How much tax should I put aside from my ABN income?
There is no single right percentage, because ABN profit is taxed at the same rates as everyone else, on top of any other income you have. If your ABN is your only income, the real figure is often well under 30%. If you also have a job, your side profit is usually taxed at 32c in the dollar or more (30% tax plus 2% Medicare levy). Work out your own number once with the method below, then save that slice of every payment.
The short version
- Ella needs to save about 16% of her profit, roughly $9,620 for the year, so a flat 30% would tie up about $18,000, nearly double what she'll owe.
- Josh should save 32c of every profit dollar, about $4,800 for the year, and a flat 20% would leave him about $1,800 short at tax time.
- If you take $1,000 and spent $200 on supplies to do the job, your tax is on the $800. Save your tax slice from the profit side of each job, not the gross amount.
Money lands in your account from a client and none of it has been taxed. You know some of it belongs to the ATO. You just don't know how much, and a vague worry about a big bill sits in the back of your head all year.
Most people grab a number they heard somewhere, like 20% or 30%. That can work, but it can also be miles off in either direction. Here's why, and how to work out a figure that actually fits you.
First, tax is on profit, not on what comes in
Your tax is worked out on your business profit: what your customers paid you, minus your business expenses. It doesn't matter how much you move into your personal account. Leaving money in the business account doesn't make it untaxed, and drawing it all out doesn't make it more taxed.
If you're registered for GST, the GST you collect isn't yours either. It goes back to the ATO on your BAS, so keep it out of your sums and out of your spending.
Why one flat percentage is only a rough rule
Australia taxes income in steps, and nobody withholds tax from ABN payments for you. So the right slice depends on your whole year, not just the invoice in front of you. A flat rate ignores:
- The tax-free threshold. The first $18,200 of your total taxable income is taxed at nil.
- The brackets. For 2026-27 the rates are 15%, 30%, 37% and 45% as income climbs.
- Your other income. If a job has already used up the tax-free threshold and the 15% band, every ABN dollar starts at 30% or higher.
- The Medicare levy of 2%, which sits on top of the tax rates.
- Offsets and add-ons. The low income tax offset can trim tax for lower incomes, and a HELP study debt can add a compulsory repayment on top.
That's why a sole trader with no job and a moderate profit can over-save with 30%, while someone with a full-time job and a side hustle can under-save with 20%. The worked examples below show both.
The marginal-rate method, step by step
You only need to do this properly once or twice a year. Use your best estimate of the year ahead.
- Estimate your ABN profit for the year: expected income (without GST) minus expected business expenses.
- Add any other taxable income, like wages from a job.
- Work out the income tax on the total using the 2026-27 resident rates.
- Add the 2% Medicare levy.
- If you have a job, work out the tax and Medicare on the job alone and take that away. Your employer is already withholding that part.
- Divide what's left by your ABN profit. That's your average set-aside rate. Then note your next-dollar rate (your top bracket plus 2%) for any extra work.
The 2026-27 resident rates are nil to $18,200, 15c for each $1 over $18,200, then $4,020 plus 30c for each $1 over $45,000, then $31,020 plus 37c over $135,000, then $51,370 plus 45c over $190,000. These rates don't include the 2% Medicare levy.
Two examples, two very different answers
Worked example
Ella's dog grooming business, no other job
Example only. Ella runs a mobile dog grooming van in Ballarat on an ABN. It's her only income. She expects $60,000 profit in 2026-27 after expenses, is an Australian resident for the full year, isn't registered for GST and has no HELP debt.
| Step | Sum | Result |
|---|---|---|
| Tax on the first $45,000 | 15% x ($45,000 minus $18,200) | $4,020 |
| Tax on the rest | 30% x ($60,000 minus $45,000) | $4,500 |
| Income tax | $4,020 + $4,500 | $8,520 |
| Medicare levy | 2% x $60,000 | $1,200 |
| Low income tax offset | $325 minus 1.5c x ($60,000 minus $45,000) | $100 off |
| Estimated tax for the year | $8,520 + $1,200 minus $100 | $9,620 |
| Average set-aside rate | $9,620 / $60,000 | about 16% |
Ella needs to save about 16% of her profit, roughly $9,620 for the year, so a flat 30% would tie up about $18,000, nearly double what she'll owe.
Her next dollar costs more than 16c. Each extra $1,000 of profit adds about $335 (30% tax, 2% Medicare and 1.5c less offset), so if she's growing, saving 20% gives her a cushion.
Worked example
Josh's job plus weekend photography
Example only. Josh has a job with $75,000 taxable income, and his employer withholds tax from his pay. He also does weekend wedding photography on an ABN and expects $15,000 profit in 2026-27. He's a full-year resident, not registered for GST, with no HELP debt.
| Step | Sum | Result |
|---|---|---|
| Tax on the job alone | $4,020 + 30% x ($75,000 minus $45,000) | $13,020 |
| Plus Medicare on the job | $13,020 + 2% x $75,000 | $14,520 |
| Tax on job plus ABN | $4,020 + 30% x ($90,000 minus $45,000) | $17,520 |
| Plus Medicare on the total | $17,520 + 2% x $90,000 | $19,320 |
| Extra caused by the ABN | $19,320 minus $14,520 | $4,800 |
| Set-aside rate on ABN profit | $4,800 / $15,000 | 32% |
Josh should save 32c of every profit dollar, about $4,800 for the year, and a flat 20% would leave him about $1,800 short at tax time.
