Budget 2026 ABN Tax Changes: If you earn income through an ABN – whether as a freelancer, contractor, sole trader or small business owner – the 2025 Federal Budget has some measures worth noting.
A few Budget announcements may benefit self-employed Australians over time. But they don’t change your obligations for the current income year, and they certainly don’t simplify your record-keeping.
Here’s what applies to you, what’s coming, and what you should be doing right now.
The Budget Measures That May Apply to Sole Traders
1. Working Australians Tax Offset (WATO) – from 2027–28
The Budget introduces a new Working Australians Tax Offset of up to $250 per year. The Budget papers state this will apply to income derived from work, including not just wages and salaries, but also the business income of sole traders.
This is a positive development for self-employed Australians, but it doesn’t apply until the 2027–28 income year.
For more detail on the WATO, including how it differs from a tax cut and a deduction, read our employee guide: 2026 Federal Budget: What Every Employee Needs to Know
2. Personal Tax Rate Cuts – Relevant if You’re on the Individual Tax Scale
Sole traders are taxed on their business income at individual rates. That means the personal income tax cuts announced in the Budget – a reduction in the 16% rate to 15% from 1 July 2026, and to 14% from 1 July 2027 – will flow through to your tax position on income between $18,201 and $45,000.
This is a gradual benefit that applies to future income years.
3. The $1,000 Instant Deduction – Does Not Apply to Business Records
The proposed $1,000 instant work-related expense deduction is primarily aimed at employees.
It is not a replacement for business record-keeping.
Even when it becomes available from 2026–27, ABN holders and sole traders still need to maintain:
- Tax invoices and receipts for business expenses
- Bank statements and records of business-related transactions
- Vehicle logbooks where car expenses are claimed
- Records of home office use where there is a private-use component
- Calculations supporting any business-use percentage claims
The ATO’s position is clear: business deductions require a direct connection to earning assessable income. Private expenses cannot simply be claimed as business deductions.
We’ve prepared a simple Federal Budget Highlights guide to help you understand what applies now, what starts later, and what may affect your next tax move.
What Hasn’t Changed – The Fundamentals That Still Apply
Regardless of Budget announcements, the following remain unchanged for the 2025–26 income year:
ABN income is taxable income. Income earned as a sole trader is reported in your individual tax return. Whether you invoice as a freelancer, run a trade business, or operate a service-based business, that income is assessed at individual marginal rates.
You may need to lodge even if the business made little or no profit. The ATO’s position is that if you carried on a business during the year, a tax return is generally required – even if the business generated minimal income or a loss.
Business deductions require a genuine business connection. Deductions for business expenses are available where those expenses are directly related to earning assessable income. Mixed-use expenses – such as a phone used for both personal and business purposes – can only be deducted to the extent of the business-use portion.
GST registration thresholds still apply. If your GST turnover reaches or is expected to reach the $75,000 threshold, GST registration is required. Operating below that threshold does not automatically exempt you from other tax obligations.
PAYG instalments may be applied to your account. If you have business or investment income above certain levels, the ATO may bring you into the PAYG instalment system – requiring you to pre-pay income tax during the year. This avoids a large tax bill at lodgement time, but it does require careful cash flow management.
Budget 2026 ABN Tax Changes: Common Mistakes Sole Traders Should Avoid
Claiming personal expenses as business deductions. This is one of the most common triggers for ATO review. Personal groceries, clothing that could be worn outside of work, private travel and personal subscriptions are generally not deductible – even if you occasionally use them in the course of running your business.
Mixing personal and business finances. Operating a sole trader business through a personal bank account makes it significantly harder to identify business expenses, calculate GST and respond to an ATO query. A dedicated business account is strongly recommended.
Forgetting to declare all income, the ATO receives data from a wide range of third-party sources – including payment platforms, banks and online marketplaces. Income received through platforms such as payment apps, online marketplaces, or gig economy platforms is generally taxable.
Treating the $1,000 instant deduction as a shortcut for business records. As noted above, the instant deduction is an employee measure. It does not replace proper business record-keeping, and it does not apply to your 2025–26 return in any case.
Investment Assets and Your Business – A Note on CGT
If you hold investment properties, shares, crypto or other assets as part of your broader financial picture – separate from your business – proposed changes to negative gearing and capital gains tax may also affect you.
Read our full guide for investors: 2026 Federal Budget: Property Investors and CGT – What’s Changing
The Bottom Line for ABN Holders
The Budget offers some future benefit to self-employed Australians – particularly through the Working Australians Tax Offset and the gradual tax rate reductions. But for the 2025–26 tax return, none of those measures applies yet.
Budget 2026 ABN Tax Changes – What applies right now:
- Declare all ABN income accurately
- Keep proper records for every deduction you intend to claim
- Review your GST registration status if your turnover is approaching $75,000
- Check whether PAYG instalments are already running on your account
- Separate business and personal finances wherever possible
The Budget may make things a little easier in the coming years. Right now, the fundamentals still apply – and getting them right matters.
Finnex works with freelancers, contractors and sole traders across Melbourne on everything from ABN setup and GST registration to year-end tax returns and ATO correspondence. If you’re unsure about your obligations for 2025–26, we’re here to help. Book an appointment.
