An ABN is required if you wish to run your own business, which brings with it certain tax obligations. These must be fulfilled when the financial year ends on 30th June. Many in the workforce today operate as ‘independent contractors’, meaning they constitute their own business, and therefore need their own ABN.
ABN and Tax File Numbers (TFN)
On an individual basis, you can apply for a TFN and provide this to your employer, who will then automatically deduct tax from your income. This is known as tax being taken at the source.
However, the application of TFN’s for businesses depends on the nature of the business. If you are running your business as a sole trader, you can continue to use your individual TFN. However, if you are in a partnership or running a company, your business will have its own TFN.
Tax Process
Unlike for individuals, tax for ABN’s is not taken directly from the source. This means that when you run a business you must ensure you allocate a portion of your income to paying tax at the end of the financial year. Using the ATO tax calculator can help you decide how much to keep in reserve for tax purposes.
When you submit your tax return, you include your ABN earnings and any other income – this is known as combined income, and your tax is assessed based on this. This is often the major point of confusion for people, where they are employed but also run a business on the side.
Helpful Strategies
Having a strategy in place to stay organised throughout the year can help avoiding any last-minute confusion at the end of the financial year.
As suggested above, using the ATO tax calculator can keep you informed on your tax obligations. Furthermore, keeping all invoices and receipts in an organised manner throughout the year can also be very helpful in determining your tax obligations.
Finally, hiring a tax lawyer is the surest way to ensure you have met your tax obligations and will not be liable for any fines. You can contact our friendly team at OpenLegal who are more than happy to help.
Phil is a director at OpenLegal. He has over 16 years experience working in private practice and in-house counsel in Sydney and London, giving him expertise in employment law, IP, finance, leases, dispute resolution, insurance and contracts.
