Mechanic tax: employee or workshop owner?

Every other chapter in this cluster assumes one thing about you: how you're paid. Employed mechanic or workshop owner is the question that comes first, because it reshapes everything after it, what deductible means, what you lodge, whether GST is even yours to worry about. This guide speaks to the wage-paid mechanic, and that's most of the trade. But once your name is over the roller door, the ground moves, and it moves into territory this guide can't cover for you. Settle which one you are before you read a line further.

Why this is the first question

Are you a PAYG employee on wages, or running a workshop on your own ABN? The automotive trade holds both, from the apprentice on the tools to the owner-operator still turning spanners between quotes, and the answer decides what deductible means for you, what you lodge, and whether GST is anything you have to think about. Plenty of mechanics cross between the two over a career, years on wages and then out on their own.

Settle it and the tool, uniform and travel rules through the rest of the guide fall into place. Leave it hanging and you can burn a year applying rules written for the other side.

How to tell which one you are

You don't need to read a contract for this. Watch how the money actually reaches you and who carries the risk of the workshop.

Is tax taken out before you're paid?When each pay has tax deducted and an income statement appears in myGov after the year closes, you're an employee. Super is going in on your behalf, and the workshop shoulders the tax for you.

Do you invoice and carry the workshop?If you bill customers, collect the full amount with nothing withheld, and wear the cost of the premises, the hoist, the staff and the parts, you're running a business and handling your own tax.

Whose risk, whose call, whose profit?Setting your own rates, wearing the loss on a job gone wrong, and pocketing the profit all mark an owner. Being rostered on, paid by the hour and told which jobs to take mark an employee.

One caution: the ATO looks at the entire arrangement, not the ABN sitting in your wallet. An ABN alone won't make you a business where the job's substance is really employment.

What the employed mechanic claims

If tax is taken out before your pay lands, this page is yours, because the whole guide was written for you. At tax time your task is recovering the work costs you carried and no one repaid: the self-funded tool kit, immediate on anything $300 or under and decline in value above it, the interest on the truck plan, the steel-caps, safety glasses and logo overalls, the ARCtick and inspection renewals, the manufacturer training, the union fee, the work share of your phone, and the genuine work driving. The lot goes against your wages on the individual return, and the instant asset write-off is out of your reach.

What changes if you run the workshop

Invoice under your own ABN and you're not lodging a wages return. You're running a business, and the ground moves both ways.

The full income is declared.Every dollar, whatever channel it arrives through, is reported as business income.

The deductions reach further.A business can claim costs an employee never can, from workshop rent and public liability cover to staff wages, accounting fees and advertising, on top of the usual trade costs.

Simplified depreciation may open up.A qualifying small business can use simplified depreciation, pooling assets and writing some off faster than the employee's decline-in-value method allows.

The instant asset write-off becomes yours.A qualifying small business can write off an eligible asset in full up to the ATO's cap, the exact concession an employee can't touch. It kicks in only once you're operating on an ABN.

You may pay tax through the year.Depending on your income you can be put on PAYG instalments rather than one bill at the end.

That's the sketch, not the manual. Running a workshop carries a real weight of obligations, more than any single chapter can properly cover, and where this describes you, a registered tax agent who knows the automotive trade earns their fee, above all in the first year GST enters the picture.

GST and BAS: accountant territory

Here's the line where the guide stops and an accountant starts. Once turnover hits $75,000 over a rolling twelve months, GST registration becomes compulsory: you add GST to your invoices and file a business activity statement, the BAS, across the year.

PFO does not do GST or BAS. Run a workshop on an ABN and that work belongs with a registered tax agent, not this guide or the app.

GST and BAS are a discipline of their own, with lodgement dates, input-tax credits and cash-flow timing a wage return never meets. Nothing on this site is built to handle them, and you shouldn't run your workshop's GST off a guide written for employees. Engage an agent, and let this cluster do its actual job: the employed mechanic's individual return.

If you are both in the one year

Working a wage job at one workshop while invoicing your own side work is a familiar pattern in the trade, and the answer is to hold the two apart. Your wages and the work deductions in this guide sit on the employee side. The money you invoiced, and the business deductions attached to it, sit on the business side. Two clean sets of records, so neither blurs the other when you lodge, and the business side goes to your agent.

The records differ too

Whichever side you're on, the discipline that pays off is recording a cost when it happens instead of reassembling the year in July. What you retain, though, differs.

Employee

Invoices for tools and gear, a depreciation schedule for the kit above $300, tool-finance statements, and a record of the work-use split on anything shared between work and home.

Workshop owner

Complete business records, both income and expenses, plus the BAS filings once GST applies. A registered tax agent is the right hand from the moment GST comes into it.

On the employee side, the ATO's free myDeductions app covers the basics.

The bottom line

Settle which one you are first, because everything else follows. Check how you're paid: tax withheld and super paid in marks you an employee, and this guide sets your work costs against your wages, on the $300 tool rule, with no instant write-off. Running a workshop on your own ABN means a business return, broader deductions, simplified depreciation and the write-off, and past $75,000 the GST and BAS that belong with a registered tax agent rather than this guide. Answer that one question and every hour on your tax lands in the right place.

Add up your deductions

If you're an employed mechanic, see what your tools, protective gear and work driving come to at tax time.

Deductions calculator →

General information only, not tax advice. Check the ATO or a registered tax agent for your situation.