Mates' Rates & Discounting

Every tradie gets the "can you do us mates' rates?" call. You can absolutely discount for family and friends — but the real danger is not the ATO, it is the resentment, burnout and freebie-creep that quietly eat your margins and your relationships. Here is how the tax actually works, and how to hold a boundary without blowing up the friendship. (Tax guidance, not advice.)‍‌‌‌‌‌‌‌‌‌‌‌‌‍

The ATO bit — simpler than people fear

For normal trade work, the ATO taxes you on what you actually charge and receive — not a hypothetical retail price:

There is no general "deemed market value" rule for services. Market-value substitution applies to asset transfers (e.g. gifting or selling property to family — CGT), not to your labour. A cheap job for a mate just means lower profit, not a tax problem.
Low-margin jobs are fine. (The separate non-commercial loss rules only restrict using losses to offset other income — they do not force you to declare a made-up higher figure.)
The FBT discount rules do not apply — those are about employers giving employees benefits, not a sole trader charging a mate less.

Keep the paperwork like any job:

Issue an invoice showing your standard price with the discount as a separate line — e.g. labour + materials $1,200, "Friend/family discount (one-off) −$300", total $900.
Declare the $900 you actually received — you do not also declare the $300 you did not charge — and claim your normal deductions for materials and costs.
Do it for free? There is no income to declare and no deduction for your own time. (Supplying expensive materials at or below cost can edge into gifting — get advice in unusual cases, but that is rare for normal jobs.)

The ATO-safe line: discounting for mates is allowed; you declare what you are actually paid, and you keep normal business records (quotes, invoices, receipts) for mates-rates jobs.

The real risk: resentment, not the tax office

Casual discounting is what causes cash-flow stress, burnout and resentment — and it leaks into the relationship far worse than a calm "no" up front would. Experienced tradies run a boundary framework:

Circle of trust: inner circle (partner, kids, parents) → full rate with the occasional chosen free favour; close mates → a small, defined discount (5–10%) or no discount but priority and extra care; outer circle (acquaintances, name-droppers, friends-of-friends) → normal quote, no discount.
Capacity and timing: only consider a discount if you are not booked out and it will not bump paying work — fill a quiet gap, never at the expense of margin or your own head.
One-direction test: is the relationship two-way? If they never help you in their field, a "mates' rate" is just cash out of your pocket.
A written-down policy: decide it once (e.g. no discount on materials ever; labour discount capped at 10%, only for people you would invite to your wedding; no discount on urgent or weekend call-outs) so each decision feels like policy, not a personal judgement.

This is also where the wellbeing risk lives. Chronic undercharging and "good bloke" people-pleasing drive the exact financial stress and resentment that wear tradies down — saying no to a discount is protecting your business and your head. (See Financial Stress & Mental Health.)

Scripts that hold the line

Make it about your business rules, not how much you like them. Slow down, affirm the relationship first, blame the rules, and offer something you can give (timing, a small extra, a DIY-support visit):

Regular mate: "I totally get you asking — everyone does. I have got to stick to my standard rates or the business does not stack up. What I can do is look after you on timing and do a really solid job so you are not paying twice later."
Small gesture, clear boundary: "My prices are already fair for what is involved. I will knock a small amount off the labour this once and write it on the quote as a one-off mates discount, so we are both clear — materials at normal cost and future work at my usual rate."
Close family: "I love you and I want to help — but if I charge way under my rate I am literally paying to do the job. Let me quote it properly, and if money is tight we can stage the work or do some parts together on a weekend."
Serial discounter: "To be straight, I do not do mates' rates anymore — every time I have, I have ended up stressed and out of pocket. I will do the job at my normal price and give it the same effort as any client."

Common mistakes

Thinking you must declare the full retail value of a discounted job (you do not).
Not invoicing a mates-rates job at all (keep the records).
Discounting when you are already flat out, at the cost of paying work.
Letting "good bloke" pressure override a policy you set when calm.

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