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 bus.gov.au 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, a website domain or use digital services like eInvoicing. 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. You can read more on the Australian Business Register website about who is entitled to get an ABN.
- If you’re a sole trader expecting to generate a rolling annual turnover of more than $75k you must apply for an ABN and register for GST.
- If your turnover is less than $75k then you can choose to apply for an ABN but register for GST at a later stage. This doesn’t apply to taxi or ride-share operators – they must register for GST at any level of turnover.
You should always seek professional advice from an accountant or lawyer before making any decisions about applying for an ABN. 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. People will expect you to have one.
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
- register a .com.au website domain
- sign up for a business account with many suppliers eg, telco, energy, suppliers
- get business pricing on the purchase of a motor vehicle
- get a merchant account or payment reader like Square or Stripe
- obtain a trademark
- register for eInvoicing
- help you qualify for business grants and support payments
- employ someone
Another advantage 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.
Don’t just leave it on a to-do list somewhere. If you don’t apply for an ABN, chances are you’ll need one in the near future.
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.