An Australian Business Number (ABN) is an 11 digit unique identification number used to register businesses on the Australian Business Register.
One of the most common questions for people new to selling their crafts and skills is : do I need an ABN?
If you are planning on running a ‘business’ then you need to register for an ABN, if your activity is a ‘hobby’ then you cannot register for an ABN.
What’s a Hobby?
- An activity done mainly for personal satisfaction.
- Any products sold are priced at the cost of materials.
- Activities undertaken infrequently.
For example Tina knits woollen baby cardigans while watching Neighbours. She gives the cardigans as gifts to her family and occasionally sells them to extended friends and family for the cost of the wool she used. Tina would be enjoying a hobby as there isn’t an intention to make a profit and she only sells the items occasionally.
What’s a Business?
- An activity done mainly for commercial reasons.
- Sales prices are set with the intention to make a profit.
- Activities are taken on a frequent and recurring basis.
For example Tina knits woollen baby cardigans while watching Neighbours. She sells the cardigans at a monthly craft fair for a prices that include the cost of materials, market expenses, time and an amount towards her annual holiday fund. Tina would be running a business as she intends to make a profit (to pay for her holidays) and undertakes the knitting and selling frequently.
To apply for an ABN you must be a business, registration isn’t an option for hobbyists.
The Main Benefits of Registering for an ABN
- The expenses you incur in running your business are tax deductible.
- Lots of businesses only deal with other businesses, for example wholesalers rarely supply to the end consumer. An ABN allows you to buy materials at wholesale prices.
- You can register a business name so customers don’t confuse you with another business. Business name registration incurs an annual fee. If you use only your own name like ‘Tina Shepherd’ you don’t register a business name.
- You can apply for a .com.au website address.
- Companies who are customers are not required to withhold amounts from your payments under the taxation law.
The Main Disadvantages of Registering for an ABN
- The income you generate is taxable and must be included in your tax return, this means you must record and report accurately to the ATO. For most solo-preneurs the income and expense amounts are included in your individual tax return.
- You must report business changes within 28 days, this includes ceasing business and changing address or other details.
Online applications for an ABN are free 😃. If the ABR can identify you online and you can demonstrate you meet the eligibility criteria, it can be instant registration. Otherwise the ABR will process the application and let you know the outcome within 28 days.
After You’ve Registered
- Start keeping track of your expenses associated with the business.
- Start keeping track of the income from your business.
- Add your ABN to any paperwork to allow others to uniquely identify your business.
- You can use the same ABN for any business under the same structure as your current ABN.
There is lots of guidance on the ATO’s website about qualifying to apply for an ABN. This page is a good starting point
Would you like help figuring out your business registration requirements? Let’s chat here.
*As with all our blog posts this information is provided for reference only. It is not intended to, nor should it, replace the advice of a registered tax accountant who can deal with your specific business circumstances.