If you’re a sole trader in Australia, you may be wondering, ‘ do Sole Traders need an ABN?’ Starting a business as a sole trader can be an exciting and rewarding experience, but it also comes with its fair share of responsibilities. A responsibility that many new business owners typically have is registering an ABN for their small business.
While many people believe that having an ABN is mandatory for all businesses, the truth is that the answer depends on several factors. In this article, we’ll explain whether sole traders need an ABN, what an ABN is, the benefits of having an ABN, how to apply for an ABN, and answers to other frequently asked questions.
Read along!
What is an ABN?
An Australian Business Number(ABN) is a special 11-digit number that the Australian Taxation Office(ATO) provides. An ABN makes your business identifiable to other businesses, consumers in the marketplace, and the ATO. Furthermore, it allows you to track your business activities.
Start your ABN application in minutes!
Need an Australian Business Number to start a casual job? We've got you covered.
Do Sole Traders need an ABN?
The short answer to this question is no. According to the Australian Government’s Australian Business Register(ABR), you don’t need an ABN as a sole trader. However, the requirement to register for an ABN does apply to partnerships, companies, and Trusts( that conduct business).
If your business is still at the hobby stage, registering for an ABN may seem like an unnecessary formality. However, registering an ABN provides some benefits that become more valuable as your business’ income increases and as your business becomes more complex.
Who is entitled to an ABN?
According to the ABR, you’re entitled to an ABN under the following circumstances:
- If you’re starting or operating an Australian enterprise
- If you’re creating supplies within Australia’s indirect tax zone
- If you’re running a company that’s registered under the Corporations Act 2001. This refers to companies that fall under the definition of the company included in section 9 of the Corporations Act. These are companies that are registered with the Australian Securities & Investments Commission(ASIC)
To be entitled to an ABN, you need to meet the criteria outlined above by the date stated in your ABN application, even if that date is in the future.
As a business owner, you should be aware of the following:
- You’re legally responsible for all aspects of your business
- When you carry on a business in Australia or make supplies connected with Australia, you are entitled to an ABN
- If you engage in activities in trade or commerce with the aim of making a profit, you are carrying on a business
So I Don’t Need an ABN as a Sole Trader, Why Should I Apply for One?
Starting a business can be challenging, especially in the early stages. As a sole trader, an ABN provides a strong foundation to build on. Registering for an ABN in the early stages can save you money and make life easier down the track.
As a sole trader, certainty and efficiency can ease stress. If you use an ABN in connection with your business activities from the beginning, you’re able to easily track income and expenses. A lot of accounting headaches can be avoided, or the cost of hiring an accountant can be reduced down the track. An ABN also allows you to do the following according to the Australian Government’s Business.gov:
- Credits for energy grants can be claimed with an ABN
- An ABN allows your business to be identifiable to others during invoicing and ordering
- An ABN allows you to avoid pay as you go (PAYG) tax on payments you receive
- An ABN allows you to claim credits for goods and services tax (GST)
- Through an ABN, you can register an Australian domain name
- Legitimately confirm your business identity to others
Identification
A business name is an integral part of establishing your brand in the market. This is particularly true if you plan to start your business as a Sole Trader and then change your business structure once you have proven your business model. As a Sole Trader, you need to register the name you trade under if it is anything other than your individual legal name.
Trading under your desired name from the outset will save administration hassle down the track. It will also maintain continuity with clients and suppliers. This will avoid loss of goodwill and the hassle of rebranding. According to the Australian Securities and Investments Commission(ASIC), you need an ABN to register a business name , or you must be in the process of applying for one with the ABR.
To prevent other businesses from using a similar name, you must register a trademark for the name. An ABN will also allow potential consumers, business clients, or suppliers to verify the identity of your business through ABR’s ABN Lookup service. As a Sole Trader having an ABN can give your business the legitimacy it needs in the market from the outset.
Avoid Choked Cashflow
If your clients include other businesses, not having an ABN can significantly choke your cash flow. Under the PAYG tax scheme, business clients are required to withhold PAYG tax from their payments for goods or services over $75, excluding GST, if an ABN is not quoted in the invoice. This is done at the top tax rate and forwarded to the ATO on your behalf to be finalised when a tax return is filed.
As a Sole Trader losing close to half your income until the end of the financial year is an unnecessary restriction on your ability to grow and adapt. Fortunately, obtaining an ABN is an easy way to avoid this opportunity cost. If you wish to take advantage of GST credits, you will need an ABN to register for the Goods and Services Tax.
This is essential to receive a refund on the GST charged on supplies purchased for your business. Additionally, if your business income exceeds $75,000, you are required to register for the GST. Obtaining an ABN and registering for the GST early enables your business to avoid this operational cost.
Lock In Your Domain Name
For Sole Traders, a website is a cost-effective way to reach a large audience. It can form the foundation of your brand and provides a central source of information on your products and services. If you would like your website to have a .au designation, you must have an ABN. You should first conduct a search to see if your desired name is already in use.
Once you have an ABN and can confirm the name is available, it is a reasonably straightforward process to claim the domain name for your business.
What other benefits are there for sole traders when using an ABN?
Other benefits of having an ABN as a sole trader include the following:
- Through having an ABN, you can avoid people mistaking the identity of your business. For example, there may be other businesses that have similar names to your business, and this could become confusing for consumers and other businesses when they’re trying to identify your business. Through an ABN, other businesses and consumers can make sure that they’re contacting the correct business
- By avoiding a mistaken identity, you can also ensure that you don’t miss out on potential customers, as customers will be able to identify your business through your ABN. Similarly, suppliers and other businesses can verify your business, and this will allow them to feel confident when they are interacting with your business
- Through having an ABN, your business will be easily identifiable, and this will allow you to access government assistance and you can receive support for your business during an emergency, for example, if your business is impacted by a fire or floods
- Through an ABN, tax deductions will be available when making business purchases
How do I apply for an ABN as a Sole Trader?
An ABN may help you kick your business goals sooner. If it seems right for you, we offer an efficient and fast ABN registration service that allows you to complete your application in less than 5 minutes.
Frequently Asked Questions(FAQs)
Do I need an ABN for a hobby business?
You don’t need an ABN for a hobby business. Furthermore, you should be aware that according to the Australian Governnment’s business.gov.au, you’re also not eligible to apply for an ABN if you run a hobby business. The exception to this is if your hobby business sells services or goods to businesses. In this instance, the businesses that you’re selling to will be able to ask you for your ABN when they’re providing you with payments.
Do I need an ABN for a side hustle?
Similarly to a hobby business, you don’t need an ABN for a side hustle. Furthermore, according to the ATO, to be entitled to an ABN, you must have a business or be in the process of starting one. If you’re unsure about whether you’re entitled to an ABN, you can use the ABR’s ABN entitlement tool.
How much does it cost to register an ABN as a sole trader?
According to the ATO, there is no cost involved with registering an ABN. You can apply for an ABN with the ABR. Or you can register an ABN with Lawpath in under five minutes, as Lawpath is a verified ABN provider.
Conclusion
Ultimately, as a sole trader, you’re not legally required to have an ABN. However, registering for an ABN is recommended due to the many benefits that come with having one. If you’re still feeling unsure about whether you should register an ABN for your sole trader business, you should hire a lawyer for legal advice.
Furthermore, if you need advice on how to start your sole trader business and you don’t know where to start, a lawyer can also provide you with advice on how to start your business.
Get a fixed-fee quote from Australia's largest lawyer marketplace.
