There is no ABN tax rate. Income you earn under an ABN as a sole trader is taxed at the same individual rates as any other income you earn, on your profit rather than your turnover. What changes is not the rate, it is that nobody withholds tax for you along the way. That is the whole of the difference, and it is why an ABN feels like it is taxed differently when it is not.
Why people expect a separate rate
Because an employee sees tax leave every pay, and a sole trader does not. The money arrives whole, which feels like it is untaxed, and then the return arrives and it is not.
As a sole trader you are not a separate entity from your business. There is one taxpayer, you, and one tax return covering your salary if you have one, your business profit, your interest, and everything else. Your marginal rate is worked out on the total.
We do not reproduce the individual rate table here, because it changes and a stale table on a website is worse than none. Check the current rates and thresholds on the ATO's own tax rates and codes page, which is the authoritative version.
What you are actually taxed on
Profit, not revenue. Income you earned, less the expenses you incurred earning it.
That distinction does more work than the rate does. A sole trader invoicing $90,000 with $30,000 of genuine business expenses is taxed on $60,000, and the difference between claiming those properly and not claiming them is usually larger than any rate question.
Two things follow:
- Records are the whole game. A deduction you cannot substantiate is a deduction you do not get.
- Only the business-use share counts. A phone used half for work is a half deduction, not a whole one.
Does the tax-free threshold apply?
Yes, once, across all your income. It is not a separate allowance for the business.
This is the point that catches people freelancing alongside a job. The threshold is already being applied against your salary through your employer's withholding, so your business profit stacks on top and is taxed at your marginal rate from the first dollar. It is not tax-free income arriving on the side.
GST is not income tax
Separate question, separate money. GST is not a tax on you, it is a tax you collect from customers and pass on, and you only do that once registered. Registration is compulsory once your GST turnover reaches $75,000 in a 12-month period, or immediately if you carry passengers for a fare.
Below the threshold you are not charging GST, and the whole invoice is your income. Above it, the 10% was never yours.
PAYG instalments, which nobody warns you about
After your first year with business income, the ATO generally moves you onto paying tax in instalments during the year rather than in one bill afterwards. It is not an extra tax. It is the same tax, prepaid.
The year it starts is the awkward one, because you can be settling last year's bill and paying this year's instalments at the same time. Worth knowing before it arrives rather than after.
So how much should I set aside?
Enough to cover the tax on your profit at your marginal rate, which depends on your total income. There is no single percentage that is right for everyone, and the ones repeated online are guesses dressed as advice.
The reliable version: work out your expected profit, add any salary, and get a registered tax agent to give you a figure for your circumstances. A twenty-minute conversation before your first big invoice is worth more than a rule of thumb.
Practically, open a second account and move the money across as you are paid. Tax owed on money you have already spent is the actual problem, not the rate.
This page is general information, not advice about your situation. Rates, thresholds and instalment rules change, and how they apply depends on your circumstances.
Common questions
How much tax do you pay on an ABN?
There is no separate ABN tax rate. As a sole trader your business profit is taxed at the ordinary individual rates, combined with your other income, on your tax return. The difference from a job is that no tax is withheld as you earn.
Is ABN income taxed more than salary?
No. Same rates. The difference is timing and deductions: an employer withholds tax from salary as you go, while business income arrives whole and is settled at the return, and you can claim expenses incurred in earning it.
Do I get the tax-free threshold on ABN income?
Yes, but only once across all your income, not separately for the business. If you also have a job, the threshold is generally applied against your salary, so your business profit is taxed at your marginal rate from the first dollar.
Am I taxed on turnover or profit?
Profit. Your assessable business income less the deductible expenses you incurred earning it. Keeping records of those expenses usually matters more to the final number than anything about rates.
What are PAYG instalments?
Once you have reported business income, the ATO generally moves you to paying your expected tax in instalments through the year instead of in one amount afterwards. It is the same tax, paid earlier, but the first year of it can mean two payments landing close together.
Does GST come out of my income?
No. GST is collected from your customers and passed to the ATO, and only once you are registered. Registration is compulsory from $75,000 of GST turnover, or from the first dollar if you carry passengers for a fare.
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