If Josh had a HELP debt, his extra $15,000 would also lift his compulsory repayment from about $821 to about $3,071 under the 2026-27 thresholds, roughly $2,250 more, taking his set-aside to about 47%. This assumes his repayment income equals his taxable income.
Turning your number into a habit
- Open a separate savings account just for tax (and GST, if you're registered). Out of sight helps.
- Each time a payment lands, move your percentage across the same day. Small and often beats a scramble in October.
- Re-run the sums each quarter. If the year is going better or worse than you guessed, adjust the percentage.
- Once you're in the PAYG instalments system, the ATO will ask for quarterly prepayments that are credited against your tax bill. Your tax account is where those come from.
You can also join PAYG instalments voluntarily if you're new to business, or make a voluntary prepayment to the ATO at any time. Prepaid money sits on your ATO account and goes toward your bill.
When to get help
This method gives you a sensible estimate, not your final tax. Deductions, offsets, HELP, the Medicare levy surcharge and other income can all shift it. If your situation has a few moving parts, check with the ATO or a registered tax agent.
Key numbers
| What | Figure and source |
|---|---|
| Second resident tax bracket 2026-27 | 15c for each $1 over $18,200 up to $45,000 ATO |
| Third resident tax bracket 2026-27 | $4,020 plus 30c for each $1 over $45,000 ATO |
| Higher brackets 2026-27 | $31,020 plus 37c over $135,000, $51,370 plus 45c over $190,000 ATO |
| Medicare levy rate | 2%, not included in the tax rates ATO |
| Low income tax offset taper | $325 minus 1.5c for each $1 over $45,000, up to $66,667 ATO |
| HELP repayment 2026-27, second tier | 15c for each $1 over $69,528 ATO |
Free official help
- ATO tax rates for Australian residents
The official 2026-27 brackets used in the examples. - ATO starting PAYG instalments
When the ATO starts asking for quarterly prepayments, and how to join voluntarily. - ATO preparing for a potential tax bill
How to make voluntary prepayments toward your tax. - ATO study and training loan repayment thresholds
The 2026-27 HELP repayment rates if you have a study debt. - ATO Community: Tax tips for managing your side hustle
Plain tips from the ATO for people with a job and a side business.
Questions people ask
Is there a special ABN tax rate?
No. Your ABN profit goes on your normal tax return and is taxed at the same resident rates as wages, on top of any other income you have.
Do I pay tax on what I earn or what I take out of the business?
On your profit for the year. As a sole trader, moving money between your business and personal accounts doesn't change your tax.
Should I include GST in my set-aside?
Keep GST separate. If you're registered, the GST you collect is owed on your BAS and isn't part of your income, so save it on its own line or in its own account.
What if I save too much?
That's the good problem. The extra stays yours, and it's a handy buffer for the year your profit jumps.
Does the new $1,000 standard deduction help my ABN income?
Not on its own. From 2026-27 it applies to people with labour income such as wages, and the ATO says it won't apply if you only earn business income.
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Sources
- Tax rates for Australian residents (ATO). https://www.ato.gov.au/tax-rates-and-codes/tax-rates-australian-residents, accessed 2026-10-16.
- Low and middle income earner tax offsets (ATO). https://www.ato.gov.au/individuals-and-families/income-deductions-offsets-and-records/tax-offsets/low-and-middle-income-earner-tax-offsets, accessed 2026-10-16.
- Study and training support loans rates and repayment thresholds (ATO). https://www.ato.gov.au/tax-rates-and-codes/study-and-training-support-loans-rates-and-repayment-thresholds, accessed 2026-10-16.
- Starting PAYG instalments (ATO). https://www.ato.gov.au/businesses-and-organisations/income-deductions-and-concessions/payg-instalments/starting-payg-instalments, accessed 2026-10-16.
- Preparing for a potential tax bill (ATO). https://www.ato.gov.au/businesses-and-organisations/income-deductions-and-concessions/sharing-economy-and-tax/preparing-for-a-potential-tax-bill, accessed 2026-10-16.
- Tax tips for managing your side hustle (ATO Community). https://community.ato.gov.au/s/article/a079s000000ZeJFAA0/Tax-tips-for-managing-your-side-hustle, accessed 2026-10-16.
- Standard deduction for work-related expenses (ATO). https://www.ato.gov.au/individuals-and-families/income-deductions-offsets-and-records/deductions-you-can-claim/work-related-deductions/standard-deduction-for-work-related-expenses, accessed 2026-10-16.