In a word, ‘yes.’
Any business — individual, company, or trust — that is paid for their goods and services needs an ABN to legally operate.
Put more plainly, if you are looking to sell anything in Australia, you need an ABN.
In this article, we’ll cover everything you need to know about ABNs. By the end, you should have a much clearer understanding of what an ABN is and what you need to do to get one.
An ABN— or Australian business number — is a unique, 11-digit number that’s given to businesses so they can easily communicate with the government and community. ABNs are predominantly used for tax purposes.
However, the Australian government also uses them to understand more about businesses operating in a particular area. This information helps the government to provide services and to plan and manage infrastructure.
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Any business — individual, company, or trust — that is paid for their goods and services needs an ABN to legally operate. Essentially, if you’re looking to start an enterprise in Australia, you need an ABN. Additionally, those who want to register for the Goods and Services Tax (GST) must apply for an ABN.
Freelancers are classified as individuals or sole traders in this context, provided they meet certain criteria. These criteria help to distinguish those who are genuinely operating a business from those who are pursuing a hobby. If you’re not sure which one your activity is, start by asking yourself a few questions, such as:
It’s not only freelancers who need to secure an ABN. It’s also those who are:
The Australian Tax Office (ATO) provides guidance on how to choose a business structure. If you’re confused about what type of business you operate or if you need to secure an ABN, you can consult this website.
If you’re still confused, consider contacting a trusted accountant or attorney who can guide you in the right direction.
Along with being an identifier for your business, there are a couple other reasons why you’ll need an ABN.
If you don’t include an ABN when invoicing, clients can withhold up to 46.5% of your total payment. So, if you send an invoice for $10,000 and you don’t include your ABN, the customer only needs to pay $5,350.
Having an ABN is also important when it comes to filing your business tax returns. You’ll need the number to claim tax deductions for business expenses incurred in the financial year.
If your business starts earning over $75,000 a year, you’ll need it to register for Goods & Services Tax (GST) — a legal tax requirement. Once you meet or exceed this income threshold, you’ll need to register within 21 days.
An ABN is also critical if you plan on paying employees. Upon securing your ABN, you’ll need to register for the pay-as-you-go (PAYG) system. Doing so allows you to properly collect taxes on the employee’s behalf so they can collect tax liabilities at the end of the year.
If you run multiple small businesses, you may be able to operate them under the same ABN. If you are going to do so, all of the enterprises need to exist under the same business entity.
This means that all of the smaller businesses are holding companies underneath a parent company. Only the parent company needs an ABN. However, if you run multiple, separate business entities, you’ll need to get a unique ABN for each one.
You can apply for an ABN via the Australian Business Register (ABR). Not only will you need to acknowledge your eligibility, you’ll also need to provide evidence of your identity. If you’re an Australian resident, you can confirm your identity by providing your:
You need a TFN to file for an ABN. So, if you don’t have a TFN, now would be the time to secure one.
If you aren’t an Australian resident, you must provide at least two documents to prove your identity. Examples of acceptable documents include your:
If you’re not comfortable applying with one of these methods, you can apply through a tax agent. Tax agents are experts in this field and can ensure you enrol properly.
Once you receive your ABN, make sure it’s added to your invoice template. Usually, it’s placed at the top or bottom alongside your contact details. If you use accounting software, you can add the number to your estimates, invoices, and sales receipt templates.
As a freelancer, the details associated with your ABN may change occasionally. For example, you might move to a new house or get a new business phone number. Perhaps, you’ll even decide to change your business name. The fastest way to update your ABN details is online with your AUSkey or via Manage ABN Connections.
If you decide to stop freelancing and you no longer need your ABN, you need to cancel it. You can cancel it online at the Australian Business Register, but only after you’ve met all the legal requirements and paid any outstanding debts linked to it. Owing taxes is one of the more common debts that need to be settled.
One of the other things you may have heard about is an Australian Company Number, or ACN. Although these two terms sound synonymous, they are actually different. For one, a different entity issues ACNs. The Australian Securities and Investments Commission (ASIC) issues ACNs, not the Australian Business Register.
Two, the numbers themselves are different. As we mentioned, an ABN is an 11-digit number. On the other hand, an ACN is a nine-digit number.
Lastly, most businesses don’t need to register for an ACN. Unlike ABNs, which are for sole proprietors, trusts, partners, and companies, an ACN is only for companies. So, if you’re a freelancer working for yourself, you don’t need to worry about filing for an ACN.
If you are the owner of a company, you cannot choose between an ABN and an ACN. You’re going to need both. You will need to apply for an ACN first.
If you’re setting up your own business for the first time, you’ll quickly find that there are a lot of guidelines you must follow from a compliance perspective. One of the most important is an ABN.
Filing for an ABN can save you both time and money when conducting business activities. Be sure to submit your business registration to the Australian Taxation Office so that you can focus on other aspects of growing your company.
For more information on starting a business have a look at our guides to starting a business and how to become a freelance accountant.
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