Six Myths About Having an ABN
You may remember applying for an Australian business number (ABN) when you set up your franchise. For many franchisees, getting an ABN is the first interaction with the Australian Tax and Super systems as a business.
When it comes to applying for and receiving an ABN, there are obligations – the fine print – that applicants agree to which explains exactly what they are getting into. I know we lead busy lives and often don’t have the time to read the long legal documents that seem to come with anything and everything these days. I am personally guilty of this, in particular when I sign up to something online.
So, to help you understand ABNs better, we've put together a list of common misconceptions and set the record straight to help you tell facts from fiction when it comes to ABNs.
The first thing to know is that having an ABN isn’t simply set and forget, but comes with its own responsibilities and obligations. Understanding your obligations and staying up to date with your tax and super responsibilities makes doing business with you more attractive to other businesses.
It’s time to test your knowledge, see how many of the below myths you have already busted!
Myth One: Everyone is entitled to an ABN
The truth: Not everyone is entitled to an ABN.
You may be entitled to an ABN for several reasons, one reason being if you're carrying on or starting an enterprise in Australia. Australian businesses can operate under a range of structures, so to be entitled to an ABN, typically you’ll need to:
- Pay your own income tax and, if registered, GST directly to the Australian Taxation Office (ATO),
- Source your own customers by, for example, advertising your services,
- Delegate work to others if you choose without approval from an 'employer',
- Quote for work, including setting or negotiating your own prices,
- Invoice for work, and
- Pay your own business insurance, such as public liability.
While you don't need to have undertaken all of these activities, you would be expected to undertake at least some of them as part of running your business.
Myth two: Set and forget, your ABN is for life
The truth: ABN’s are not for life. You are entitled to an ABN when running an enterprise and you must cancel your ABN if this is no longer the case. You may also need to cancel your ABN and apply for a new one if you change your business structure, for example, if you change your business structure from:
- Individual/sole trader to partnership
- Partnership to company
- Individual/sole trader to company.
Before changing your business structure, you should understand the impact this will have on your business and clients; this may include changes to tax obligations and other business registrations. Sometimes updating invoices and documents with the new ABN gets forgotten and results in other businesses having to withhold a higher amount of tax, so don’t forget to update all invoices and business documents with the new ABN if granted.
I would recommend you seek professional advice before changing your business structure.
Myth three: You don’t need an ABN until you start to pay GST
The truth: You may still need an ABN even if you earn below the GST threshold of $75,000.
You generally need to quote an ABN on your invoices or other documents relating to sales you make to other business. If you do not quote an ABN when you supply goods or services to another business, they may have to withhold tax from their payment to you at the rate of 47 per cent (from 1 July 2017) under the PAYG withholding system.
You are required to register for GST within 21 days of your GST turnover exceeding the relevant threshold, and before you can register for GST, you need an ABN. Don’t wait until you need to register for GST; get your ABN at the start.
When you apply for an ABN, you can register for tax obligations such as GST and PAYG withholding at the same time.
Myth four: If you have an ABN and earn below the tax threshold, you don’t need to lodge a tax return
The truth: If you are carrying on an enterprise, you will need to lodge an income tax return regardless of how much you’ve earned. In fact, keeping up to date on your lodgment obligations is a great way to demonstrate to us that you are carrying on an enterprise. The requirement to lodge is irrespective of whether the business is reporting a profit or loss and is not subject to the tax-free threshold.
Myth five: ABNs are automatically cancelled, when you cancel GST, Pay as you go withholding or other business registrations
The truth: Cancelling your GST registration does not automatically cancel your ABN.
If you have to cancel your GST registration because you have restructured your business, sold it or closed it down, you may also ask us to cancel your ABN registration.
Before you cancel your ABN, ensure you meet any lodgment, reporting and payment obligations with any government agencies you deal with. It’s a good idea to wait for any processing to be completed before you cancel your ABN.
You can cancel your ABN online at abr.gov.au, all changes you make to your ABN online will take effect immediately.
Myth six: Keeping your ABR details up to date isn’t important
The truth: This is false, and the reason is near and dear to my heart - ABN data held within the Australian Business Register (ABR) is a key national data asset and a critical tool in the Australian business landscape.
ABR data is being used by business, government and the community for purposes outside the tax system to help everyday Australians and businesses such as business identity checks, disaster planning, policy design and targeting services to business. It is therefore imperative that the ABR is a trusted source of information.
To make the data useful and truthful, it's crucial ABN holders fulfil their obligations to update their ABN details within 28 days after you become aware of any changes and report their business activities to the ATO.
So how did you go, did you know all the myths and matching facts?
For more information and to see some more myths (along with my face) head along to the ABR website for our ABN fact and fiction videos
Emma Rosenzweig is responsible for the Australian Business Register and is passionate about improving the registration experience, and improving the quality and currency of the data held on the ABR.