Tax Concerns When Managing an NDIS Budget

Self-managing your National Disability Insurance Scheme (NDIS) budget can give you more control and flexibility. 

However, it also comes with important tax responsibilities - especially if you’re hiring support workers directly or receiving NDIS funding as a participant, nominee, or plan manager. 

Understanding your tax obligations can help you stay compliant and avoid unexpected issues at tax time.

Hiring Support Workers: Employee or Contractor?

If you’re self-managing your NDIS budget and hiring support workers, you need to determine whether your workers are classified as employees or contractors for tax and superannuation purposes.

• Employees: If your worker is considered an employee, you must register for PAYG withholding before you make your first payment. You’ll also be responsible for withholding tax from their wages and potentially paying superannuation on their behalf. You can use the ATO’s tax withheld calculators and superannuation guarantee eligibility tools to help determine your obligations.

• Contractors: If your worker is a contractor, you generally don’t need to withhold tax - unless you have a voluntary agreement with them to do so. It’s important to correctly classify your worker; misclassifying an employee as a contractor can lead to compliance issues.

Participants: Tax on NDIS Funding and Deductions

If you are an NDIS participant, the funds you receive (including those you self-manage) are exempt from income tax. However, this also means you cannot claim deductions for any expenses or assets purchased using NDIS funding, even if they are related to producing income.

For instance:

• You can't claim deductions for the decline in value of assets bought with NDIS funds.

• If you modify your home using NDIS funding and later rent out a room, the rental income is taxable, and the modifications may impact capital gains tax (CGT) if you sell the property in the future.

Nominated Representatives: Income Considerations

If you’re a nominee, parent, or guardian managing a participant’s plan:

• Any funding received on behalf of the participant is not your income.

• However, if you are paid for providing services (e.g., support or care), that payment is considered your income and must be declared in your tax return.

You also cannot claim tax deductions for any equipment or services you purchase on behalf of the participant using NDIS funds.

Registered Plan Management Providers

If you’re a registered plan management provider (RPMP):

• Payments received on behalf of the participant are not your income.

• Payments received for services you provide are your income, unless exempt under Division 50 of the Income Tax Assessment Act 1997.

You may be able to claim deductions on expenses or assets only if they are used in producing your assessable income. However, items purchased purely on behalf of the participant are not deductible.

Managing an NDIS budget requires careful attention to tax responsibilities, especially when employing staff or receiving payments for services. 

It’s wise to consult an accountant or financial advisor with NDIS experience to ensure you remain compliant while making the most of your funding. 

If you have any questions, please contact our office.

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