What Sole Traders Need to Know When Applying for an ABN

If you’re ready to step out as a solo business owner or contractor, there’s a few key things you need to get sorted first. As you’ll be running your own show, you will need to apply for an ABN if you’re trading. This easy blog by Business Kitz will walk you through the nuts and bolts of applying for an ABN as a sole trader, and provide you with some tips along the way!

What is a ABN?

An Australian Business Number (ABN) is a 11 digit number that is unique to your business. This number is used for tax purposes, other business related activities and distinguishes your business from the others. However, note that an ABN does not replace your tax file number.

As per the Australian Business Register, you only need an ABN if you already have or intend to start your own business in Australia. This means that you have undertaken business activities to commence trading. If you provide services as an employee under a business, or simply as a hobby, you do not require an ABN.

Obtaining an ABN is one of the first steps you should do when starting a business. It is also crucial that your business is compliant with FairWork requirements, have employee contracts in place and have thorough policies. Business Kitz’s subscription service provides users with access to over 200 of the highest quality legal, commercial and employment templates to help you get your business started!

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Who may be classified as a sole trader?

If an individual classifies themselves as a ‘sole trader’, it means they are the only owner of the business. Therefore, the individual is legally responsible and liable for all aspects of the businessBeing a sole trader provides the owner with full control over the business decisions and assets, and is a low cost structure with fewer formalities and documentation, compared to other business structures.

Other key elements of being a sole trader include;

  • Using an individual Tax File Number (TFN) for tax purposes
  • They do not require a separate bank account for the business,
  • The sole trader has unlimited liability over the business and assets
  • They can employ other to help run the business
  • They are responsible for paying your employees’ superannuation.

As such, a sole trader is entitled to a ABN if they are; 

  • Carrying on or starting an enterprise in Australia
  • Connecting supplies with Australia’s indirect tax zone
  • A Corporations Act company

With regards to tax obligations, as a sole trader, you will be required to;

  • Use your personal TFN to lodge your income tax returns
  • Acquire an Australian Business Number (ABN) for all business related activities
  • Report all your income in your individual tax return 
  • You cannot claim a deduction for assets from the business for personal use
  • Register for goods and services tax (GST) if, your annual GST turnover is $75,000 or more, you provide taxi, ride-sourcing services (regardless of your turnover), you want to claim fuel tax credits 

Through an ABN, a sole trader can claim goods and services tax credits, be identified as a distinguished business entity when trading, avoid pay as you go (PAYG) tax on payments, get an Australian domain name, claim energy grant credits and register for a proper business name.
Before applying for an ABN, make sure that you have all the necessary documents and information relating to your business structure, business activities and proof of identity documents ready. You can head to the Business Registration Service to apply, and the application is free of charge. More information on what other documents you may need can be found here.

How long does it take?

Once you have applied for an ABN, you should expect to receive a confirmation letter with all your details within 14 days. 

If you apply but are not eligible, your request may be declined. However, the Australian Taxation Office will explain why the application was denied. Penalties of up to $10,200 can occur for any false and misleading declarations made during the application. If you are still unsure whether you are eligible, the Australian Business Register (ABR) website has more information for you to find out if you are eligible for an Australian business number.

What to do if your business details change?

You must ensure that the details submitted for your ABN are up to date and valid. You must also update any changes such as your address, name, contact details within 28 days of the changes. However, when you make changes, for example, to your business structure, you may need to register for a new ABN. This link will guide you with updating your ABN.

How and when to cancel your ABN? 

If you choose to close down, are no longer operating as a business or change your business structure, you will most likely need to cancel your ABN. You will also need to cancel your ABN when transitioning from being a sole trader to a company, sole trader to partnership and partnership to company. You can cancel your ABN on the ABR website here

Legal advice

Applying to register an ABN is simple. Make sure to check beforehand that you are entitled to an Australian business number and that you have all the correct and relevant information for the application. If you are still unsure about the entitlements, our sister company Legal Kitz can assist you with any business related matters. Book here now for a FREE 30-minute consultation with one of our experienced and professional team members. 

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