It is not compulsory to have an ABN, but there are a lot of good reasons to have one.
If you are in business, having an ABN will avoid payers witholding tax from your payments. An ABN also makes it easier to deal with the Tax Office and register for GST and other business tax registrations such as PAYG withholding.
Before you rush out and get your ABN, be sure you understand what business structure you’ll be using.
Each entity (sole trader, partnership, company or trust) receives just one ABN, regardless of the number of commercial activities it undertakes. For example, a single partnership running both a corner store and a dress shop would have only one ABN. But if you were to set up separate companies, partnerships or trusts, each entity must register in its own right.
Australian Company Number and the ABN
If you choose a company structure, you will first need to register your company with the Australian Securities and Investments Commission (ASIC). The commission will issue your company with an Australian company number (ACN).
When you register your company for an ABN, you will be asked to supply your ACN. The ABN issued to your company by the Australian Business Register will be the company’s ACN plus two check digits at the beginning.
Below are the top 3 areas where we often see people run into issues:
• Don’t forget to put your ABN on your business stationery, especially your invoices. If you don’t, other businesses can withhold 46.5% from any payment to you. Companies don’t need to show both an ACN and ABN on their invoices.
• Just because you have received an ABN, does not automatically mean you are registered for GST or PAYG Withholding. If required, you can apply for these registrations at the same time as your ABN application or at a later date. You have to specifically request registration for GST or PAYGW.
I’m always dumbfounded by the number of people I speak to who have no idea what they registered themselves for! As you can imagine, charging GST whilst not being registered for it is a huge no-no… not to mention the nightmare of employing staff without having any arrangements for PAYGW. If you are unsure what you need – or what you registered yourself for – find out and quickly!
Online ABN Entitlement Tool
The Tax Office have an ABN Entitlement Tool designed to help individuals determine whether they are entitled to register for an ABN. This can be particularly helpful if you are unsure whether or not you are a contractor rather than an employee (an increasingly common issue).
Once you have answered a series of questions you will be provided with information regarding your entitlement to an ABN and provided with a report.
Obtaining an ABN
If you prefer to obtain your own ABN, you can start the process online at the Australian Business Register.
ABN applications can take up to 28 to process (although you may even receive one immediately).
Before you begin, ensure you know exactly what structure you’ll be operating under and which registrations you require. If you’re unsure, speak with your accountant.