Beauty salons and day spas present a distinctive bookkeeping mix: a service business with retail product sales, a workforce that spans employees and independent contractors, and revenue streams such as gift vouchers that require careful timing treatment. Getting the fundamentals right keeps the salon owner focused on clients rather than compliance problems.
Booth Rental vs. Employed Stylists — Getting the Classification Right
One of the most common misclassification risks in the salon industry is treating booth-rental operators as employees (or vice versa). The distinction has material payroll tax and superannuation consequences.
Booth rental (contractor model): A stylist rents a chair or treatment room from the salon owner and keeps their own revenue. The salon charges rent (GST-taxable). The stylist is not an employee — no PAYG withholding, no superannuation, no leave entitlements. The stylist issues their own invoices and manages their own GST if registered.
Employed stylists: The salon engages stylists as employees under the Fair Work Act 2009. The employer withholds PAYG, pays superannuation, accrues annual leave and long-service leave.
Payroll tax risk: State payroll tax aggregates wages and certain contractor payments. Under the contractor provisions in most state payroll tax acts (e.g., Payroll Tax Act 2007 NSW s 32), payments to contractors who provide labour substantially within a period of 180 days may be deemed wages. Salons with large contractor workforces should seek payroll tax advice.
The ATO's contractor vs. employee distinction turns on multi-factor tests: control, integration, ability to subcontract, tools, and risk. The 2022 High Court decisions in CFMMEU v Personnel Contracting and ZG Operations v Jamsek confirmed the written contract is the starting point, but sham contracting remains a risk where substance differs from form.
GST on Services and Retail Products
A common misconception in salons is that beauty services might be GST-free. They are not. Hair cuts, facials, massages, nail treatments, and waxing are all taxable supplies under the GST Act. There is no health or personal care exemption for cosmetic or beauty services (contrast with therapeutic services under s 38-10, which require medical practitioner involvement).
Retail product sales (shampoo, skincare, cosmetics sold from the salon floor) are also taxable. GST applies at 10% on the retail price. Input tax credits are claimable on the purchase price from the supplier.
When a salon sells both services and products in a single transaction, the GST applies uniformly — no apportionment issue arises.
EFTPOS Surcharge Income
Many salons recover EFTPOS terminal costs by charging customers a payment surcharge (typically 1–1.5%). Under ASIC and ACCC guidance, surcharges must reflect actual merchant service costs.
Bookkeeping treatment: The surcharge is income — a separate revenue line is preferable to netting against bank fees. GST applies to the surcharge as it is part of the consideration for a taxable supply.
Dr Bank $110.00
Cr Service Revenue $100.00
Cr EFTPOS Surcharge Income $1.50
Cr GST Payable $10.15
The merchant service fee charged by the bank is a deductible expense (input tax credit claimable).
Gift Vouchers — Deferred Revenue
Gift vouchers sold by salons are not income at the point of sale. The receipt of cash for a voucher creates a liability — the salon owes the holder a future service or product.
Dr Bank $100.00
Cr Gift Voucher Liability $100.00
When the voucher is redeemed:
Dr Gift Voucher Liability $100.00
Cr Service Revenue $90.91
Cr GST Payable $9.09
Note that GST is not remitted at the time of voucher sale — it is remitted when the supply occurs (i.e., when the voucher is redeemed or expires). For unredeemed vouchers, the liability remains on the balance sheet. After expiry, the forfeited amount becomes assessable income. Many salons set a 3-year expiry; check state gift card legislation (e.g., Australian Consumer Law Schedule 2 requires a minimum 3-year expiry for gift cards sold from 1 November 2019).
Depreciation of Fit-out and Equipment
Salon fit-outs (partitions, basins, styling stations, flooring, lighting) are capital works under Div 43 ITAA 1997, depreciable at 2.5% per annum (or 4% if used predominantly in a business). Plant and equipment items (hairdryers, steamers, massage tables, facial equipment) are depreciable under Div 40.
Under the temporary full expensing provisions (now expired for most entities), eligible assets could be immediately deducted. For 2026 year onwards, the instant asset write-off threshold is $20,000 for small businesses (aggregated turnover < $10M) under the 2025-26 Budget measure. Confirm the current threshold with the ATO or the client's tax agent.
Superannuation for Casual Employees
From 1 July 2022, the $450 monthly income threshold for superannuation guarantee (SG) eligibility was abolished. All employees — including casuals — must receive SG contributions from dollar one of earnings, regardless of how little they earn in a month.
For beauty salons with large casual workforces (weekend staff, school holiday contractors classified as employees), this change significantly increased SG obligations. The current SG rate is 11.5% (FY2025) rising to 12% from 1 July 2025.
Superannuation must be paid quarterly into the employee's chosen fund (or the employer's default fund) by the quarterly due dates. Late payment attracts the superannuation guarantee charge (SGC), which is not tax-deductible.
ReconLink's reconciliation tools help salon bookkeepers track super liability accruals against payments, ensuring the SGC exposure is identified early rather than discovered at year-end.
Key Reference Points
- ITAA 1997 Div 40 — plant and equipment depreciation
- ITAA 1997 Div 43 — capital works depreciation
- Superannuation Guarantee (Administration) Act 1992 s 27 — SG eligibility (post-July 2022)
- GST Act ss 9-5, 38-10 — taxable supply and health services
- Payroll Tax Act 2007 (NSW) s 32 — contractor provisions
- Australian Consumer Law Sch 2 s 99P — gift card minimum expiry
- ATO TR 2023/1 — employee vs. contractor distinction