How ABN tax works
ABN income has no tax withheld at the source. When a client pays your invoice, the full amount lands in your account, so it is on you to hold back what the ATO will want later. That is the whole reason a sole trader or contractor needs to think about setting money aside. You are taxed on your business profit, meaning income after deductible expenses, at the ordinary resident rates: nil up to $18,200, then 15% to $45,000, 30% to $135,000, 37% to $190,000 and 45% above, plus the 2% Medicare levy. If you also earn a salary, your ABN profit stacks on top, so it is taxed at your top marginal rate, not from the bottom of the brackets.
How much to set aside
A safe habit is to move a fixed percentage of every payment into a separate account the moment it arrives. This self employed tax calculator shows the exact effective rate on your ABN income and a suggested set-aside percentage, so you are not guessing. Do it quarterly and the annual bill never blindsides you. Two extra things to watch: once your business turnover passes $75,000 in a 12-month period you must register for GST, which is a separate 10% you collect and pass on; and once your tax bill grows, the ATO moves you onto quarterly PAYG instalments. This tool covers income tax and the Medicare levy on your ABN profit, plus an optional HECS/HELP repayment if you have a study loan. It does not include GST or PAYG instalments.
| ABN profit (2026-27) | Set aside | Effective rate |
|---|
| $50,000 | $6,520 | 13.0% |
| $70,000 | $12,920 | 18.5% |
| $100,000 | $22,520 | 22.5% |
No other income and no study loan, 2026-27 rates. Add a HECS/HELP repayment on top if you have one.
Sole trader and contractor tax explained
As a sole trader you and your business are the same taxpayer, so your ABN profit is taxed at your personal resident rates, not a separate company rate. That is what this sole trader tax calculator for Australia works out: the income tax, Medicare levy and suggested set-aside on your business profit. One rule to know is the personal services income (PSI) rules, often called the 80% rule. If 80% or more of your income comes from one client for your personal skills or labour, the ATO may treat it as personal services income and limit the deductions you can claim. It does not change your tax rates, but it can change what counts as a business expense, so it is worth checking if most of your work is for a single client. Contractors working on an ABN are taxed the same way as any other sole trader.
Frequently asked questions
How much tax do I pay on ABN income?
You pay the same resident income tax rates as everyone else, on your business profit after expenses. For 2026-27 that is nil up to $18,200, 15% from $18,201 to $45,000, 30% to $135,000, 37% to $190,000 and 45% above, plus a 2% Medicare levy. On $80,000 of ABN profit with no other income, that works out to about $16,120, or roughly 20% of your income.
How much should I set aside for tax on an ABN?
A common rule of thumb is 25% to 30% of every payment, but the honest answer depends on your total income. This calculator shows a suggested set-aside percentage based on your actual numbers. Low earners often need closer to 15%, while sole traders stacking business income on top of a salary can need 35% or more, because the extra income is taxed at their top marginal rate.
Do I pay tax on ABN income if I earn under the tax-free threshold?
If your total taxable income for the year is under $18,200 and you claim the tax-free threshold, you pay no income tax. The catch is that ABN income has no tax withheld at the source, so it is easy to spend money that later turns out to be taxable once your income for the year adds up. Set money aside from the first dollar and reconcile at tax time.
What is the 80% rule for sole traders?
The 80% rule is part of the personal services income (PSI) rules. If 80% or more of your income in a year comes from one client for your personal skills or labour, the ATO treats it as personal services income, which limits the deductions you can claim and can attribute the income to you as an individual rather than a business. Earn from several clients, with less than 80% from any one of them, and you are more likely to be treated as running a personal services business. PSI does not change your tax rates, it changes what you can deduct, so it is worth checking if most of your ABN income comes from a single client.
Is it better to be on wages or ABN?
It depends on the work and how you weigh flexibility against certainty. Wages from a TFN job have tax withheld each pay, plus super, paid leave and a steady amount landing in your account. ABN income has no tax withheld and no super or leave, so you set the tax aside yourself and cover your own super and time off. ABN work often pays a higher headline rate to make up for that, and lets you deduct business expenses. Run your expected ABN profit through this calculator, set the tax aside, and compare the net against a salaried offer.
How much tax do I pay if I earn $70,000 on an ABN?
On $70,000 of ABN profit with no other income in 2026-27, you pay 15% on the amount from $18,201 to $45,000, which is $4,020, then 30% on the amount from $45,000 to $70,000, which is $7,500. That is $11,520 in income tax, plus a 2% Medicare levy of $1,400, for a total of about $12,920. That is roughly 18.5% of your income, so setting aside around 18.5% of every payment covers it. Add a HECS/HELP repayment on top if you have a study loan.
Do I need to register for GST with an ABN?
You must register for GST once your business turnover reaches $75,000 in a 12-month period. Below that it is optional. GST is separate from income tax: you add 10% to your prices, collect it on sales, and it is not money you keep. Each BAS you remit the GST you collected minus the GST you paid on business expenses (input tax credits), so you only hand over the difference. Set that aside as well as your income tax. Use the GST calculator to work out the 10% on a single sale or expense.
This tool is a guide, not tax or financial advice.
