal name for own-occupation cover. Premiums are tax-deductible.
• Workers compensation for subcontractors: Subcontractors working on construction sites may be covered by the principal contractor's workers compensation policy - or may not be. Check your contracts and site inductions carefully. Some states (notably Victoria) have 'deemed worker' provisions that extend workers comp coverage to sole trader subcontractors on construction sites. Do not assume you are covered.
• Business insurance for self-employed tradies: Public liability insurance (minimum $5–10 million - many contracts require this), tool and equipment insurance (replacement cost of tools is significant), and professional indemnity (for tradies who provide design or advisory services). Public liability premiums ($600–$2,000/year for most trades) are fully deductible business expenses.
• Income averaging for tax: Tradies with highly variable income across years may benefit from income averaging provisions - but these are limited. The more effective strategy is managing income through super contributions and timing of invoicing/expenses, rather than relying on ATO averaging provisions.

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