Do I Need an ABN as a Sole Trader?

Mar 8, 2021
Reading Time: 3 minutes
Written by Matthew Rupp

What Is an ABN?

It can be difficult to know where to begin when starting a business. Especially in the early stages, an ABN is important as a Sole Trader to ensure you have a strong foundation to build on. An ABN can save you money now and make life easier down the track. 

Read on to find out why having an ABN as a Sole Trader is an important step to building a successful business. 

An Australian Business Number is an 11 digit number that identifies your business to other businesses and consumers in the marketplace. It also identifies you to the Australian Tax Office (ATO) and enables the tracking of your business activities. 

Requirement to Register for an ABN as a Sole Trader

Unlike a Partnership, a Company or a Trust (that conducts business) there is no requirement to register for an ABN as a Sole Trader. If your business is still at the hobby stage an ABN may seem like an unnecessary formality. However, there are some benefits to registration that prove more valuable as your business income and complexity increases.

You are 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. You need to meet this criteria by the date stated in your ABN application, which can be in the future. This is useful if you haven’t begun trading, but expect business to pickup quickly.

So I Don’t Need an ABN, Why Should I Apply for One?

Certainty and efficiency go a long way to easing stress when you are a Sole Trader. If you use an ABN in connection with your business activities from the beginning, you are able to easily track income and expenses. This can save a lot of accounting headache or reduces the cost of hiring an accountant down the track. It also allows you to:

  • Legitimately confirm your business identity to others
  • Avoid business clients withholding Pay As You Go (PAYG) tax on payments 
  • Claim back Good and Services (GST) credits 
  • Acquire a ‘.com.au’, ‘.net.au’ or ‘.org.au’ domain name

Identification

A business name is an integral part of establishing your brand in the market. This is particularly true if you intend to begin as a Sole Trader and change structure once you have proved 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. To apply for this registration you will need an ABN. To prevent other businesses from using a similar name, you must register the name as a Trademark.

An ABN will also allow potential consumers, business clients or suppliers to verify you the identity of your business through the 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 cashflow.

Under the PAYG tax scheme, business clients are required to withhold PAYG tax from their payments for your 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 forward it 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 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 forms 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. 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 straight forward process to claim the domain name for your business.

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 which allows you to complete your application in less than 5 minutes. 

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