Do you want to start your sole business here in Australia or start working as a freelancer, any kind of side hustle or you wish to do jobs of food delivery, then you must have an ABN number. You may be wondering what is ABN or how does it work? So, in this detailed article, I will be explaining all the details related to ABN, why you need it, how does it work and in the end, when do you need it? And How Long Does It Take To Get An ABN?
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What Is an ABN?
ABN stands for Australian Business Number. Every business that operates from Australia needs to have an ABN. It is a unique set of 11 digits used to identify the business, the overall transactions, and the business deals that help the Australian Tax Office (ATO) determine your tax amount depending on your annual taxable Income.
When Do You Use Your ABN?
Your Australian Business Number (ABN) appears on commercial documents such as receipts, invoices, and purchase orders.
So the main point about the usage of your ABN is when you run your business.
According to Australian Tax Office (ATO), The meaning of a business applies to ABN when the activities may be regarded as a business if the activity is of
- Reasonable commercial size and scale.
- The activities have the intention to make a profit.
- The activities are repeated on a timely basis.
- The activities are run in a very systematic, business-like manner.
- The activities are recorded in an organized way.
- The activities required to have proper skill and knowledge.
This is the perspective of a business when it needs an ABN. If the activities undertaken falls within the ATO’s definition of a business, then you require an ABN.
Let’s discuss the other sides of income when you need an ABN.
Suppose, you work as a food delivery boy or a share Taxi driver, then also you need to have an ABN number.
The question that arises here is why we need to have an ABN When we work under a company. But the point is in food delivery or shared taxi driving jobs, your customers directly pay you the fare. This is why, in these kinds of jobs, you require an ABN.
In freelancing kinds of work, also you need an ABN because your client is paying you directly. So, you are not getting paid under a company’s rules and regulations.
Difference Between ABN and TFN
Though ABN and TFN are both Unique Identification numbers registered by the Australian Taxation system, these numbers are used for different purposes.
1. Tax File Number (TFN) is used when you are employed by a company. So, the money which you receive under the employment will come under TFN.
An Australian Business Number(ABN) is used when you are running a business, working as a freelancer, or as a delivery partner, then the money you receive is a direct payment. In this case, you need an ABN.
You can apply or re-apply for your ABN at the official website of the Australian Business Register here.
In the TFN system, as your employer pays you your salary, so they deduct all the taxes and pay you the tax-free amount. So, a person who works in TFN usually doesn’t pay taxes in most scenarios.
In the ABN system, you work as an employer, or you get paid directly so you have to keep records of all your transactions, and receipts. Because at the end of the financial year, you will have to pay the taxes by yourself.
If you are in the initial stage and don’t know the taxes and the percentages, then you can consult a financial advisor who can easily do the work for you.
How Long Does It Take To Get An ABN
The amount of time it takes to get your ABN varies on various factors. Talking about the form submission, it takes 10-15 minutes to fill out the entire form of ABN. however, it will take a few minutes to respond from ATO because it is an automated process. but in some cases, it takes some extra time, also.
Note: if you don’t have a TFN number, the ATO will verify your application manually. So, it will take around 24 days.
What Happens to Your ABN If You change your Business
Different kinds of circumstances may occur if you change anything to your business.
1. Business Name:
If you change the name of your business still the operations remain the same, then you don’t need to apply for a new ABN, but you have to update your business name with the Australian Securities and Investment Commission (ASIC) and Australian Business Register to ensure the updated and accurate records of your business.
2. Pausing Business Operation:
If you decide to cease the business operation permanently and do not have any plans to start, then you should inform the Australian Business Register(ABR) about this statement. So that the organization can cancel your ABN. This ensures that you are not liable to pay any tax liability in upcoming years.
3. Convert into a new Business Structure:
If you decided to convert/change the structure of your business, then you must apply for a new ABN because ABN is structured differently for different categories of businesses.