Running your own business is exciting and liberating, but it comes with its own unique stack of challenges and requirements. One common question is whether you need an ABN as a sole trader. Business Kitz have written this article to guide you through the requirements and benefits of possessing an ABN as a sole trader.
What is a sole trader?
A sole trader is the most simple business structure. If you operate your business as a sole trader, you are the only owner of the business. As a result, you are legally responsible for all aspects of your business. This means you are also:
- Responsible for day-to-day business operations;
- Responsible for any debts and losses; and
- Responsible for your own super and the super of any other workers you employ.
What is an ABN?
An Australian Business Number (ABN) is a unique 11-digit number that identifies your business to the government and community. You can use an ABN to:
- Identify your business to others when ordering and invoicing;
- Avoid pay as you go (PAYG) tax on payments you get;
- Claim goods and services tax (GST) credits;
- Claim energy grants credits; and
- Acquire an Australian domain name.
Do I need an ABN as a sole trader?
As a sole trader you are not required to acquire an Australian Business Number unless your expected annual turnover will exceed $75,000. Although having an ABN is not a legal requirement for entities below this revenue bracket, it is encouraged that sole traders obtain an ABN due to the many perceived benefits. Some key benefits to having an ABN as a sole trader include the aforementioned entitlements of identifying your business to others, claiming GST credits and avoiding business clients withholding PAYG tax on payments.
How can you acquire an ABN as a sole trader?
As a sole trader, you are able to apply for an ABN for free, however, not everyone is entitled to an ABN. You are entitled to an ABN if you are:
- Carrying on or starting an enterprise in Australia;
- Making supplies connected with Australia’s indirect tax zone; or
- A Corporations Act company.
If you are successful in your application, you will receive your 11-digit ABN immediately. Once you have your ABN, you can immediately apply for other business registrations, such as GST. Your details will be added to the Australian Business Register (ABR), where you can request that certain details are not disclosed if any privacy concerns arise. It is now your responsibility to ensure you keep your ABN details up to date.
If your submitted application is rejected, you will receive a refusal number. Within 14 days you will receive a letter confirming that your application has been unsuccessful, the reason as to why you were refused, and the options available to you continuing forward.
What is needed for an ABN application?
To ensure you can complete your ABN application, the following is required:
- Tax file number (TFN);
- Tax or BAS agents registered agent number, if you use a registered agent;
- Professional adviser number, if you’re using the service of a professional adviser, you can provide their licence number e.g. Australian Financial Services Licence (AFS Licence);
- Previously held ABN (if applicable);
- Date your ABN is required. This should be the date that you expect to start any business activities – e.g. buying stock. This date can’t be more that six months in the future when you apply;
- Entity legal name – appears on all official documents or legal papers;
- Authorised contacts – this can be a registered tax or BAS agent if they are authorised to make changes or update information on behalf of the entity;
- Business contact details including an address, postal address, email address and phone number. Your email address must meet requirements such as; being between 5-200 characters, contain no spaces and not start with ‘support@’, ‘sales@’ or ‘info@’;
- Business activity – usually the main source of income for your enterprise e.g. agriculture, construction, investment and manufacturing. Self-managed super funds may not be carrying on a business and therefore might not have a main business activity; and
- Business locations – provide businesses physical locations for all premises operated by your enterprise, unless there’s a risk to safety of individuals as a result of the disclosure e.g. a women’s refuge.
With this extra information under your belt, you might be considering applying for your own ABN, if relevant. This can be completed by heading to the Australian Business Register website and following the application steps found on the website.
If you require further assistance in navigating the requirements of an ABN for sole traders, our sister company Legal Kitz is here to help! They will assist with any business related matters, and offer a FREE 30-minute consultation to assist with any of your queries. Additionally, our subscription plan offers employers access to over 150+ legally compliant, employment, and HR related document templates to take the hassle out of the legalities of being an employer. Click here to find out more about our subscription plan.