How Much Tax Should I Pay on My ABN? (2026 Update)

As an ABN holder in Australia, you pay tax on your business income at individual marginal rates, not a separate “ABN tax rate”. Here’s what that actually means for your wallet.

There is no special ABN tax rate. Your ABN tax is simply your regular income tax, calculated on your total taxable income (business profit plus any other income) at Australia’s standard individual marginal rates, assessed after 30 June each year.

That’s the clean answer. The messy reality is that most new ABN holders don’t fully grasp what this means until they get a tax bill that genuinely stings. You receive invoices in full, no tax withheld, and then, once a year, the whole lot lands on you at once. Getting ahead of this is the difference between a manageable tax return and a very bad June.

What is ABN tax and how is it calculated?

When you hold an ABN (Australian Business Number), tax is not withheld from the payments you receive. A client pays your invoice in full. It’s your job to set aside the right amount and pay it to the ATO after the financial year ends on 30 June.

Your taxable income for the year is your total income from all sources: ABN business profit (revenue minus allowable deductions), any employment income, rental income, or investment income, minus any tax offsets you’re entitled to. Your ABN profit is not taxed in isolation; it all gets added together first.

This stacking effect catches a lot of people out. If you earn $70,000 at your day job and add $40,000 in ABN income on the side, you’re not taxed at the lowest rates on your ABN earnings. You’re taxed at the rate that applies to the $70,000–$110,000 band, which is 32.5%.

The 2025–26 individual income tax brackets

Australia uses a progressive tax system. The following rates apply for the 2025–26 financial year (1 July 2025 to 30 June 2026), as confirmed by the ATO. Note: these rates do not include the 2% Medicare Levy, which applies to most residents on top of these figures.

Taxable income	Tax rate	Tax on this band
$0 – $18,200	0%	Nil
$18,201 – $45,000	16%	16c for each $1 over $18,200
$45,001 – $135,000	32.5%	$4,288 + 32.5c for each $1 over $45,000
$135,001 – $190,000	37%	$33,538 + 37c for each $1 over $135,000
$190,001 and over	45%	$54,088 + 45c for each $1 over $190,000

Add 2% Medicare Levy on top for most taxpayers. If you’re earning under $27,222 as an individual, you may pay a reduced Medicare Levy or none at all.

One change worth knowing for 2025–26: the tax rate on income between $18,201 and $45,000 dropped to 16% (it was 19% in prior years). This gives sole traders on lower incomes a modest but real improvement.

A worked example: what does ABN tax actually cost?

Say you’re a freelance graphic designer. You earn $85,000 through your ABN in the 2025–26 year, with $12,000 in deductible business expenses (software, home office, equipment). Your taxable ABN profit is $73,000. This is your only income source.

Your tax calculation:

• $0–$18,200: $0 tax
• $18,201–$45,000: $4,288 (16% on $26,800)
• $45,001–$73,000: $9,100 (32.5% on $28,000)
• Total income tax: $13,388
• Medicare Levy (2%): $1,460
• Total tax bill: approximately $14,848

You may also be eligible for the Low Income Tax Offset (LITO), which reduces to nil by $66,667, so at $73,000, you wouldn’t receive it. At lower incomes, it’s worth checking, as it can meaningfully cut your bill.

In this example, setting aside around 20% of gross revenue would have left you roughly covered. At higher incomes, 25–30% is a safer buffer.

How does ABN tax work differently for different business structures?

Your ABN tax obligations depend heavily on your business structure. Sole traders, partnerships, and companies are all treated differently by the ATO.

Structure	Who pays the tax	Tax rate	Separate tax return?
Sole trader	You personally	Individual marginal rates (0%–45%)	No, included in your personal return with a business schedule
Partnership	Each partner personally, on their share of profits	Individual marginal rates for each partner	Yes, the partnership lodges a return, but pays no tax itself
Company (Pty Ltd)	The company	25% (base rate entity) or 30% (larger companies)	Yes, company lodges its own return; you pay personal tax on salary or dividends separately

The most common question Lawpath accountants field around structure is whether incorporating a company saves tax. The short answer: sometimes, but not always. If your ABN profit is under $130,000 and you need to draw most of it out to live on, you’ll often pay similar or more tax through a company once you factor in the salary or dividend you pay yourself. The company structure is worth considering when you want to retain profits inside the business for investment or growth, not just to reduce personal tax today.

What ABN tax obligations does a sole trader have?

Running under an ABN as a sole trader comes with a clear set of recurring obligations. None of them are complicated on their own, the trap is missing one because no employer is reminding you.

1. Annual income tax return

You lodge an individual tax return each year, which includes a separate business schedule reporting your ABN income and expenses. This is due by 31 October if you lodge yourself, or by 15 May the following year if you use a registered tax agent (another good reason to use one).

