In this article we focus on small businesses and the ABN. If you want to know more about what other enterprises need an ABN, you can check the Australian Business Register website.
What is an ABN?
An Australian Business Number is an 11-digit number unique to an enterprise or business. The number is used to identify a business when they’re dealing with the government, other businesses, and the public.
Why do you need an ABN?
It’s a legal requirement for almost anyone running a business in Australia. You’ll also need one if you want to register a business name. There are some advantages to having an ABN that we outline later.
Who needs to apply for an ABN?
If you’re running a small business, or planning to set one up, you’ll need an ABN.
To be entitled to apply for an ABN, your business must be structured as one of the following types (also called entities):
*If you’re a sole trader expecting annual turnover of more than $75k, you must apply for an ABN and register for GST. If your turnover is less than $75k, you can choose to apply for an ABN but not register for GST. You don’t have to do both.
It’s important to choose the right structure for your business for many reasons. You should always seek professional advice from an accountant or lawyer before making any decisions about applying for an ABN or choosing your business structure. Read more about choosing your business structure on the ATO website. Visit the Xero advisor directory if you need help finding someone to provide professional advice.
What are the advantages of having an ABN?
You’ll find it a lot easier to deal with other businesses, the Australian Tax Office (ATO), and other government agencies. Most people will expect you to have one.
One of the main advantages is that you'll save time and money. That’s because other businesses are legally required to withhold tax from businesses that don’t provide an ABN if the payment is more than $75 (excluding GST). And they must withhold it at the top tax rate of 47%. So even though your business can claim back any excess tax paid in the end of the year tax return, it's not ideal for your cash flow.
Another advantage is being able to use a single ABN across multiple businesses. For example, if you own a furniture shop, then start a curtain outlet, and then a fabric supplier you could use the same number across all of them if they’re part of the same business entity.
Having an ABN also means your business can:
- claim GST credits (when registered for GST)
- claim fuel tax or energy grants credits (if you qualify)
- avoid pay-as-you-go (PAYG) tax on payments you receive
- obtain an Australian domain name (for your .au website)
- obtain a trademark
If you don’t apply for an ABN, chances are you’ll need one in the near future. Don’t just leave it on a to-do list somewhere.
How to apply for an ABN?
Disclaimer: Xero does not provide accounting, tax, business or legal advice. This guide has been provided for information purposes only. You should consult your own professional advisors for advice directly relating to your business or before taking action in relation to any of the provided content.