Do I need an ABN: understanding the importance of an Australian Business Number (ABN)
What is an ABN?
The Australian Business Number (ABN) is a unique 11-digit identifier issued by the Australian Tax Office (ATO) to businesses operating in Australia. It is used for tax and business purposes, allowing the ATO to track business income, withhold tax, and ensure compliance with taxation regulations. Sole traders, as well as other entities, such as companies, must obtain an ABN if they conduct business activities in Australia. This number is also linked to the Australian Business Register (ABR), which maintains essential business information, including business names and details of business owners.
It's important for businesses to have an ABN to legally operate, issue tax invoices, claim fuel tax credits, and access various benefits like business insurance. Additionally, when multiple businesses engage in the same or similar trades, having an ABN simplifies the process of conducting business and ensures proper taxation procedures.
Who needs an ABN?
An Australian Business Number (ABN) is typically required for the following entities:
If you're operating a business as a sole trader you will need an ABN. A sole trader is someone who runs and owns their own business in a personal capacity as opposed to operating a business through an entity such as a company or trust. To learn more see our article on Sole Traders here.
Any company registered in Australia, whether it's a small business or a large corporation, must have an ABN.
Partnerships conducting business in Australia are required to obtain an ABN. A partnership is a business structure where multiple people share ownership and responsibilities.
Trusts, including family trusts or trading trusts, often need an ABN, especially if they are involved in business activities.
An association, club, or not-for-profit organisation requires an ABN in order to be a registered charity with the Australian Charities and Not-For-Profit Comission (ACNC).
Other entities, such as superannuation funds, government bodies, and foreign entities conducting business in Australia, may also need an ABN in specific cases.
It's worth noting that even if you don't meet the mandatory ABN registration criteria, voluntarily obtaining an ABN can be a smart move. It simplifies business transactions, allows you to claim Goods and Services Tax (GST) credits, and bolsters your business's credibility.
However, it's crucial to remember that ABN requirements and regulations may evolve. So, it's wise to stay informed and seek specific advice from government agencies or professionals, especially when considering a new business endeavor. Not everyone needs an ABN, but relevant knowledge and guidance can help you determine if it's the right choice for you as a business owner or sole trader.
Applying for an ABN
Here's a simplified step-by-step guide on how to apply for an Australian Business Number (ABN):
Gather information: collect your personal and business details, such as your name, date of birth, business structure, and address.
Visit the ATO's website: go to the Australian Taxation Office (ATO) website.
Start application: select "apply for an ABN" and fill out the online form.
Provide details: enter your information accurately, including your reason for needing an ABN and your business activities. If you're applying as a company, you would also need to provide your Australian Company Number (ACN).
Submit application: review your details and submit your application.
Track progress: you'll receive a reference number to check your application's status.
Wait for approval: the ATO will process your application, and if approved, they will issue your ABN.
Receive ABN: once approved, you'll receive your ABN via email or postal mail.
Remember, applying for an ABN is usually free, and if you have any questions or need help, the ATO website provides guidance and resources to assist you.
When do I apply for an ABN?
It's advisable to seek an ABN when you kickstart your business, or even in the preliminary stages before trading commences. This proactive approach is essential because having an ABN enables seamless participation in the GST system, shields you from Pay As You Go (PAYG) tax deductions on incoming payments, establishes your business identity for ordering and invoicing purposes, and potentially positions you for endorsement as a gift deductible recipient or an income tax-exempt charity.
By obtaining an ABN, you can align your business more effectively with tax purposes and ensure that you remain legally responsible for your financial obligations, including the filing of separate tax returns and the prudent management of your Tax File Number (TFN).
What happens if I don't have an ABN?
Lack of an Australian Business Number (ABN) carries implications for businesses providing goods or services. When transacting with other businesses, the 'No ABN Withholding Rule' can trigger a substantial 47% withholding of payments through the Pay As You Go (PAYG) withholding system.
Not having an ABN can hinder your ability to establish your business identity during ordering and invoicing.
It also renders you ineligible for GST registration, preventing you from claiming GST credits, and can complicate your tax-related tasks, including managing tax invoices and filing tax returns. Essentially, the absence of an ABN can significantly impact your profitability, potentially subjecting you to a higher tax rate.