2. GST registration (if your turnover hits $75,000)

If your ABN turnover reaches or is likely to reach $75,000 in a 12-month period, GST registration is compulsory. Once registered, you add 10% GST to your invoices, collect it from clients, and remit it to the ATO via a Business Activity Statement (BAS).

The flip side: you can also claim GST credits on your business expenses. For many sole traders, this partially offsets the admin overhead of registration.

One mistake to watch for: the $75,000 threshold applies to your turnover (gross income), not your profit. If your revenue hits $75,000 but your expenses eat most of it, you still need to register.

3. Business Activity Statements (BAS)

Once GST-registered, you’ll lodge a BAS, usually quarterly, reporting GST collected and GST paid on expenses. Your BAS may also include PAYG withholding obligations if you have employees or contractors under the voluntary withholding arrangement.

4. PAYG instalments

In your first year of ABN income, you’ll likely pay tax in one lump sum after lodging your return. From year two, the ATO will typically enrol you in PAYG instalments, a quarterly prepayment system designed to spread your tax bill across the year.

You’re automatically enrolled if your instalment income from your last return was $4,000 or more, your tax payable was $1,000 or more, and your estimated tax for the next year is $500 or more. You can also voluntarily enter the system before the ATO does it for you, which many accountants recommend, a large one-off bill at year-end is harder to manage than four smaller quarterly ones.

5. Superannuation (for yourself)

Sole traders are not legally required to make super contributions for themselves. But you should. Personal super contributions are generally tax-deductible (up to the concessional cap of $30,000 per year in 2025–26, including any employer super if you also have employment income). This reduces your taxable income and builds your retirement savings at the same time.

If you have employees, you must pay the Superannuation Guarantee, currently 12% of ordinary time earnings from 1 July 2025, into their super funds.

What deductions can ABN holders claim?

This is where ABN tax gets more interesting. Unlike employment income, business income lets you claim expenses incurred in earning that income, which directly reduces your taxable profit and your tax bill.

Common deductible expenses for sole traders include:

• Home office expenses: if you work from home, you can claim a portion of internet, electricity, and occupancy costs, or use the ATO’s fixed rate method (currently 70 cents per hour for 2025–26)
• Vehicle and travel: business-related travel, including a portion of car costs, calculated via logbook or cents-per-kilometre method
• Equipment and tools: computers, tools, subscriptions, and other assets used in your business
• Professional services: accounting fees, legal advice, bookkeeping
• Marketing and advertising: website costs, digital ads, business cards
• Insurance: public liability, professional indemnity, and income protection premiums
• Training and professional development: courses, conferences, or subscriptions directly related to your current business income
• Personal super contributions: deductible if you submit a notice of intent to claim to your super fund

The rule the ATO applies is clear: the expense must have been incurred in earning your assessable income, not private in nature. A laptop you use 80% for work and 20% personally? You can claim 80%.

One practical note: vehicle expenses are one of the most audited deductions. If you’re claiming car costs, maintain a logbook for at least 12 weeks to establish your business-use percentage. A rough estimate isn’t enough if the ATO asks questions.

What we see in Lawpath consultations

Across thousands of accounting consultations each year, a few ABN tax patterns show up time and again.

The combined-income surprise. Many ABN holders who also have a part-time or full-time job underestimate their tax rate. They set aside 15–20% of ABN income assuming the lower brackets apply, not realising their employment income has already filled those brackets. When the tax return lands, the bill is higher than expected. The correct approach is to estimate your total income from all sources and set aside a percentage based on that combined figure, not just your ABN earnings in isolation.

The PAYG instalment timing trap. First-year ABN holders pay one lump-sum tax bill after their first return. From year two, the ATO often enrols them in quarterly PAYG instalments automatically. Our accountants regularly see clients who, unaware of this, treat that first quarterly instalment notice as an unexpected bill rather than a prepayment. It’s not extra tax, it’s the same tax paid in four smaller chunks over the year. Understanding this early prevents a cash-flow shock.

Business expenses paid on personal accounts. Many sole traders pay for business costs using a personal bank card without recording them. At tax time, those expenses either get missed entirely or require a painful reconstruction exercise. Keeping a business bank account separate from your personal account, even a free one, makes record-keeping significantly easier and ensures you claim everything you’re entitled to.

Not thinking about super until June. Sole traders who want to make personal super contributions and claim a tax deduction must submit a notice of intent to their fund before lodging their tax return, not after. Accountants regularly see clients who miss this step and lose the deduction for that year.

ABN and TFN: what’s the difference for tax purposes?

Your ABN identifies your business. Your TFN (Tax File Number) identifies you as an individual taxpayer.

As a sole trader, you use your existing personal TFN for your business tax return, no new TFN is required. Your ABN income feeds directly into your individual return.

If you’re in a partnership, the partnership itself has its own TFN (separate from the partners’ personal TFNs). If you run a company, the company has its own TFN and pays company tax, you then pay personal tax when you take money out as a salary or dividend.

