Does a Sole Trader need an ABN?

If you’re operating your business as a sole trader in Australia, do you need to register an ABN?

Operating as a sole trader is a very popular way for tradies to structure their businesses in Australia.  It is in fact the easiest way to start your trade business.

A common question that comes up is if a sole trader needs an ABN (Australian Business Number).

First up, let’s consider whether you’re even eligible for an ABN.

NOTE: We’re an insurance brokerage, so we can’t provide personal advice on whether or not you need an ABN. This article is for general information only, and if you need specific advice you should speak with an accountant.

Can I get an ABN as a sole trader?

Although applying for an ABN as a sole trader is free, not everyone is eligible for an ABN.

The Australian Business Register has an ABN eligibility tool on their website, and one of the main questions asks if your planned activities include the following:

• An intention to engage in commercial activity.
• An intention to make a profit from the activity.
• The recurrent or regular nature of the activity.
• That activity is carried on in a similar manner to that of other businesses in the same or similar trades.
• Activity is systematic, organised and carried on in a businesslike manner and records are kept.
• The activities are of a reasonable size and scale.
• A business plan exists.
• The entity has relevant knowledge or skill.

They point out that whilst you don’t need to tick every single box, it is expected that your planned activities (your business) would meet several of the listed points.

You must also confirm that you have either started or are taking steps to start your business.

For the average tradie looking to start their own business, it would be fair to assume that you’re going to be ticking at least half of the points listed above.

So let’s say that you are eligible for an ABN, now we need to ask if you actually need one.

Do I need an ABN as a sole trader?

The short answer here for any “real” trade business is going to be yes.

Whilst the ATO says you don’t have to apply for an ABN unless your annual turnover is expected to reach $75k, there are many good reasons for operating with an ABN.

If you want to be paid correctly for your work you’ll need to issue tax invoices to your clients, and it is a requirement that all tax invoices include an ABN.

Related: Should I operate as a sole trader or a company?

The requirements are no different regardless of whether you’re a tradie subcontracting to the same builder every week or working directly for private clients.

So if you’re invoicing the builder you subcontract to, or a homeowner that you’re doing work for, you must issue a tax invoice with an ABN either way.

If you do issue an invoice without an ABN, the entity paying the invoice by law is required to withhold tax from your payment at the maximum tax rate and forward it to the ATO.

Obviously you don’t want the maximum tax rate withheld from your payment, and your clients probably don’t want to deal with reporting it to the ATO, so it’s much better to have an ABN and quote it on your invoices.

Why a sole trader should have an ABN

Regardless of whether or not you need an ABN as a sole trader, there are some important benefits in having one for a trade business.

Domain names

If you want to setup a website for your business, having an ABN will allow you to register a com.au domain name.

Without an ABN or a business name you’ll have to hope that your name is available in .com (unlikely) or you’ll be stuck with something like .net or .org which never looks quite as professional.

Business names

Without an ABN you won’t be able to register a business name. A business name can make your business appear far more professional than simply using your own name.

Avoid withholding tax

By quoting your ABN on your tax invoices you’ll avoid the risk of your clients having to withhold tax from your payments.

Withholding tax is generally at the top tax rate, so it’s definitely something you want to avoid!

Looks professional

Having an ABN (and a business name if you choose to) simply makes your trade business appear more real and professional.

If you’re doing business with a builder or a client, having to give them an invoice without an ABN can make you look less like a real business.

On the other hand, having an ABN and optional business name confirms to your clients that you are indeed a real business.

What if it’s just a hobby?

If your work is considered to be more of a hobby than a trade business, then not only do you not need an ABN, but you probably won’t be eligible for one anyway.

The government has some great information on their website that talks about the differences between a hobby and a business, and how it affects your ABN requirement as a sole trader.

Other common questions:

There are a number of other common questions that come from sole traders and the issue of ABNs, as well as GST registration.

Don’t I only need an ABN if I make more than $75k a year?

If you’re a sole trader expecting annual turnover of more than $75k you must apply for an ABN and register for GST.

Whilst you may be able to operate without an ABN if your turnover is less than $75k, as we’ve outlined above it’s not always the best option.

The ATO suggests applying for an ABN when starting out as a sole trade, irrespective of your annual turnover.

If your turnover is less than $75k you can choose to apply for an ABN but not register for GST. You don’t have to do both.

Do I need to complete BAS every quarter once I have an ABN?

Some sole traders believe that avoiding having an ABN will avoid the need for lodging a Business Activity Statement (BAS) every quarter.

In fact, having an ABN does not mean having to complete BAS every quarter.  The requirement to complete BAS only comes in once you’re registered for GST.

Does a sole trader have to register for GST?

A sole trader is not automatically required to register for GST.

Only once you have (or expect to have) annual revenue of $75k or more are you required to register for GST.

Does having an ABN mean I have to submit a separate tax return?

As a sole trader, your and your business are considered to be a single entity.  As a single entity, you are only required to lodge a single tax return.

So if you think registering an ABN is going to lead to extra tax returns, you needn’t worry about it.

Does being a sole trader affect my business insurance?

Regardless of whether you’re a sole trader, or do or don’t have an ABN, your business insurance is really no different to any other entity.

Your sole trader business insurance will be held in your personal name, and your ABN may also be recorded on your policy depending on the insurer’s requirements.

Can a sole trader employ workers?

Although we typically think of a sole trader as being a tradie working on their own, it is possible for a sole trader to employ staff.

Most accountants would probably recommend a different structure once you start employing staff (such as a Pty Ltd company) but it is possible as a sole trader.

We recommend speaking with your accountant to see which business structure will best suit your trade business.

More information

There is plenty of free information available on the government websites of the ATO and ABR.

If you need more personalised advice, we recommend you speak with an accountant.  A specialist tradie accountant may be able to provide more specialised advice for your business type.

Here at Trade Risk we specialise in tradies business insurance and can’t help with your accounting needs, but we hope you’ve found this general information helpful.