If you’re running your own business, you’re probably familiar with an ABN and its legal and logistical importance. Now it’s time to talk about the ‘T’ word; although we may prefer to keep tax out of mind while we can, it is important to understand tax obligations when you have an ABN. The tax you have to pay on your ABN depends on your business and your combined income when the financial year comes to an end. Questions? Talk to one of our taxation lawyers today.

How much Tax do I pay on ABN?

What is an ABN?

To operate your business in Australia, it is necessary to have an ABN (Australian Business Number). This unique 11-digit number is the key means of identifying a business and is provided upon registration of your business.

It’s simple to register your ABN with LawPath today. Registering your ABN is crucial for tax purposes, including GST and PAYG. Still at the startup stage? Why not register your company and take a load off the legal side of things?

What is the difference between an ABN and a TFN?

An ABN is necessary for operating a business, while a TFN (Tax File Number) is required for any person working in Australia. When you start working, you give your TFN to your employer, who can then deducts tax from your income, normally through PAYG (Pay as You Go). A business must also have a TFN.

So, with a TFN, tax is taken at the source, i.e., at the time you are paid. This means you normally don’t have to worry about your tax obligations on a TFN at the end of the financial year.

Tax Implications

By contrast, with an ABN, tax is not taken directly from the source. For example, a carpenter raising an invoice will receive full payment for his or her work; tax is not deducted at this stage.

This means that as a sole trader with an ABN, you need to set aside a portion of your income so that you can meet your tax obligations when the financial year ends. When June rolls around, you must include your ABN earnings with any other income received; after you lodge your tax return, tax is assessed based on that combined income.

What and how you need to report depends on your business structure; the ATO provides detailed information on these obligations. You can also use the ATO tax calculator to estimate the amount you are obliged to pay.

How do I stay on top of ABN and Tax?

Staying organised is key to ensuring you can meet your tax obligations at the end of the year. Some things you can do include:

  • Keeping all invoices issued as part of your business
  • Retaining receipts for products purchased as part of operations
  • Understanding your tax obligations according to the ATO
  • Being transparent and accountable in all your operations
  • Contacting one of our taxation lawyers today

Tax is a tricky topic. Contact a LawPath consultant on 1800 529 728 to learn more about customising legal documents, obtaining a fixed-fee quote from our network of 750+ expert lawyers or to get answers to your legal questions.

Zachary Swan

Zac is currently Head of Content at LawPath, Australia’s largest and fastest growing online legal platform. Since joining LawPath, Zac has assisted 1000s of startups and small business’ with their legal needs.