This question comes up almost every day. And it usually starts with a worry.
Someone has just applied for an ABN, landed their first contract, or picked up a side hustle. Money is coming in. Tax, suddenly, feels unclear. The obvious question follows.
What percentage of tax applies to an ABN?
There is no single ABN tax rate in Australia. None. Anyone telling otherwise is oversimplifying something that does not work that way in practice.
That point matters more than people realise.
The following breaks it down properly. No guesswork—just how ABN tax in Australia actually works, where people get caught out, and what to watch for before tax time arrives.
Is There a Fixed ABN Tax Rate?
No. There is no fixed ABN tax rate.
An ABN is not a tax structure. It is an identifier. That distinction is critical and often missed.
Tax is not calculated on the ABN itself. Tax is calculated based on who earns the income and how much taxable income remains after deductions. For most sole traders and freelancers, ABN income is taxed at individual income tax rates.
This is the main issue most people misunderstand.
Holding an ABN does not create a special tax bracket. It simply allows income to be reported as business income instead of salary.
How ABN Income Is Taxed in Australia
For sole traders, ABN income is added to other personal income and taxed at standard individual tax rates.
Those rates apply progressively. Not all income is taxed at one percentage. Each portion is taxed at the rate that applies to that bracket.
For the 2024–25 financial year, Australian resident individual tax rates are broadly:
- $0 – $18,200: tax-free
- $18,201 – $45,000: 16%
- $45,001 – $135,000: 30%
- $135,001 – $190,000: 37%
- Over $190,000: 45%
On top of this sits the Medicare levy, generally 2%.
ABN income may feel like “business money”, but it is still personal income for tax purposes unless operating through a company or trust.
So, How Much Tax Do ABN Holders Actually Pay?
The percentage varies. It depends on taxable income after deductions.
That last part is not optional.
Business expenses directly reduce taxable income. Ignore them, and tax bills inflate fast.
Example 1: Sole Trader With No Deductions
A freelance graphic designer earns $70,000 under an ABN. No other income. No deductions claimed.
Taxable income: $70,000
Approximate tax payable:
- Income tax: around $11,967
- Medicare levy (2%): $1,400
Total tax: roughly $13,367
Example 2: Same Income With Deductions
The same designer earns $70,000 but claims $15,000 in legitimate business deductions. Software, home office, phone, equipment.
Taxable income: $55,000
Approximate tax payable:
- Income tax: around $7,517
- Medicare levy: $1,100
Total tax: roughly $8,617
Same income. Very different outcome.
Do ABN Holders Pay Medicare Levy?
Yes. In most cases.
ABN holders pay the Medicare levy just like employees. The standard rate is 2% of taxable income, with some low-income thresholds and exemptions applying.
This is often overlooked because ABN income is not taxed upfront. The bill arrives later—usually at the worst possible moment.
Budgeting for the Medicare levy is not optional. Forget it, and the numbers never quite add up.
Is ABN Income Taxed Differently From Salary?
The tax rates are the same. The process is not.
Employees have PAYG withholding. Tax is deducted throughout the year. ABN holders do not, unless voluntary PAYG instalments are set up.
When no tax is withheld, ABN holders often feel like they are earning more. On paper, this looks fine. In practice, it creates a tax shock.
ABN income must be set aside manually. Failing to do this is the most common reason tax debts spiral.
ABN vs TFN Tax: What’s the Difference?
An ABN does not replace a TFN. Both serve different purposes.
- TFN identifies an individual for tax reporting
- ABN identifies a business activity
Tax is assessed to the individual using the TFN, even when income is earned through an ABN as a sole trader.
Another common trap appears here. Some contractors believe ABN income avoids tax reporting under a TFN. It does not. The ATO sees both.
Do ABN Holders Pay Tax Under the Tax-Free Threshold?
Only if taxable income exceeds $18,200.
If total taxable income, including ABN income, stays under the threshold, no income tax is payable. The Medicare levy may still apply in some cases, depending on circumstances.
Many side-hustlers assume small ABN income is automatically tax-free. It usually isn’t once combined with salary or other earnings.
PAYG Withholding and ABN Income
PAYG withholding can still apply to ABN holders in certain cases, particularly where the payer believes the ABN is not genuinely operating a business.
Misclassification causes real problems. It leads to withheld tax, denied deductions, and messy reconciliations later.
This is not rare. It shows up often in contracting arrangements.
Getting the structure right from the start prevents most of these issues.
The Bottom Line on ABN Tax Rates
There is no single ABN tax rate. Anyone looking for one number is asking the wrong question.
What matters instead:
- Total taxable income
- Legitimate deductions
- Medicare levy
- Whether tax is being set aside during the year
Most ABN holders do not overpay because rates are high. They overpay because planning is missing.
Clear, early guidance makes the difference. That is why Clear Tax focuses on education first, compliance second. Understanding how ABN tax works avoids surprises and keeps control where it belongs.
Related Reading – How to Reactivate ABN in Australia
Frequently Asked Questions
What percentage of tax do I pay on an ABN?
There is no fixed percentage. ABN income is taxed at individual income tax rates based on taxable income after deductions, plus the Medicare levy.
Is ABN income taxed differently from salary?
The tax rates are the same, but salary has PAYG withholding while ABN income does not. This shifts responsibility to the taxpayer.
Do ABN holders pay the Medicare levy?
Yes, in most cases. The standard Medicare levy is 2% of taxable income, subject to thresholds.
Do I need to pay tax if I earn under the tax-free threshold?
If total taxable income stays under $18,200, no income tax is payable. Medicare levy rules may still apply depending on circumstances.
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