The ABN: A Tool for Tax Evasion?
It is has been discovered that some tradies are fraudulently misusing Bunnings’ ABN in order to evade tax.
A major tax scam was just uncovered in the Northern Territory, where it has been found that tradies were quoting Bunning’s ABN in invoices in an attempt to evade tax. With this occurring on a major scale, the cost to the Australian Government could potentially amount to hundreds of millions of dollars.
Typically, the scam occurs when individuals employing the services of the contractor asks for an invoice. Tradies who provide the invoice give their company name but instead of quoting their own ABN, they would quote Bunnings instead. Investigators have found that more than 40% of the ABNs quoted in the Northern Territory belonged to Bunnings.
What is an ABN?
An ABN or Australian Business Number is an 11 digit number that uniquely identifies a business. It is issued by the Australian Business Register (ABR) and is operated under the Australian Taxation Office (ATO). This number is mandatory if you are trading as a business, regardless of size and it must be displayed on invoices. It is used for purposes of audit, and it tracks transactions and related revenues received to determine tax payable.
Do I Need an ABN to Invoice?
If the invoice is made in the course of an activity done in private recreational pursuit or hobby and wholly of a private or domestic nature, then you do not need an ABN to invoice.
If you invoice a business however and you do not include your ABN, then you would have to withhold 49% of the payment made and send it to the Australian Taxation Office. To find out more about whether you need an ABN to invoice, check out our previous guide.
How Will This Be Overcome?
Paul Drum, the Head of Policy at CPA Australia comments on how difficult it is to address this costly ordeal because of how convenient it is to circumvent the system. “All you need is to do is put someone else’s ABN on an invoice.” The whole system is designed based on honesty, however this conduct has exposed a clear fault with the system.
In their interim report, the Black Economy Taskforce, a government body that targets tax fraud, has made 35 recommendations to address this issue one of which is to validate the ABNs in real time. The final report is due to the Commonwealth Government on October.
In the end of the day, it is essential that you stick within the rules and avoid any temptations to evade tax. Consequences of tax evasion are serious and in extreme cases could result in severe jail sentences (up to 10 years).
On a different note, if you are a sole trader, it always recommended to Register an ABN.
Let us know your thoughts on the tax evasion ordeal by tagging us at #lawpath or @lawpath.
Zac is a consultant at Lawpath, Australia’s largest and fastest growing online legal platform. Since joining Lawpath, Zac has assisted 1000s of startups and small business’s with their legal needs.