Do I need to renew my ABN?
ABNs never expire, so you don't need to renew them. Once acquired, your ABN accompanies your business throughout its existence. Nonetheless, it is imperative to diligently update your ABN details in the Australian Business Register (ABR), especially if your business name, structure, or profit aspects change.
Cancellation of ABN
When discontinuing business operations, it becomes essential to terminate your ABN registration. However, before proceeding, ensure all your obligations, encompassing lodgment, reporting, and payment responsibilities, such as activity statements and PAYG withholding reports, are satisfactorily met.
You can cancel your ABN the following ways:
online via the Australian Business Register.
by enlisting the services of your registered tax agent or BAS agent.
by completing a cancellation form and sending it to the Australian Taxation Office (ATO).
It's crucial to remember that should you decide to rekindle your business endeavors after ABN cancellation, you have the opportunity to reapply for the same ABN, provided your business structure remains unchanged, and your intentions align with the prevailing ABN requirements and tax regulations.
ABNs are a crucial identifier for businesses in Australia and are a legal requirement for various business structures, from sole traders to corporations, partnerships to trusts, and nonprofit organisations. Acquiring an ABN is often essential for ensuring compliance with taxation regulations and simplifying your financial responsibilities.
Getting an ABN is easy and recommended when starting your business, or even before trading.
On the other side, not having an ABN can have significant implications, including PAYG tax withholding and hindrances your ability to establish your business identity and claim GST credits.
If you need help acquiring an ABN reach out to us today.
Causbrooks gives you a client manager supported by a team of knowledgeable accountants. We’re here to take the guesswork out of running your own business. Our accountants have much experience working with small business owners.
Get in touch with us to set up a consultation or use the contact form on this page to inquire whether our services are right for you.
Any advice contained in this document is general advice only and does not take into consideration the reader’s personal circumstances. Any reference to the reader’s actual circumstances is coincidental. To avoid making a decision not appropriate to you, the content should not be relied upon or act as a substitute for receiving financial advice suitable to your circumstances.
Can I run a business without an ABN?
In Australia, running a business without an Australian Business Number (ABN) is typically not allowed. The ABN simplifies interactions between businesses and various government entities. It's a prerequisite for engaging in the GST system, evading PAYG tax on received payments, verifying your business identity during transactions, and potentially gaining recognition as a gift deductible recipient or income tax-exempt charity.
Do I need an ABN if I earn less than $75,000?
Yes, you must have an ABN to run a business in Australia, even if your earnings are below $75,000. This threshold pertains to GST registration. While you may not need to register for GST if your turnover is under $75,000, possessing an ABN is essential for various business functions like invoicing and placing orders.
Can I have an ABN with no income?
Yes, it's possible to possess an Australian Business Number (ABN) even in the absence of income. However, should you have registered a business but not actively conducted any business operations, there's no requirement to submit a tax return for that business. Should you choose to cease business activities, the proper procedure involves canceling your ABN.
Can I be a full-time employee and have an ABN?
It's entirely feasible to maintain full-time employment while also holding an ABN. This scenario frequently applies to individuals engaged in full-time jobs while concurrently managing side businesses. Nevertheless, it's vital to keep in mind that an ABN entails specific responsibilities, including the potential requirement to register for GST, submit activity statements, and fulfill superannuation obligations if applicable employees are part of the equation.
How does having an ABN affect my tax?
Having an ABN can impact your taxes in several ways. When you run a business, it's essential to report all your income and expenses, even if your income is below the tax-free threshold. If your business turnover exceeds $75,000, you may need to register for GST. If you don't provide your ABN when dealing with other Australian businesses, they could withhold 47% of their payment to you for tax purposes. Additionally, there could be other tax obligations to consider, such as PAYG withholding and fringe benefits tax.
What is the top rate of tax for no ABN?
If you fail to furnish an ABN and do not qualify for an exemption, the Australian Taxation Office mandates the business you're invoicing to withhold 47% of the payment for tax purposes, as stipulated by the "no ABN withholding rule."