The important differences between an ABN or a TFN?

Do you know the difference between an ABN or a TFN? When starting a new job or business, it’s always exciting but it can also be overwhelming trying to sort out all your documentation, especially if you don’t fully understand what it is. This Business Kitz blog is going to assist you in determining whether you require a Tax File Number (TFN) or an Australian Business Number (ABN) and the difference between them. When you are starting a new job or starting your own business, you may be required to supply an ABN or a TFN, but what’s the difference and which do I need?

To determine whether you require an ABN or a TFN, it all depends on the job you are doing. If you are operating a business then you are required to have an ABN but if you are just an employee, then you’re only required to have a TFN. The rules are simple if you’re working on either an ABN or a TFN but can become confusing when you’re working on both.  

What is a Tax File Number (TFN)?

A TFN is a unique nine-digit number that is yours for life no matter if you change jobs, work interstate or move overseas; it’s always yours. Everyone who works in Australia is required to have a TFN. It’s quick and easy to apply online and you can expect to receive it within 28 days of applying.

What is an Australian Business Number (ABN)?

An ABN is a unique 11-digit number that is used to recognise your business or organisation to the government and community. It is required if you are wanting to start a business or work as a sole trader in Australia. If you previously have a TFN before applying for an ABN, it makes the process a lot easier and faster. If you would like more information on ABNs and how to create one, check out this previous Business Kitz blog. Both applications for an ABN or a TFN are easy and simple to follow and can be found on the Australian Tax Office website.

Do I need an ABN or just a TFN?

If you are a business that provides services to customers, you will generate an invoice when billing them, which must contain your ABN. This is how your customers pay for your services. However, unlike a TFN, with an ABN you must deduct taxes and declare them during the period indicated by the Australian Tax Office. It is a crime to incorrectly deduct your tax and you can face harsh penalties if caught. 

When working under a TFN, your tax is deducted before you receive your salary into your account, and this amount will be shown on your payslip. This is the best and easiest way to manage your tax and you might even receive a rebate when it comes to tax time! 

Whilst when working via an ABN, you will be paid the gross figure, which has no tax deducted and therefore will have to pay the tax office each year after you report your earnings. It’s important to save money, especially for this to ensure you can pay your tax.

Legal advice

Applying to register for a TFN or an ABN is simple. To assist in a quick ABN and TFN application check the Australian Tax Office to ensure that you have all the correct and relevant documentation. If you are still unsure about the entitlements, our sister company Legal Kitz can assist you with any legal-related matters. Book here now for a FREE 30-minute consultation with one of their experienced and professional team members.