A note on PAYG withholding: if you’re also employed, your employer deducts PAYG tax from your wages throughout the year using your TFN. This doesn’t cover your ABN income, that’s handled separately through your annual return or PAYG instalments. Don’t assume your employer withholding covers everything.

How much should I set aside for ABN tax?

There’s no single correct answer, it depends on your total income, your deductions, and whether you have any tax offsets. That said, here are the practical starting points most Lawpath accountants use with new sole traders:

Estimated total taxable income	Suggested set-aside percentage	What it covers
Under $45,000	15–20%	Income tax + Medicare Levy at lower rates
$45,000–$120,000	25–30%	32.5% marginal rate + Medicare Levy
$120,000–$190,000	35–38%	37% marginal rate + Medicare Levy
Over $190,000	45%+	Top marginal rate + Medicare Levy

These are guides, not guarantees. Your deductions can significantly reduce what you owe. But underestimating and coming up short is much more painful than overestimating and getting a small refund.

A separate savings account, labelled “tax”, works better than most tracking systems. Every time you get paid, transfer your set-aside percentage immediately. It’s out of sight, out of mind, and you won’t accidentally spend it.

Frequently asked questions about ABN tax

Do I have to pay tax if I have an ABN but earn under $18,200?

No income tax is payable on taxable income up to $18,200. But this threshold applies to your total income from all sources, not just your ABN earnings. If you also have employment, investment, or rental income, it all counts toward the threshold together. You must still lodge a tax return if the ATO asks you to, or if your income exceeds the lodgement threshold.

Does holding an ABN mean I automatically owe tax?

Having an ABN doesn’t create a tax obligation by itself. Tax becomes payable when your taxable income exceeds $18,200 in a financial year. If your ABN activity generates minimal income and you have no other income sources, you may owe nothing. You still need to lodge a tax return to confirm this.

What percentage of tax do ABN holders pay?

ABN holders pay tax at Australia’s individual marginal rates, 0%, 16%, 32.5%, 37%, or 45%, depending on their total taxable income. There is no fixed ABN tax rate. Most sole traders earning between $45,000 and $135,000 pay 32.5% on each additional dollar of income, plus 2% Medicare Levy.

How much can I earn on ABN before paying tax?

You pay no income tax on the first $18,200 of your total taxable income. The Low Income Tax Offset (LITO) can effectively push this threshold higher, to around $21,885 for sole traders with no other income, but the exact figure depends on your individual circumstances. From $18,201 upward, the 16% rate applies on the first band.

Do I need to register for GST with my ABN?

Only once your ABN turnover reaches or is likely to reach $75,000 in a 12-month period. Below that threshold, GST registration is optional. If you’re close to the threshold and growing, register proactively, the penalty for not registering when you should have can be significant.

What happens if I don’t pay ABN tax?

The ATO charges interest on overdue tax (currently the general interest charge rate, updated quarterly) and may issue penalties for failure to lodge. Persistent non-lodgement can result in the ATO raising a default assessment on your behalf, usually at an unfavourable amount. If you’re struggling to pay, contact the ATO before the due date; they have payment plan options that avoid the worst of the penalties.

Can I claim a tax deduction for my accounting fees?

Yes. Tax agent fees and accounting costs incurred in managing your business tax obligations are deductible. This includes the cost of a Lawpath accounting plan. The deduction applies in the year you pay the fee, not the year the tax work relates to.

Do I have to pay super as a sole trader?

No, sole traders are not legally required to make super contributions for themselves. But personal concessional super contributions are tax-deductible up to the $30,000 annual cap (2025–26), making them one of the most effective ways to reduce your taxable income. You must lodge a valid notice of intent to claim with your super fund before lodging your return.

Getting your ABN tax right from the start

Most ABN tax issues aren’t complicated. They come down to not setting aside enough, missing the GST threshold, or being caught off guard by PAYG instalments in year two. None of those things have to happen to you.

A straightforward checklist to stay on top of it:

• Set aside 25–30% of each invoice into a dedicated tax savings account
• Track all business income and expenses with separate accounts or accounting software
• Register for GST before your turnover hits $75,000, not after
• Lodge your tax return on time (31 October, or 15 May via a tax agent)
• Check whether you’re enrolled in PAYG instalments after your first year
• Consider personal super contributions before 30 June each year
• Keep records for at least five years, including invoices, receipts, and bank statements

If your ABN income is growing or your situation is anything but straightforward, side hustle alongside employment, business expenses that are partly personal, contractors you’re paying, it’s worth getting a proper accountant involved before 30 June, not after.

You’re not behind on this, and it’s not as complicated as it feels right now. The main thing is to have a system and stick to it.

Lawpath’s sole trader tax plans cover your annual return, BAS lodgements, and accountant consultations in one place, from $59/month. Register your ABN or get your tax sorted today.