@tig said:
make a component of the smaller one, giving it gluing and 'hole cutting' properties.
The easiest and most fool proof way is to draw the smaller rectangle on a face (it can be this final face or any temporary face). Now when you drew the rectangle,
double click on it (to select the face and its bounding perimeter),
right click on the selection > "Make component"
and SU (by default) will already assign the gluing and cutting properties to this new component.
As TIG says, since it will "cut" a hole into the face it is placed on (but at the same time fills that cut with its own face/colour), this Z-fighting will not happen.