If you are earning an income as both a regular employee (using a Tax File Number, or TFN) and a self-employed freelancer, contractor, or gig worker (using an Australian Business Number, or ABN), figuring out your tax obligations can feel like trying to solve a puzzle with missing pieces.

A common misconception is that your ABN and TFN income are taxed separately under two different systems. They are not. In Australia, you are taxed as a single entity. Your ABN earnings and TFN earnings are combined into one big pool at the end of the financial year.

The 4-Step Tax Calculation Formula

Because your ABN business structure operates as a sole trader, your business profits are simply treated as personal income. To calculate exactly what you owe the Australian Taxation Office (ATO), follow this specific sequence:

1.Calculate Your Net TFN Income:Step 1.

Find your gross (before-tax) salary from your employment pay slips. Subtract any eligible work-related deductions (such as uniforms, tools, or union fees) to find your net TFN taxable income.

2.Calculate Your Net ABN Business Income:Step 2.

Take your total gross business revenue. Subtract your allowable business operating expenses (like software subscriptions, home office costs, or commercial vehicle travel). What remains is your net ABN profit.

3.Combine and Calculate Total Tax Owed:Step 3.

Add your net TFN income to your net ABN profit. This combined figure is your Total Taxable Income. Apply this single number to the individual marginal tax brackets, and add the standard 2% Medicare Levy.

4.Subtract Tax Already Paid (PAYG):Step 4.

Look at your TFN pay slips to see how much tax your boss already withheld throughout the year. Subtract that withheld amount from your total calculated tax bill. The remaining balance is what you owe the ATO (or your refund).

An Example in Action

Let’s look at how this math works out in real life using a standard scenario where an individual splits their time between an office job and freelance contracting work.

⚠️ The ABN Trap: Notice how you owe an extra $4,600 at tax time? That’s because nobody was withholding tax from your ABN client invoices during the year. If you don’t manually put aside roughly 20% to 30% of every ABN payment into a separate savings account, you will face a painful bill when you lodge your return.

Individual Tax Brackets Guide

When calculating your combined total tax bill, apply your Total Taxable Income directly to the progressive tax brackets set by the government:

• $0 – $18,200: 0% (Tax-free threshold)
• $18,201 – $45,000: 16% of the amount over $18,200
• $45,001 – $135,000: $4,288 plus 30% of the amount over $45,000
• $135,001 – $190,000: $31,288 plus 37% of the amount over $135,000
• $190,001 and over: $51,638 plus 45% of the amount over $190,000

(Note: Keep in mind that a legislated change drops the lowest bracket rate from 16% down to 15% starting on July 1, meaning your calculations for upcoming income years will see an automatic tax reduction).