Common Tax Mistakes Electricians Make and How to Avoid Them

Claiming GST Credits on Ineligible Expenses

One of the biggest GST mistakes electricians make is claiming credits on expenses that don’t qualify. You can’t claim GST back on staff wages, superannuation payments, bank fees, or purchases from suppliers who aren’t registered for GST. Many electrical contractors also incorrectly claim GST on mixed-use expenses like using your work van for personal trips.

The fix is simple but requires discipline. Before claiming any GST credit, check that your supplier shows an ABN and GST registration on their invoice. Keep a separate record for personal use of business assets, and only claim the business portion. For example, if you use your work van 70% for business and 30% for personal trips, you can only claim GST on 70% of the running costs.

Wrong Place of Supply Issues

Place of supply errors particularly affect electrical contractors who work across state borders or have head offices in different states from job sites. The GST rules require you to charge GST based on where you perform the work, not where your office is located. Getting this wrong means either overcharging or undercharging your clients for GST.

Always check the actual location where you’re performing electrical work when preparing invoices. If you’re doing electrical installations in NSW but your office is in Victoria, the place of supply is NSW. This becomes particularly important for large commercial jobs that might span multiple locations.

Cash vs Accrual Accounting Method Confusion

Most electrical contractors under $10 million turnover can use cash accounting for GST, which means you report GST when you actually receive payment, not when you send the invoice. However, many electricians accidentally mix both methods, creating compliance problems and potential penalties.

Stick to one method consistently. If you choose cash accounting, only report GST in your BAS when you actually receive payment from clients. This often works better for electrical contractors because it matches your cash flow – you’re not paying GST to the ATO before you’ve been paid by your client.

BAS Lodgement Errors That Trigger Penalties

BAS lodgement mistakes result in automatic penalties that start at $170 every 28 days, quickly adding up to serious money that could have stayed in your business.

Missing Critical Due Dates

The ATO doesn’t accept excuses for late BAS lodgements. For quarterly reporters, your BAS is due by the 28th of the month following the quarter end, except for the December quarter which is due by the end of February. For the 2024-25 financial year, quarterly BAS due dates are 28 October 2024, 28 February 2025, 28 April 2025, and 28 July 2025. Monthly reporters must lodge by the 21st of the following month.

Set up automatic calendar reminders well before these dates. Many electrical contractors find it helpful to aim for a few days before the actual due date to allow for any last-minute issues. Missing just one deadline triggers automatic penalties that continue every 28 days until you lodge.

Incorrect PAYG Withholding Calculations

PAYG withholding errors are particularly common for electrical contractors who hire both employees and subcontractors. The PAYG withholding rates changed for the 2024-25 financial year, with the Government reducing the 19% tax rate to 16% and the 32.5% rate to 30%. The rules are different for each type of worker, and getting them wrong can result in significant penalties and interest charges.

For employees, you must withhold tax according to the current PAYG withholding tables. For contractors, you generally don’t withhold tax unless they don’t provide an ABN. Always verify whether someone is genuinely a contractor or should be treated as an employee for tax purposes.

Payroll Tax Mistakes That Hit Electrical Contractors Hard

Payroll mistakes create both immediate cash flow problems and ongoing compliance headaches that can seriously damage your business reputation.

Misclassifying Workers as Contractors

This is one of the costly mistakes electrical contractors make. The ATO has specific tests to determine whether someone is an employee or contractor and getting it wrong means you’ll face back-payments of superannuation, PAYG withholding, and penalties.

The key factors include whether the worker uses their own tools, has multiple clients, invoices for results rather than time, and bears business risk. If you’re paying someone by the hour, providing tools, and directing how they do the work, they’re likely an employee regardless of what you call them.

Superannuation Guarantee Mistakes

The superannuation guarantee rate is 11.5% for 2024-25, increasing to 12% from July 2025. Many electrical contractors still use outdated rates or fail to pay super for workers they incorrectly classify as contractors.

Pay superannuation on total wages, not just base salary. This includes overtime, bonuses, and allowances. The payment must reach the employee’s super fund by the quarterly due dates, not just be processed by your payroll system.

Getting PAYG Withholding Rates Wrong

The PAYG withholding rates changed significantly for 2024-25, with new tax brackets and reduced rates. Using outdated rates means your employees will either have too much or too little tax withheld, creating problems at tax time.

Update your payroll software immediately when new rates are released. The ATO publishes updated withholding schedules each year, and using the wrong ones can result in under-withholding penalties.

Record Keeping Problems That Create Tax Headaches

Poor record keeping is the root cause of many other tax mistakes, making it impossible to claim legitimate deductions or defend your position if the ATO asks questions.

Inadequate Job Costing Records

Many electrical contractors can’t tell which jobs made money and which lost money because they don’t track costs properly. This makes it impossible to price future jobs correctly and often leads to missed deductions.

Track all costs for each job separately, including materials, labour, subcontractors, and overheads. Use job numbers on all receipts and invoices. This not only helps with tax compliance but also improves your business profitability by showing which types of work are most profitable.

Missing or Incomplete Receipts

The ATO can disallow deductions if you can’t provide proper documentation. Many electrical contractors lose receipts or fail to get tax invoices from suppliers, particularly for small purchases.

