If you charge for goods or services as a tradie, there are a lot of questions that come up in regard to taxation and business registration. The prospect of earning profits from your trade is nice, but starting your business without the proper GST registrations can set you back.
An ABN (Australian Business Number) is required to register for the GST (Goods and Services Tax). A business that is not required to register for the GST, however, does need an ABN. If your business income is $75,000 or more per year, or anticipated to be $75,000 or more per year, you may be required to register for the GST.
While you may not be required to register for GST, there are benefits you could claim by registering. Learn more about what the requirements and benefits are for your entity and how you could benefit from following the correct process for setting up your business.
What is an ABN?
ABN stands for Australian Business Number. It is an eleven-digit number, issued by the Australian Business Register (ABR), that is used to identify your business to the government, other businesses and individuals. If you are carrying on an business or enterprise or starting one, you are entitled to an ABN. As a tradie, if you are charging for your services is is quite likely you are carrying on a business or enterprise.
A tradie, if carrying on a business, is required to apply for an ABN. Your ABN is required to be on many official statements or communications from your business, including invoices, receipts, estimates, orders, tax returns, BAS, Letterheads, or any other communication or statement. Having an ABN gives you and the services you offer credibility.
ABN vs ACN
ACN stands for Australian Company Number. Only a company in Australia will have an ACN. All other business entities (including sole trader tradies) must apply for an ABN. If your entity is set up as a company, your ABN will be usually be two additional numbers in front of your ACN.
A company is a structure that is registered with ASIC (Australian Securities and Investments Commission). Registering a company with ASIC may provide its own benefits. Setting up a company is commonly done through a solicitor or tax accountant to ensure it is set up correctly.
Sole traders, trusts and partnerships do not have an ACN, but all of them are entitled to an ABN if carrying on an enterprise. An ABN is issued by the ABR, not ASIC. While you won’t be registered with ASIC, there are benefits of having an ABN.
Why Do I Need an ABN?
Once you have your ABN, there are a number of benefits you are entitled to. While it is possible to generate a small amount of income as a hobby, getting an ABN will open up greater opportunities for you. There are benefits to having an ABN that will make the operation of your business go much smoother. You will also be recognized as an actual business and can identify that on orders and invoices. Basically, you’ll become more credible and potentially have more opportunities once you have an ABN.
First off, you may be eligible to apply for GST which has benefits we’ll cover below. You will be able to avoid PAYG (pay as you go) withholding tax being deducted from payments you receive from customers for not quoting an ABN. An ABN can also be used to register a “.com.au” , which is an Australian domain name for your company website.
How Can I Get an ABN?
If you want an ABN, you must apply for it through the ABR (Australian Business Register) or have a registered agent, such as an accountant or bookkeeeper, apply on your behalf. Follow this link to fill out the application if you wish to apply yourself. Before you fill out your application, there are a few things you will need in order to complete the application. The information required will depend on your circumstances. Some of the information the ABR may request include:
- TFN (Tax file number) tax of the business and its partners and directors
- Details of previously held ABN’s
- Date you intend to start business activities
- Entity Legal Name
- Associate’s details
- Business contact details including business postal and email address
- Sources of income for your business
Once you’ve filled out the application (if you’ve filled it out properly with all the required information) and you are successful, you will know straight away your ABN. If any information was missing or incorrect in the application, the ABR will review your application will reach out to you about any additional information that may be required. Their ABR target period for this is 20 days.
What is GST?
GST stands for Goods and Services Tax. Australia has a 10% tax on most goods or services. While most items and services are taxed, there are some categories that go untaxed. One of the untaxed types of sales are GST-free products or services. Some of the more common GST-free sales include:
- Most basic food
- Some educational courses or material
- Some menstrual products
- Some health care services
- Some medicines
- Some childcare services
- Some religious or non-profit activities
- Some meals and accommodations for retirement homes
- Water, sewage, and drainage
- Exports and international mail
The other category of untaxed sales are input-taxed goods and services. Some of the more common input-taxed sales include:
- Financial supplies
- Residential premises
The majority of tradies in Australia will have to charge GST for their services, but some may not meet the requirements to register for GST. Some sales may fall under one of the GST-free categories and GST will not be charged on these items. If tradies haven’t registered for the GST and should have registered at an earlier date, there can be complications as they may be required to remit GST to the ATO from the point in time they were required to be registered for GST, even though they may not have added it onto customer invoices.
Do I Need to Register for the GST?
Generally, if both of the following requirements are met, you would be required to register your trade business for GST:
- Your GST turnover from the current month and the past eleven months is $75,000 or more.
- Your GST turnover is expected to be $75,000 or more in the coming year.
