NDIS Providers: Are You Getting GST Right on Your Contractors?
Many NDIS services are GST-free, but did you know that the contractors providing those services may still need to charge GST?
This is an area that can easily be overlooked by NDIS businesses and independent support workers, particularly when contractors are paid an agreed rate.
The confusion often comes from the assumption that because the service being provided to the NDIS participant is GST-free, the contractor's services must also be GST-free.
Unfortunately, it is not always that simple.
NDIS Services Are GST-Free, Aren't They?
Many services provided directly to NDIS participants are GST-free, provided they meet the Australian Taxation Office (ATO) requirements.
These include conditions relating to the participant's NDIS plan, the type of support being provided and the written service agreement.
However, there is an important difference between providing services to an NDIS participant and providing services as a contractor to another NDIS business.
The GST treatment can be different, even when the same support worker is providing the same service.
What Happens When an NDIS Provider Uses Contractors?
Consider this common situation:
An NDIS business has agreements with participants to provide disability support services.
Rather than employing all its support workers, the business engages independent contractors with their own ABNs to deliver some of those services.
There are now two separate transactions:
NDIS provider to participant: The provider supplies support services to the participant. These may be GST-free when the relevant requirements are met.
Contractor to NDIS provider: The contractor supplies their services to the NDIS business. This is generally subject to GST if the contractor is GST-registered and the supply meets the normal GST requirements.
The reason is that the contractor is supplying services to the NDIS business, rather than making a qualifying GST-free supply directly to the participant.
The ATO specifically addresses this situation in its guidance on NDIS supports provided by third parties.
The important point: Just because your business does not charge GST to NDIS participants does not mean your contractors should automatically invoice you without GST.
Does Every NDIS Contractor Need to Charge GST?
No. It depends on the contractor's circumstances and who they are supplying their services to.
Generally, a contractor must register for GST when their annual GST turnover reaches $75,000 or more. This is based on business income before expenses, not profit.
For example:
A contractor earning $50,000 per year who is not registered for GST generally does not charge GST.
A contractor earning $90,000 per year will generally need to be GST-registered and charge GST on taxable services supplied to an NDIS business.
A contractor earning less than $75,000 who has voluntarily registered for GST may also need to charge GST.
Importantly, the $75,000 threshold applies even where some or all of the contractor's services are GST-free.
Contractors should also be monitoring their expected turnover, rather than waiting until the end of the financial year.
The Hidden GST Cost in Contractor Hourly Rates
This is where contractors can be caught out.
Imagine an NDIS provider agrees to pay a contractor $55 per hour.
The contractor works 30 hours per week and receives $1,650.
They might assume they have earned $1,650 before income tax and business expenses.
However, if they are registered for GST, their services are taxable and the agreed $55 hourly rate is inclusive of GST, the breakdown is:
Weekly payment Amount
Total paid by NDIS provider $1,650
GST included in payment $ 150
Contractor's income before expenses and income tax $1,500
That is $150 per week which may need to be paid to the ATO, less any GST credits the contractor can claim on eligible business purchases. Over 48 working weeks, that represents $7,200 in GST collected.
The contractor's hourly income before GST is actually $50, not $55. The remaining $5 is GST collected, which must be accounted for in their BAS, less any GST credits they are entitled to claim.
This can come as a surprise if the contractor has been treating the entire payment as their income.
What if the contract says $55 plus GST?
This changes the calculation.
If the agreed rate is $55 per hour plus GST, the contractor would invoice $60.50 per hour.
For 30 hours, the total would be $1,815, including $165 GST.
The contractor would retain $1,650 before expenses and income tax, with the $165 GST included in their BAS, less any GST credits they are entitled to claim.
This is why checking the wording of contractor agreements is so important. Whether GST can be added to an agreed rate depends on the contract and the particular circumstances.
What Should NDIS Providers Be Doing?
If your business engages contractors, it is worth reviewing how their payments are being processed.
In particular:
Check GST registration: Are your contractors registered for GST, and are they issuing the correct tax invoices?
Review contractor agreements: Are the agreed rates inclusive or exclusive of GST? Who is responsible for invoicing and GST?
Check your bookkeeping: Are contractor invoices being entered with the correct GST treatment?
Review GST credits: If your business is GST-registered, you may be entitled to claim back GST charged by contractors on eligible business expenses.
Communicate with contractors: Make sure both parties understand the agreed rates and GST obligations.
For many NDIS providers, GST paid to contractors can be claimed back through their BAS, even though the services they provide to participants are GST-free.
This means the GST may not ultimately be an additional cost to the provider, provided the business is entitled to the GST credit.
However, incorrect invoicing and GST reporting can still create problems for both parties.
What Should Independent NDIS Contractors Be Doing?
If you are an independent support worker providing services through an NDIS business, do not assume that everything you earn is automatically GST-free.
You should check:
Whether you are required to register for GST.
Whether your services are supplied directly to participants or to another NDIS business.
Whether your agreed hourly rate includes GST or allows GST to be charged on top.
Whether your invoices are being prepared correctly.
Whether you need to set aside money for GST payments to the ATO.
If you have been receiving contractor payments without accounting for GST, it is worth reviewing your position sooner rather than later.
You may have GST obligations that have not yet been reported.
One More Thing: Contractor or Employee?
GST is not the only issue NDIS providers should consider when engaging contractors.
Just because someone has an ABN and signs a contractor agreement does not automatically mean they are an independent contractor for all tax and employment purposes.
Depending on the working arrangement, a business may still have obligations relating to superannuation, PAYG withholding and other employment requirements.
For example, some contractors paid mainly for their personal labour may still be entitled to superannuation contributions.
These obligations need to be reviewed separately from GST.
When Was the Last Time You Reviewed Your Contractor Payments?
NDIS businesses often have a lot to manage, from participant services and scheduling to invoicing, payroll and compliance.
GST on contractor payments is one of those areas that can easily be missed, especially when the business's own NDIS income is GST-free.
A review of your contractor agreements, invoices and bookkeeping can help identify potential issues before they become larger problems.
Not Sure if Your NDIS Contractor Payments Are Being Handled Correctly?
If you operate an NDIS business and engage contractors, it may be worth reviewing your agreements, invoices and BAS reporting to make sure GST is being accounted for correctly.
At Dawson Accounting & Business Solutions, we can assist with reviewing your contractor payment arrangements, checking the GST treatment in your bookkeeping and identifying any issues that may need correcting.
We also assist independent support workers with understanding their GST registration, invoicing and tax obligations.
If you are unsure whether your contractor payments are being treated correctly, get in touch for a review.
This article provides general information only. GST treatment depends on the individual service arrangements, contractual obligations and circumstances of each business. Professional advice should be sought where required.