Keep digital copies of all receipts using smartphone apps or cloud storage. For purchases over $82.50, you need a tax invoice showing GST. For smaller amounts, a regular receipt is usually sufficient, but it must show the date, amount, and what was purchased.

Vehicle and Equipment Records

Vehicle expenses are often the largest deduction for electrical contractors, but they’re also the most scrutinised by the ATO. You must keep a logbook or have other evidence to support business use claims.

Keep a logbook for 12 weeks showing all business trips, including distance, purpose, and client details. This gives you a business percentage you can apply to total vehicle costs. For equipment, maintain an asset register showing purchase date, cost, and business use percentage.

Deduction Mistakes That Cost You Money

Missing legitimate deductions is like paying extra tax voluntarily, while claiming incorrect deductions can trigger penalties and audits.

Overlooking Instant Asset Write-Off Opportunities

The instant asset write-off allows immediate deduction of business assets costing up to $20,000 each for small businesses during the 2024-25 financial year. Many electrical contractors miss this opportunity by not understanding the rules or failing to have assets “ready for use” by June 30. From 1 July 2025, the threshold is set to revert to $1,000 unless further legislation extends it.

Purchase and install eligible assets before June 30 to claim the deduction in that financial year. This includes tools, vehicles, computers, and equipment used in your electrical business. Assets must be primarily for business use and ready to operate, not just delivered.

Personal Services Income Restrictions

If more than 50% of your income comes from your personal skills and labour, you may be caught by Personal Services Income (PSI) rules. This restricts many common business deductions like home office expenses, even if you operate through a company.

The PSI rules have tests you can pass to avoid restrictions, including having multiple unrelated clients, using your own equipment, or being able to subcontract the work. Understanding these tests can help you structure your business to maintain full deduction eligibility.

Home Office and Equipment Deductions

Many electrical contractors work from home for administration but don’t claim legitimate home office deductions. You can claim a portion of home expenses like electricity, insurance, and cleaning for the area used exclusively for business.

Calculate the business percentage of your home’s floor area used exclusively for work. Keep records of all home expenses and apply this percentage. For shared areas, you can only claim for the time period when used exclusively for business.

How to Set Up Systems That Prevent These Mistakes

Prevention is always better than fixing mistakes after they happen, especially when it comes to tax compliance where errors can be expensive.

Choose the Right Accounting Software

Cloud-based accounting software designed for trades businesses can automatically handle many compliance requirements. Look for software that integrates with your bank accounts, tracks job costs, and updates tax rates automatically.

The software should handle BAS preparation, payroll processing, and invoice management. Many electrical contractors find that spending money on proper software saves much more in reduced accounting fees and avoided penalties.

Establish Regular Financial Reviews

Schedule monthly reviews of your financial position, including cash flow, job profitability, and tax obligations. This prevents small problems from becoming major issues and helps you make better business decisions.

Review your profit and loss by job category monthly. Check which types of electrical work are most profitable and focus your marketing efforts accordingly. Also review outstanding invoices and follow up on overdue payments promptly.

Get Professional Support When You Need It

Complex tax rules change regularly, and the cost of mistakes often exceeds the cost of professional advice. Establish a relationship with a registered tax agent who understands electrical contractors and can provide timely guidance.

Don’t wait until problems develop to seek help. A proactive accountant can help structure your business to minimise tax, ensure compliance, and provide regular advice on changes that affect electrical contractors. They can also represent you if the ATO has questions about your tax returns.

Complete Your Tax Return Correctly the First Time

Getting your own tax return right is just as important as managing your business taxes, especially when you’re running an electrical contracting business.

Lodge Online Through MyGov

Most electrical contractors can complete and lodge their tax return online through their MyGov account, which links directly to the ATO. This is faster than paper forms and often results in quicker refunds.

Set up your MyGov account well before tax time and link it to the ATO. The online system will estimate your refund and show you the expected processing time. Keep your details up to date, including contact information and bank account details for any refund.

Include All Income Sources

Electrical contractors often have multiple income sources that must be included in their tax return. This includes wages from employment, income from sole trader activities, dividends from investments, and other income like government payments or rental income.

Keep good records throughout the financial year of all income received. This includes payment summaries from employers, invoices from your electrical business, dividend statements, and bank interest statements. Missing income can trigger ATO data matching and result in penalties.

Calculate Work-Related Deductions Correctly

Many electrical contractors can claim substantial deductions for work-related expenses, but you need to follow the rules carefully to get the tax refund you deserve. The key is that expenses must be directly related to earning your income, and you must have good records to support your claims. If you want your tax return processed smoothly, make sure every claim is correct and backed by receipts.

Common deductions for electricians include tools and equipment, protective clothing, vehicle expenses for work travel, and training courses. For vehicle expenses, you can use either the cents per kilometre method (88 cents per kilometre for 2024-25) or the logbook method. Keep receipts and records to support all claims so you can lodge your tax return with confidence.

Ready to get your tax compliance sorted so you can focus on the job? Talk to us about setting up systems that prevent these costly mistakes and give you confidence that your business finances are properly managed. Your future self will thank you for taking action now instead of waiting for problems to develop.