We would suggest that you speak to a registered BAS agent or tax agent and let them handle your GST registration. It shouldn’t be very expensive and as with any tax legislation, there are always a technicalities and exceptions to rules that may need to be taken into consideration based on on your circumstances. They will be able to help you with the date your registration should commence from.
If your GST turnover was $75,000 or more for the previous 12 months but you are not expecting a GST turnover over $75,000 in the next 12 months, and you haven’t registered for GST, we would also suggest you speak to your bookkeeper or your tax accountant as they will be able to guide you through the requirements, if any, of GST registration in these circumstances.
The definition of GST turnover can be found on the ATO website. It is a bit technical. Even more of a reason to use a bookkeeper or tax agent. I would love to be able to say that GST turnover means sales, but it doesn’t, and there are a whole lot of other inclusions and exclusions that need to be taken into account for the correct defination.
How Do I Register for the GST?
If you have figured your GST turnover and you are required to register for the GST, you need to make sure you have your ABN because you cannot register for the GST without an ABN. You must register within 21 days of meeting the requirements to be registered for GST. To register, you may consider hiring a tax or BAS agent to help you. They will help you know if you meet the requirements and will assist you in the process of filling out the required forms.
It isn’t a difficult process, though, and you could complete it on your own if you choose to do so. You can either go through the online services for businesses on the ATO website or call 13 28 66.
After you’ve registered for the GST, you will be required to charge GST on your applicable GST related sales . A tradesman is required to provide an invoice for all sales. On this invoice, you will make a statement of how much GST was charged. You will need to provide a tax invoice for sales over $82.50. You will need to choose your GST reporting method and meet the ATO payment and record-keeping requirements.
Why Should I Register for GST?
If you meet the requirements to register for the GST, you must register or you can face consequences. Registering for the GST is part of the Australia’s taxation system, and failure to abide by this law may have penalties. There are also benefits you can claim once you are registered for the GST. If you carrying on a business but aren’t legally required to register for the GST, but you have an ABN, you may still register for the GST. Taking advantage of the benefits at the start of your business could be a great possibility to consider.
If you don’t register for the GST but you meet all of the requirements that meant you should have registered, you may have to remit GST to the ATO commencing from the time you met the requirements for registration. You may also have to pay other fines or pay interest on the taxes owed.
There are circumstances however, where it may be possible to backdate your GST registration and pay the taxes without facing any additional fines, if fraud or evasion are not factors. The period of time that you can backdate varies depending on your circumstances. Having said this, you don’t want to leave registering past the date you are required to register if you can avoid it. It can get messy if the ATO discovers this error first.
Once you are registered for the GST, you may start receiving credits for your business expenses. If you paid GST on a business expense, you will receive a credit for the amount of GST paid. To be sure you will receive your credit, you need to check that your supplier is a GST-registered company. If they are not charging you tax on your purchase, you will not be able to receive a credit for tax not paid.
Claiming GST tax credits on expenses connected to input-taxed sales can become very technical. The majority of trade businesses don’t make input-tax sales so I won’t go into this technical detail in this post. Suffice to say, if you are making input-taxed sales, seek professional assistance from a bookkeeper or tax accountant.
If you are wondering if your trade business would benefit from being registered for the GST even if you don’t meet the requirements, think about your upfront costs. You may have a lot of upfront costs that could be deducted and give you an input tax credit if you register right away for the GST. If you didn’t anticipate these credits, it may be possible to backdate your registration depending on your circumstances, but that also means you will have to pay GST on sales you’ve made, whether you charged the customers GST for them or not.
Out of Country Requirements
If you are not a resident business in Australia, but you wish to do business in Australia, you may still need to register for the GST or have a modified version of registration if you if you wish to distribute goods from overseas into Australia, or sell online services or digital products into Australia. This is unlikely to be the case for an Australian trade services business but there will always be exceptions. If this does potentially apply to your business, more information can be found here.
Why Does Australia have a GST?
The Goods and Services tax was put into effect in July of 2000, replacing the previous wholesale tax system in place. The new tax program was designed to start phasing out the old taxation system, including state and territory taxes, banking taxes, and stamp duties. In theory, this should have created a simpler tax environment for the country instead of various taxes on different types of items for different governments at a federal and state level. The GST is collected, then dispersed to the states according to a formula. The reality is however that the tax system in Australia that has become far from being simple. It has “simply become complicated” if I quote something I heard from a tax expert some time back.
Some have pointed out that this form of taxation (a flat rate of 10%) is detrimental to lower-income individuals. Because the rate is fixed, it requires a higher amount for those with lower income. However, the rate is still a percentage and it can be argued that it is evenly distributed to cover each wealth class.
In addition to this, there are GST-free products that make taxes easier for lower-income individuals. The basic needs and necessities go untaxed in Australia in order to make basic living more affordable.