Obtaining an ABN, Australian Business Number, can be a daunting experience for a sole trader. An ABN is a unique number that identifies a business to the Australian Taxation Office and to other businesses such as printing services. With an ABN, advertising material, such as brochures and business card printing, can be deducted as business expenses.
There are several advantages to obtaining an ABN for a sole trader. They include
- Paying less tax.
- With an ABN, a business can register for GST if it earns over a set income
- Expenses such as stationery and internet access can be deducted as business expenses
- An ABN increases employment opportunities.
- An ABN improves the image of the sole trader.
- Lower Taxation Rates
For a sole trader working as a contractor, the ABN has a major advantage. It reduces the amount of tax paid. A sole trader without an ABN is subjected to the highest marginal tax rate. This means that over 40 percent of earnings are not available until the end of the financial year. With an ABN, the tax is less and the income more reliable.
- Registering for GST
When a sole trader earns over an income threshold set by the Australian Taxation Office, they may register for Goods and Services Tax( GST). The threshold varies, so it should be checked before registering. When registered for GST, a sole trader can then claim GST paid to suppliers as a deduction and charge GST to vendors. This a major advantage of an ABN
- An ABN Allows Business Deductions
When a sole trader obtains an ABN, they are declaring themselves as a business to the tax office. Therefore the sole trader can claim expenses such as business card printing or other print services as deductions from gross income. This aids in the fair and accurate reporting of net profit.
- An ABN Increases Employment Opportunities
Obtaining an ABN increases employment opportunities. Many companies now hire only on a contract basis. Having an ABN means that the sole trader is available for employment on this basis.
It is easier for many businesses to hire a sole trader with an ABN than a contractor without an ABN . Less paperwork and therefore expense is required to employ a contractor with an ABN. For example, payroll tax is reduced and accounting simplified.
- An ABN Improves the Image of the Sole Trader.
With an ABN a sole trader is listed on the Australian Business Register or ABR. This indicates that the business is legitimate to prospective customers. Including an ABN on advertising material such as calendars or brochures creates an impression of security and honesty in the mind of the prospective client or customer.
Acquiring an ABN is a useful and profitable move for a sole trader. It leads to greater work opportunities and improves the image of the business. It is a simple but cost efficient way to make profit in an increasingly competitive commercial environment.