ABNs Australian Business Numbers - Questions

bargain huntress on 29/10/2020 - 16:01
Last edited 29/10/2020 - 17:39 by 1 other user

Are you best off starting a fledgling enterprise with an ABN, or as a Hobby on your tax return (that you register later if it actually works out)?

How long before an ABN is deregistered for inactivity?

How much activity is required to keep one?

What prevents people from registering one just to access wholesale price discounts without actually conducting any business?

What if a person ends up conducting business that is vastly different to the category the ABN is registered under? Do they need more than one?

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Comments

  • whooah1979 on 29/10/2020 - 16:11
    +3

    Do it first as a hobby. It’s better in terms of potential profits and paperwork.

  • netjock on 29/10/2020 - 16:38
    +2

    ABN means you are a legit business is a common misunderstanding. It is just another way to make you pay tax and create an accounting cottage industry.

    As an individual you can be a sole trader (under your own name), not registered for GST because you are below the threshold and be paid (you should declare it as income). Or you can just register a business name (and not have an ABN). The government did a big song and dance around ABN as legitimate credibility. If you look at how easy it is to get an ABN vs cost of ACN (ASIC) would you trust someone with a free ABN number or an ACN that costs $495 and amost $300 per year to maintain?

    Not sure what you mean buy wholesale prices. Unless you are selling pallets of goods or high value items I don't believe an ABN would give you significant discounts. It is more about volume than about your ABN.

    You don't have to do ABN under the category, it is for the government statistics and knock you over the head if your statistics don't work according to ATO models. ABN categories can be easily changed I believe, you just need to tell them.

    Good luck.

    • dasher86 on 29/10/2020 - 17:46
      +1

      There is a difference between being registered as a company ACN and being registered as a Business ABN.
      If a company has an ACN and is doing business it should also have an ABN.

      ACN and ABN has nothing to do with 'business' legitimacy. There are probably more ways to hide illegitimate business through a company as they are a separate legal entity.

      I think OP is referring to wholesale prices as meaning 'trade prices' when procuring goods.

      • netjock on 29/10/2020 - 17:56

        As a qualified accountant I'd go with you for the official explanation.

        But the unofficial explanation I have explained in my original post.

        Before ABN came along businesses just did business with ACN and TFN, the economy didn't come crashing down. So why did ABN come along?

        There are probably more ways to hide illegitimate business through a company as they are a separate legal entity.

        Not according to proper KYC (Know Your Customer) you're not. Official explanation is company is a separate entity to owners which most bad actors do this

        I think OP is referring to wholesale prices as meaning 'trade prices' when procuring goods.

        Bunnings Powerpass 5% off.

        • 1st-Amendment on 18/11/2020 - 14:00

          So why did ABN come along?

          ABN was brought in to deal with GST and all the complexities that came along with it.

  • Headless on 29/10/2020 - 17:35
    +1

    Definatly hobby first, if it takes off, then go for ABN

  • Blue Cat on 29/10/2020 - 18:35

    If you get paid in cash and never put said cash in the bank, then you don't need an ABN. You also save on not needing to pay any taxes.
    AFAIK, ABN is free to be made and there are no ongoing costs.
    However, when you are creating your ABN the government asks you tricky questions to ensure you are not making an ABN for the employer who would hire you without giving you any working rights. Make sure answers all questions with the intent of being totally independent business not relying on an income from single company or person.

    • AustriaBargain on 29/10/2020 - 21:05
      +1

      It's virtually free. There's a nominal fee when you apply. Registering a business name costs a bit more, but isn't necessary. Though it will make you seem even more legit if anyone ever looks you up. All the good names are taken though, unless you want Didn't Think Of A Name Quick Enough Moms Spaghetti Pty Ltd.

  • Sum-Ting Wong on 29/10/2020 - 18:39
    +2

    I won’t repeat what others have already answered correctly, however I want to add that a company is useful for protecting your assets.

    If you operate as a sole trader and you get sued, your personal assets are fair game (e.g your house). However if you operate the business as a Pty Ltd company, the company is a legal entity in its own right (can sue and be sued) and your assets are separate to the business.

    Having said that, there are situations where a Director can be liable for the debts of a company, such as signing a Director’s guarantee or trading while insolvent.

    If you are serious about starting a business and believe it will be a successful enterprise, it’s important to get advice from an accountant or solicitor with experience in these matters as to the best structure for your business. A few hundred spent at the beginning can save you a lot of money in the long run.

    • AustriaBargain on 29/10/2020 - 21:03
      -1

      Isn't the general advice to stay a sole trader if your profits are less than 140k per year, before the tax benefits of a company will save you money? For most sole traders less than 140k profit per year is where they will always be. You can insure against liability as a sole trader.

  • Hithere on 29/10/2020 - 19:16
    +1

    I used to have an ABN as a company I did some one off work for demanded one.

    Eventually the ATO contacted me and advised that as it had been 3 years since I had last used it they would be cancelling it.

    So apparently 3 years unused is the maximum you can hold one for.

    • 1st-Amendment on 18/11/2020 - 14:02

      I had one for 13 years before I used it. As long as you pay the fees, and write declaration each year they seemed to happy with that. They may be getting stricter though with the increased scrutiny and security we all live under now.

  • AustriaBargain on 29/10/2020 - 21:01
    +1

    I'd get an ABN and register for GST. It doesn't cost much but people will take you more seriously. Small businesses are always looking for GST credits, if you are business 2 business. And if you sell straight to customers then GST impresses them too. Makes you seem like your more professional or whatever, or at least not as lazy as some other sole traders.

    • Blue Cat on 29/10/2020 - 21:43
      -2

      GST impresses them

      No, it means I am paying 10% extra for no reason.
      Then I have to ask the tradie if they will take cash and exclude the GST.
      Works most of the time.

      • AustriaBargain on 29/10/2020 - 21:55

        You don’t pay any extra. It’s the same either way. And they get their fat credits back.

  • peterpeterpumpkin on 29/10/2020 - 22:18

    This was confusing for me when I started providing "services" in the so-called sharing economy (i.e. Airtasker), which was before it really took off. Most of the examples for hobbies are for people that sell things they made or inherited. I was writing scraping scripts for fun for a few dollars an hour (where the only significant costs (or "deductions" as a business) were my time). But because it wasn't "right brained creative", it doesn't come off as hobby-like when compared to "busking". The example they give for a hobbyist web designer mentions she only charged for costs. What does that even mean? I did free web design for friends and simply passed on the bill (used their credit card). My non-labour costs would have been a few cents in electricity. A person that makes $500,000 a year might think $50/hr is a hobby rate and slap that on top for their equally wealthy friends? I hate the areas of taxation law that aren't "black and white" (but once it is, a programmer could do most of the hard work by asking yes/no questions in a form).

    The word "enterprise" instantly suggests you plan to make a business out of it, so you're eligible for an ABN. If you plan to advertise to businesses (rather than everyday people), then you would pre-emptively get an ABN just because they almost always ask for an invoice and it gets messy if it's a large amount and you're declaring a hobby or they have to withhold tax.

    Keep in mind you can still declare one off services as "other income" and just pay tax on it (which can trigger PAYG instalments the next year, I guess, if you reach the thresholds). Jury service would normally fall under this category, for example. In NSW, after 10 days they double juror pay if you're self-employed (i.e. have an ABN, and you even have to declare it as business income!), but most self-employed people are better off going to work, at least pre-coronavirus.

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