Do I need an ABN as a sole trader?
- July 19, 2023
- 5 min read
If you’re a sole trader, (you’re running a business by yourself – yay!), you may need an Australian Business Number (ABN).
An ABN is a unique number that helps identify your business to the government and other businesses.
You need an ABN if your business is earning over $75,000 per year, or if you provide goods and services to another business that requires you to have an ABN.
For example, if you’re a freelance graphic designer and you work for a company, they may ask for your ABN to pay you for your services.
Even if you don’t meet these requirements, or it is a side hustle, it’s still a good idea to get an ABN, as it is professional and makes it easier to do business with other companies.
In this article, we will explore the basics of an ABN sole trader, the benefits of having an ABN, and how to apply for one. We’ll even go through the common mistakes sole traders make with their ABN.
So read on my savvy sole trader to find out if you need an ABN!
What is ABN?
An Australian Business Number (ABN) is a unique identifier for your business.
It is an 11-digit number assigned to your business by the Australian Business Register (ABR) and operated by the Australian Taxation Office.
Once your business has completed its ABN registration, that’s it! You don’t apply again. It stays with your business as long as your business is running.
Our article – What is an ABN? goes into more detail about the ABN, so you may want to read that first.
Do sole traders need an ABN?
In Australia, if you are operating as a sole trader and earning an income from your business, you are generally required to have an ABN.
You definitely, will need an ABN sole trader if:
- Your business has an annual turnover of $75,000 or more.
- You are providing goods or services to other businesses, regardless of your turnover per annum.
- You are registered for Goods and Services Tax (GST).
Even if your business does not meet these requirements, you may still choose to register for a sole trader ABN.
Having an ABN sole trader makes it easier to do business with other companies and can help you look more professional.
Want to become a sole trader? Apply here for the cheapest business structure in Australia.
Benefits of having an ABN as a sole trader
There are several benefits of having an ABN as a sole trader business structure in Australia:
Legitimacy
An ABN gives your business legitimacy and professionalism when dealing with other businesses, customers, and suppliers.
Access to government services
Having an ABN as a sole trader business structure makes it easy to access government services, tenders, and grants to small businesses.
GST registration
If your business has an annual turnover of $75,000 or more, you must register for GST. An ABN is required before you register for GST.
Avoiding pay-as-you-go (PAYG) tax
If you don’t provide a sole trader ABN to your customers, they must withhold tax of 47% of your payment for tax purposes. By providing your ABN, you can avoid withholding tax and only pay the appropriate amount of tax on your income.
Claiming business expenses
Having an ABN sole trader allows you to claim business expenses on your tax return, such as business insurance, petrol, and website costs, which can help reduce your taxable income and save you money.
Doing business with other companies
Some companies will only conduct business with other companies that have an ABN, so having one can help you expand your business opportunities.
How to apply for a sole trader ABN?
You are entitled to an ABN and can apply for one as a sole trader in Australia by following these steps:
Step 1: Go to the Australian Business Register (ABR) website (https://www.abr.gov.au/) and click on the “Apply for an ABN” button.
Step 2: Read the eligibility criteria to ensure you can apply for an ABN.
Step 3: Enter your details, including your name, date of birth, and contact information.
Step 4: Enter your business details, including your business name, business address, and industry classification.
Step 5: Indicate you are registering for Goods and Services Tax (GST).
Step 6: Provide details about the nature of your business and the services you offer.
Step 7: Confirm your identity by providing your tax file number (TFN) or an exemption code if you don’t have a TFN.
Step 8: Review and submit your application.
Once you have submitted your application, you will receive an instant confirmation of your ABN.
It doesn’t take long! If you provide all the information and verify your identity, you will be notified online of the success of your application.
However, if the tax office has trouble identifying you or they need more information, they will respond within 20 business days.
If this seems too hard or you are pushed for time, Sleek can help you with your ABN application.
3 common mistakes soles traders make with their Australian ABN
Sleek works with many sole traders just like you and we don’t want to see you make the same errors with your ABN.
Here’s our top ABN errors to avoid –
Not keeping your ABN details up to date
Moved your business to another office or warehouse or changed your business name? You must notify the ABR if there are any changes to your business name, address, postal address, or business contact details.
As a sole trader business you are required to keep your ABN details up to date ABR. Failing to update these details can result in missed communication from the ABR and other government agencies.
Not registering for GST when required
Keep an eye out on your turnover.
If your business has a turnover of $75,000 or more per year, you must register for GST. Failing to register for GST when required can result in penalties and interest charges.
Consider the nature of your business activities
Before you apply for an ABN as a sole trader, consider the nature of your business activities. If you operate in the same or similar trades as a previous business you owned or operated, disclose this information to the ATO.
Using your ABN for personal expenses
Only use your ABN for business-related expenses.
Using your ABN for personal expenses can lead to confusion and errors on your tax return.
Lastly, don’t forget, it is an ABN requirement to put your ABN number on all tax invoices.
It’s important to understand your obligations as a sole trader and take the necessary steps to ensure you are legally responsible. If you need help with your ABN application, call Sleek now on +61 2 9100 0480 or use our chatbox to ask a quick question.
Find out more about starting your own sole trader business –
How to choose a business name – The dos and don’ts
How to create a business plan – A business plan helps you clarify your business concept, allows you to anticipate potential challenges and develop a roadmap for achieving your objectives.
FAQ
The BAS reports your business's GST, PAYG, and other tax obligations to the Australian Taxation Office (ATO). However, if you are not registered for GST or do not have any other tax obligations, then you may not need to complete a BAS every quarter.
As a sole trader with an Australian Business Number (ABN), if you are registered for GST or have other tax obligations such as PAYG withholding, you will generally need to complete a Business Activity Statement every quarter.
Yes, as a sole trader with an ABN, you are required to submit a separate tax return for your business income and expenses using the individual tax return.
Legally speaking, you obtain an ABN for your sole trader business when your turnover reaches $75,000 per year.
Disclaimer
This article is meant to provide general information. Tax regulations can be complex and subject to change, so it’s always best to consult a qualified tax professional or the Australian Tax Office (ATO) for specific advice tailored to your situation.
