Tax works differently with an ABN compared to a normal job.
When you’re an employee, your employer withholds tax from your wages automatically. With ABN income, nobody withholds anything. The full amount lands in your account, and your tax is worked out later when you lodge your tax return.
This is why many first-year ABN holders get surprised by a tax bill. They assume tax has been “taken care of” somewhere along the way. It hasn’t.
When Do You Pay Tax on ABN Income?
In most cases, you pay tax when you lodge your tax return at the end of the financial year. Your ABN income and expenses are included in a Business Schedule, and your total taxable income is calculated from there.
If your ABN income grows over time, the ATO may also place you into the PAYG instalment system, which spreads tax payments across the year. But for most new ABN holders, tax is dealt with at year-end through the return.
You Pay Tax on Profit, Not Turnover
This is the key point many people miss.
You are taxed on your profit, not your total income. Profit is calculated as:
Business income
minus
tax-deductible business expenses
If you miss deductions, your profit looks bigger than it should, and the tax outcome is worse than necessary. Claiming deductions properly reduces profit and usually reduces tax.
How to Avoid a Surprise Tax Bill
To keep things under control, ABN holders should:
Keep records of income and expenses throughout the year
Keep receipts and invoices as evidence
Set aside money from each payment to cover tax later
Avoid mixing business and personal spending where possible
A simple tracking habit makes tax time far easier and helps prevent nasty surprises.
Next Steps for ABN Holders
ABN tax is manageable when income and expenses are recorded properly and reported correctly in your tax return. The main risk is doing nothing until the end of the year and trying to guess your numbers.
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