All About “abn”
What is ‘abn’?
The term ‘abn’ stands for ‘Australian business number’, also commonly referred to as ‘abn number’ or ‘aust business number’.
The Definition of abn?
An abn is an 11 digit number that is issued by the Australian Taxation Office to an entity that commences carrying out an enterprise. For all intense and purposes, the term ‘enterprise’ when used in conjunction with ‘abn’ means a business.
The Who of abn?
For the above purposes, an entity includes an:
- Individual (also called sole trader)
So, any of the above is eligible to get an abn provided they are carrying on a business.
The eligibility criteria for getting abn for individuals is more strict than for partnership, companies and trust. There are 2 aspects to this.
First, as a company, partnership or trust, you are more likely to have commenced operating a business. The very establishment of the company, partnership or trust indicates that you meet the abn eligibility requirement of operating a business.
Secondly, as an individual, you have the added question of whether you are really in your own business or just operating as an employee for one or more other businesses. If you are in the latter category, then you fail to qualify for an abn. Clearly, companies, partnerships and trust do not need to worry about this abn requirement.
The Why of abn?
Contrary to popular belief, getting an abn is not compulsory for new businesses.
However, there are a number of advantages or reasons for doing so including:
- Invoicing. If you invoice people, you will need to include your abn on your invoice in order to avoid them withholding 48% tax from their payment to you
- GST registration. If you are required or elect to get GST registration, then you must first get an abn
- Domain. If you wish to register a domain, then you must first get an abn
- Reputation. If you wish to be seen as a responsible business, then it helps to have an abn
So, for practical purposes, it follows that just about everyone who operates a business will need and want an abn.
Can I Find the abn for another business?
Yep. Just google “abn lookup”.
Abn for Individuals – The Contractor Test?
One of the most critical issues for individuals in deciding on whether to register for an abn is whether they are carrying on a business, as opposed to being employees.
The Tax Office provides a number of tests here for deciding your eligibility for an abn.
The first question is whether you are applying for an abn to ‘operate as a contractor’.
A ‘contractor’ is defined as:
“A self-employed individual who usually enters into a contract for service with other parties. The contract is usually to achieve a result by carrying out specified work for the other party at an agreed price.”
If your answer is ‘no’ then you satisfy this test to get an abn. If your answer is ‘no’, then the Tax Office will ask you 3 further questions to assess your abn eligibility.
If you answer ‘yes’ to any of the following, then you satisfy this test.
USING ANOTHER PERSON - Will your work agreement allow you to get or employ another person to perform the work on your behalf. The Tax office says that you don’t have to actually do this, you just have to have the ability to do it.
QUOTED PRICE & DEFECTS – Will the payments you receive be based on a quoted price?” AND “Will you be responsible for the cost of rectifying any defect in the work you perform”
HEAVY MACHINERY – Do you need to provide heavy machinery to undertake your business activity?
Abn for Individuals – The Operating a Business Test?
If you are an individual, then the Tax office wants to know if you are operating a genuine business as opposed to something that is not sufficient to constitute a ‘business’ such as a recreational activity or a hobby.
In deciding this, the Tax office suggests you consider the following criteria:
- the recurrent or regular nature of the activity;
- that activity is carried on in a similar manner to that of other business in the same or
- similar trade;
- activity is systematic, organised and carried on in a businesslike manner and records are
- the activities are of a reasonable size and scale;
- the entity has relevant knowledge or skill.
Abn for Individuals – The Commenced a Business Test?
In addition to operating a business, to get an abn, you must have commenced the business. It is not necessary to have commenced invoicing but you must at least have taken sufficient steps towards establishing the business. In deciding this, the Tax office suggests that you consider the following criteria:
- Completed a business plan and/or financial plan
- Applied for finance
- Leased/purchased premises or equipment for the business
- Obtained any relevant licenses to operate
- Registered a patent/copyright
- Registered a business name
- Advertised your business or developed a website
- Recruited staff
- Signed a contract or registered with an organisation (excluding labour hire firms) to
- provide services
- Issued an invoice