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If you are running a business, you are more than likely to apply for and receive an ABN as a business operating in Australia. Find out if you meet the criteria for an ABN below. But this is not the end of the story.
Having an ABN is highly beneficial to your business and it is easy to get one! This article will cover the pros of having an ABN. It will also discuss how to register for an ABN and the legal obligations you have under your ABN.
However, before we get into the details of why an ABN is useful, let’s go through the basics.
What Is An ABN?
An Australian Business Number (ABN) identifies your business with a unique 11 digit number. The government, other businesses and the public are able to differentiate your business from other businesses easily when you have an ABN.
Do I Need An ABN?
If your business has a GST turnover that exceeds $75,000, you need an ABN under Australian law.
Can Anyone Have An ABN?
If you run a business, you need an ABN. If you do not run a business, then you will not need one.
If you are providing services to an employer as a contractor (under a Contractor Agreement), you will need to apply for an ABN.
Can You Have More Than One ABN?
Technically, you can run multiple businesses under the same ABN if they are all under the same business structure.
If the structures for your individual businesses are different, you’ll need a new ABN for each of them.
Why Should I Get An ABN?
If you’re entitled to get an ABN, under the criteria mentioned above, you must get one to avoid serious legal consequences. But even if it was not mandatory, it would be within your best interests as a business to have an ABN. Below, the five main benefits of an ABN are highlighted and explained.
1. Become Easily Identifiable
When operating as a business there are many circumstances where you do not want a case of mistaken identity. For example, say you are getting paid by a business partner. While your business name is definitely helpful, there are lots of businesses out there and some have very similar names. The benefits of a unique identification mechanism are self-evident in this regard.
Once you have your ABN, you can also register your business name nationally. Like the ABN, this is mandatory if you are conducting business under any name other than your own. However, registering your business name also makes that business name unavailable to other businesses. Further helping you to identify your business and stand out.
2. Avoid Taking A (Temporary) Paycut
An ABN means the government is confident they can determine you are paying the correct tax.
If you don’t provide an ABN, any business that is paying you may have to withhold up to 47% of the payment and pay that 47% to the Australian Taxation Office. Although this amount may only be temporarily withheld it may still be essential capital to keep your business going that you can’t afford to access later.
Simply provide your ABN to the business you are dealing with and they will be able to pay you in full. You should display your ABN on invoices or other relevant business paperwork.
An additional tax benefit of an ABN is that it entitles you to a tax free threshold of income for up to 18,200 dollars. Any money you earn below this amount is going to be tax free!
3. Tax Credits
Any purchases that you make in the course of running your business are tax deductible. In order to file for these tax deductions you must quote your ABN. Without one you cannot claim tax deductions as a business. The purchases that you make in the course of setting up and running a business can be substantial, this can mean significant reductions in the amount that you are taxed each year.
Similar to tax deductions you can also use your ABN to claim Goods and Services Tax (GST) credits. GST credits operate to allow you to claim back any GST you paid on a product that you purchase as a part of running your business. Again, depending on your business, this can mean saving a significant amount of money and is only possible if you have an ABN.
4. Energy Grant Credits
Your ABN can also be used to save you more money through the Energy Grant Scheme. Under the Energy Grants Scheme you can get energy credits. Energy credits are monetary rewards for businesses that use cleaner fuel options. This scheme is designed to get businesses to become more environmentally friendly. One of the eligibility criteria however is that an ABN is registered from the business. Therefore, having an ABN is essential to be able to get this benefit.
5. Australian Domain Name
When you set up a website you need to register an available domain name. As a business starting up you will more than likely have a website. This is because having an online presence is essential to running a modern business.
In order to compete as a small business your customers need to have easy access to information about your business or online sales options you may be offering.
To register and reserve a website name as a business which has a ”.au” or “.com.au” or “.org.au” ending you will need an ABN. These endings are likely to make your website look more legitimate and trustworthy. Although it may seem minor, this is a major benefit!
In Summary
The benefits of an ABN are:
- easy identification
- various tax and scheme benefits
- ability to reserve an Australian domain name
These benefits are all great ways to get a head start for a business starting up where identification and money saving measures are essential.
To make it more appealing, there are almost no identifiable downsides to having an ABN. It does carry a few extra obligations but you incur these when you run a business anyway. These obligations are explored below.
How Do I Get An ABN?
If the above benefits have stirred your interest in getting an ABN we have the answers on HOW you can get one right here. Registering for an ABN is free and once you have the relevant information it’s pretty easy.
Firstly, you have to make sure that you are eligible for an ABN. You are eligible for an ABN if you are running or starting a business. To determine if you are running a business there are a series of factors that will be considered. If you want to know all these factors we run through them here.
In short, the process of determining if you are running or starting a business involves proving that you are doing business-like operations i.e. making a profit, advertising, seeking work or clients etc.
Second, you need to determine your business structure. This is a choice based on your specific business and circumstance. You must nominate if you are a:
- Sole trader
- Partnership
- Company
If you are looking for more information on how to make this choice you can find it in our guide to starting a business.
Once you have identified your business structure, you just need your proof of identity and details of your business and associates before you are ready. Once you have this information go to the Australian Business Registrations Service website and follow the instructions.
How Do I Find An ABN?
If you would like to find an ABN online, use the ABN Lookup. This is a register with all registered ABNs in Australia.
This is a crucial step if you’re engaging with a business and you want to complete your due diligence and ensure you are making informed commercial decisions.
What Are My Obligations Under An ABN?
The obligations under an ABN are mostly regarding tax. If you are a business operating under an ABN you will be required to lodge an annual tax return regardless of your earnings.
Additionally, if you are operating or paying another business without an ABN you will have to withhold some of the pay and reserve it for the ATO.
Want The Benefits But Still Unsure About ABNs?
Running a business involves lots of different considerations and questions to ask. If you need help with any legal aspects of your business, our lawyers can answer your questions.
Get in touch with our team at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligation chat.
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