Starting your own business: Everything you need to know about an ABN
So, you want to start your own business whether it be a travel blog, bookkeeping or a coffee shop or are a freelancer, you will need to set up an ABN.
This post will help you understand what and why you need an ABN.
What is an ABN?
An ABN, also known as an Australian Business Number is a unique 11 digit number that allows the Australian Government to recognise your business.
How do you know if you need an ABN?
If you’re looking at running your own business, or undertake freelance/contract work outside of your normal day job then you will need an ABN to add to your invoice in order to get paid.
If you don’t have an ABN and you have payments over $75, the company who is paying you is legally bound to withhold 47% of the invoice as tax which unfortunately you don’t see again until you submit your tax return.
If you’ve started your own blog and have registered a website domain name that ends in .au, you will also need an ABN in this instance.
How much does it cost to get an ABN?
The good news here, is that applying for an ABN is completely free!
Ok, so you think you need an ABN. How do you go about setting up an ABN?
If you’re still not sure if you require an ABN or are eligible for one, you should check out the Australian Business Register website to review the Entitlement Checklist.
So, you do need an ABN. How do you know what type of business structure you should be applying for?
This bit is important. You need to select the correct structure in the beginning as it will determine how much tax and ongoing costs you may be required to pay.
There are four commonly used business structures in Australia:
It’s important to understand the responsibilities of each structure because the structure you choose may affect:
- the tax you’re liable to pay
- asset protection
You’re not locked into any structure and you can change the structure as your business changes or grows.
The above is an extract from the ATO which is, of course, a great source of information- however, feel free to give them a call, and we would always recommend you talk to your tax, business or legal adviser if you’re unsure.
Hopefully, that’s helped you a little bit!
What did The Well Travelled Man choose?
Clearly, you’ve visited a travel blog and looking for ABN information- so if you’re about to register your travel blog, this is what we have done (although you should consider your own circumstances).
The Well Travelled Man was established as a Sole Trader, which can and will subsequently be changed to a partnership or company depending on how the business continues to grow. The business name was subsequently registered, however at this stage we have not registered for GST.
I’ve extracted some helpful information from Business.gov.au for further information on being a Sole Trader:
A sole trader business structure is a person trading as the individual legally responsible for all aspects of the business. This includes any debts and losses, which can’t be shared with others. This is the simplest, and relatively inexpensive business structure that you can choose when starting a business in Australia. As a sole trader, you’ll generally make all the decisions about starting and running your business, although you can employ people to help you.
Key aspects of a sole trader structure
- Is simple to set up and operate.
- Gives you full control of your assets and business decisions.
- Requires fewer reporting requirements and is generally a low-cost structure.
- Allows you to use your individual Tax File Number (TFN) to lodge tax returns.
- Has unlimited liability – all your personal assets are at risk if things go wrong. Your assets can be seized to recover a debt.
- Any losses incurred by your business activities may be offset against other income earned (such as your investment income or wages), subject to certain conditions.
- Doesn’t require a separate business bank account, unlike a company structure. You can use your personal bank account but must keep financial records for at least 5 years.
- As the business owner, you’re not considered an ’employee’ of the business. You should pay yourself, which is usually a distribution of your profit, but this is not considered ‘wages’ for tax purposes.
- If you’re a business owner without employees, there’s no obligation to pay payroll tax, superannuation contributions or workers’ compensation insurance on income you draw from the business. You can choose to make voluntary superannuation contributions to yourself though, to help you build up your superannuation.
- You can employ people to help you run your business. There are compulsory obligations that you must comply with, such as workers’ compensation insurance and superannuation contributions.
- It’s relatively easy to change your business structure if the business grows, or if you wish to wind things up and close your business.
- You can’t split business profits or losses made with family members and you’re personally liable to pay tax on all the income derived.
Applying for an ABN
Ready, set go!
Click on the link business.gov.au – apply for your ABN and get started! Please share your thoughts and experience in the comments section below.
“We wander for distraction, but we travel for fulfilment.” – Hilaire Belloc