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What steps do you take to make it look like they are a contractor? Also, would you recommend having a lawyer draft the contract agreement, or is adapting a template good enough?

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Just think to yourself, what would make them look like a freelancer/consultant/contractor. For example, they work from their own location (obviously the case in your situation), have their own pty ltd company, if they have other clients, they do marketing/advertising, they use their own equipment (even if you reimburse them, which is normal for consultants), don't pay benefits or superannuation etc. Obviously not all of these are feasible but the more the better. Most of these things have to be done by the contractor.

I think you will be fine, it certainly seems reasonable to contract with a local consultant rather than hire someone. I am definitely not an expert. Yes I would recommend some advice from a lawyer. I can give you the details of my Australian lawyer if you like, they are used to working with startups.

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