Agency and consultancy expenses in Australia: the complete guide

An Australian agency’s costs are mostly people and software, and both carry a rule that changes the answer. People: freelancers paid mainly for their labour attract super even when they invoice with an ABN, and a consultancy whose income is a reward for one person’s skill may fall under the personal services income (PSI) rules, which strip out home occupancy costs and payments to family for admin. Software: the offshore tools an agency runs on should not carry Australian GST for a registered business. IT agencies have one more: a Taxable payments annual report when contractors deliver the work. This guide walks through the whole ledger, category by category, with a verdict before the detail. Every figure is sourced to the ATO in the Sources section, retrieved 10 October 2026.

What this guide covers: the PSI rules and how to self-assess out of them, contractors and super, the TPAR for IT services, offshore software and the reverse charge, client and staff entertainment, the home office, equipment, staff, and the BAS and records that tie it together.

The agency’s ledger at a glance

The rest of this guide walks through each row, and every section opens with its verdict.

Where ExpenseFlow fits

An agency’s purchase ledger is freelancer invoices, monthly SaaS receipts in US dollars, ad platform statements, travel and the odd client lunch. ExpenseFlow captures each document (email forward, upload or phone), reads the line items, currency and GST, codes each line with a written reason, and routes anything uncertain to a person before it posts. Its agency checks come from the rules on this page: a line that reads as a freelancer, contractor, consultancy or day-rate payment is flagged to check the PSI position and whether super applies; a software, subscription or hosting line from an overseas supplier is flagged as an imported service under the reverse charge rules, not a local credit; and a document over $82.50 with no ABN is flagged. After approval the bill syncs to Xero with the source document attached, or to QuickBooks Online as a coded bill.

What it does not do: it never decides whether a worker is an employee for super, never applies the PSI tests and never computes the reverse charge. The agency chart of accounts for Xero and for QuickBooks line up with the categories below.

The ExpenseFlow for agencies and consultancies page covers these checks across all five countries.

The PSI rules

Personal services income is income that is mainly a reward for an individual’s personal effort or skill, whether earned as a sole trader or through a company, partnership or trust; the ATO’s own examples include IT consultants and engineers ^[1] . The rules exist to stop that income being diverted to an associate who pays less tax, and to stop deductions an employee could not claim ^[1] .

When the PSI rules apply, you cannot claim against the PSI ^[2] :

• rent, mortgage interest, rates and land tax for a residence;
• payments to an associate, such as a spouse or child, for non-principal work like bookkeeping, invoicing, admin or running the home office;
• super for an associate doing non-principal work.

The ATO’s example is a marketing consultant who employs his wife to issue invoices and run the home office: he cannot deduct her wages ^[2] . Keep records for five years and show which expenses relate to PSI ^[2] .

You are outside the limits if you self-assess as a personal services business. You qualify if you meet the results test for at least 75% of your PSI, or meet one of the other tests (unrelated clients, employment or business premises) and less than 80% of your PSI comes from one client and its associates ^[3] . A company with several people generating PSI applies the tests to each individual ^[3] .

Freelancers, contractors and super

If you pay an independent contractor mainly for their labour, they are an employee for superannuation guarantee purposes, and having an ABN doesn’t change that ^[4] . Super applies where the contract is mainly for labour (more than half its dollar value), the payment is for personal labour and skills rather than a result, and the contractor must do the work personally ^[4] . A freelance designer paid a day rate on a three-month embed usually meets all three; a studio quoted a fixed price for a finished brand identity usually does not. The super guarantee rate is 12%, and from 1 July 2026 Payday Super requires it to be paid with each pay ^[5] .

The contractor’s invoice itself is deductible, and you claim a GST credit only if they are registered and the invoice is a tax invoice (needed above $82.50) ^[6] . A freelancer under the registration threshold charges no GST, which is correct.

Taxable payments annual report for IT agencies

A business that provides IT services must lodge a Taxable payments annual report if it paid contractors or subcontractors, in Australia or overseas, to provide those services on its behalf, and IT services are 10% or more of its gross business income ^[7] . Payments to employees are not reported, and the report is due by 28 August each year ^[7] . The ATO’s example is a software house writing a custom accounting suite and patches for one client: that is an IT service ^[7] . A creative agency that only builds websites occasionally should add up the IT share before assuming it is out ^[8] . Capture each contractor’s ABN and annual total as you go, not in August.

Offshore software and the reverse charge

If you are registered for GST and you buy imported services or digital products for your business, the overseas supplier shouldn’t charge you GST; the law puts the business purchaser in charge of working out whether GST is payable and paying it under the reverse charge, so a registered business ends up in the same net position as a local purchase ^[9] . The reverse charge bites on purchases of things other than goods and real property, at 10% of the price, and only where your purchase is partly private or relates partly or solely to making input-taxed supplies ^[10] . A fully creditable agency usually has nothing to record; one that also makes input-taxed supplies, or uses the tool partly privately, may. If Adobe, Canva or Google charged you GST because your ABN was never entered, enter it and ask for the GST back: it is not a credit you can claim from their invoice ^[9] . The subscription itself is a deductible operating expense ^[11] ; the software and subscriptions guides cover the detail.

Client and staff entertainment

There is no FBT on entertainment provided to clients, and the employer can’t claim an income tax deduction or GST credits for it ^[12] . For staff, a Christmas party costing less than $300 a head is usually an exempt minor benefit, and when the party is not subject to FBT you can’t claim deductions for it ^[12] . Food or drink provided to, and consumed by, current employees on your business premises on a working day is exempt from FBT ^[13] . A gym membership of $480 per employee is recreation entertainment and attracts FBT, because the minor benefit exemption needs a value under $300 ^[12] . Note who attended on every receipt when you code it.

The home office

The fixed rate method allows 70 cents per work hour for 2024-25 and 2025-26, covering energy, phone and internet, stationery and computer consumables; you need a record of the hours worked from home and one bill for each running expense ^[14] . Office furniture and computers are claimed separately as depreciating assets ^[14] . Occupancy costs like rent and mortgage interest are for a home-based business, where an area is set aside and used exclusively as a place of business, and they may have capital gains tax consequences ^[15] . For a consultant caught by the PSI rules, occupancy costs are out regardless ^[2] . The home office guide has the actual cost method.

Equipment, travel and marketing

A small business with turnover under $10 million can immediately deduct the business portion of each asset costing less than $20,000 when first used or installed ^[16] , and that limit is permanent from 1 July 2026 ^[17] . Advertising and software subscriptions are operating expenses ^[11] ; ad spend you buy on a client’s behalf and rebill is still your cost, recovered through your invoice. The travel and equipment guides cover the detail.

Staff, BAS and records

Salaries, wages and super paid on time are deductible once PAYG withholding and reporting obligations are met ^[18] . GST credits need a tax invoice for purchases over $82.50 and can be claimed within four years ^[6] . The GST and BAS guide, BAS lodgment guide, record-keeping guide and year-end checklist cover the rest.

Common mistakes

• Treating an ABN on a freelancer’s invoice as proof no super is owed ^[4] .
• Paying a spouse for admin and deducting it while the PSI rules apply ^[2] .
• Claiming home rent or interest through a one-client consultancy that fails the PSI tests ^{[2] [3]} .
• Paying GST to an offshore software supplier and claiming it as a credit ^[9] .
• Missing the TPAR because IT is only part of what the agency sells ^[7] .
• Deducting client lunches or an FBT-exempt staff party ^[12] .