Australian Business Number (ABN)

What is an australian business number (ABN)?

An Australian Business Number (ABN) is a unique 11 digit identifier assigned to businesses, serving as an identification code recognized by the Australian government and the community. An ABN is necessary to facilitate business transactions and establish credibility when interacting with other businesses, customers, and government entities.

With an ABN as a central reference point, businesses can effectively track and manage their transactions for tax purposes.

For the the differences between an ABN and an ACN, see our ACN vs ABN article.

Significance of an ABN

An ABN is important for a number of reasons, including:

With an ABN, you can report your business income accurately, ensuring compliance with Australian tax laws.

• It enables businesses to claim tax deductions and fulfill their tax obligations efficiently.
• It serves as a unique identifier for your business when ordering and invoicing, streamlining administrative procedures.
• It allows you to avoid Pay As You Go (PAYG) tax on incoming payments, facilitating better financial management.
• It enables you to claim Goods and Services Tax (GST) credits, significantly impacting the business’s cash flow.
• With an ABN, your business can claim energy grants credits, which offer financial incentives for adopting energy-efficient practices.
• It lets your business obtain an Australian domain name, aligning your online presence with your identification and branding. In this way, an ABN enhances its credibility, visibility, and accessibility in the digital landscape.

How to apply for an ABN

Before applying for an ABN, assessing and determining the tax registrations that apply to your business, such as GST and PAYG withholding, is crucial.

Once you have identified the necessary registrations, you can proceed with the ABN application, providing accurate information and fulfilling all requirements outlined by the tax authorities.

Another essential aspect to consider is that when you apply for an ABN, you can simultaneously register for tax obligations such as Goods and Services Tax (GST) and Pay As You Go (PAYG) withholding.

This streamlined process saves time and effort, immediately ensuring you comply with all necessary tax requirements.

ABN For non-residents

Non-resident entities, despite not being physically located in Australia, may still be eligible to obtain an ABN under specific circumstances. To qualify, a non-resident entity must meet either of the following criteria:

• Engaging in commercial activities or operating a business within the territory of Australia.
• Making sales connected with Australia as part of their enterprise.

This eligibility criterion enables non-resident entities to establish a presence or conduct business activities in Australia without requiring physical operations within the country.

Moreover, non-residents can fulfill obligations like Goods and Services Tax (GST) and Pay As You Go (PAYG) withholding with an ABN.

ABN and GST

Having an ABN is a prerequisite for GST registration in Australia. Businesses that generate a Goods and Services Tax (GST) turnover of $75,000 or above are required to possess an ABN and complete registration for GST purposes.

This threshold applies to both resident and non-resident businesses operating in Australia.

Even if your business has a GST turnover below $75,000, you can still apply for an ABN voluntarily.

Once you have an ABN, you may register for GST later if your turnover exceeds the threshold or you find it advantageous for your business operations.

The “no ABN withholding rule”

The Australian tax system has implemented the “no ABN withholding rule” to ensure tax compliance when sellers do not provide an ABN.

Under this rule, if a seller does not quote an ABN, the buyer must withhold a specific percentage from the payment made to the seller.

The withholding rate is currently set at 47% under the Pay As You Go (PAYG) withholding system.

Exceptions

There is an exception to the no ABN withholding rule when a seller provides a valid reason why the rule should not apply.

In such cases, the seller must complete a Statement by a Supplier form, which outlines the reason for not quoting an ABN.

Before accepting the statement, the buyer must conduct reasonable inquiries to verify the reason provided by the seller.

The no ABN withholding rule aims to ensure that businesses, especially those not required to be registered for GST, cannot evade their tax obligations by requesting cash payments.