- Using a wrong or invalid ABN can have grave consequences.
- You can lose your income, pay thousands of dollars in penalties or even face up to 2 years of prison time.
- The ATO will consider many things in assessing your case, so it’s best to be honest and cooperative.
- Read on to learn how to use ABNs correctly and avoid hefty penalties.
Editor's Update 07/07/20:
Do I need an ABN to invoice someone? Businesses are generally required to quote an ABN on an invoice for any services or goods supplied to customers or clients. If you do issue an invoice without quoting an ABN, the party paying the invoice is legally required to withhold tax from your payment at the maximum rate of 49% of the invoice amount and forward to the ATO.
Does having an ABN affect my tax? When a person operates under an ABN, it is the ABN holder's responsibility to raise an invoice, receive payment and set aside a portion of that payment to cover the tax liability at the end of the financial year. ABN holders are required to lodge an annual income tax return regardless of whether a business is reporting on profit and loss.
Every business operating in Australia requires an Australian Business Number or ABN. Various government agencies and other businesses use this number to identify your business and more importantly, an ABN is crucial when dealing with the Australian Taxation Office (ATO).
You also need to prominently display your ABN on any invoices that your business sends out. A good place to learn more about ABNs is through this handy ABN guide for small business.
However, it is critical to highlight how serious using an incorrect ABN can be. Many businesses have encountered difficult situations due to ABN issues and the penalties have been severe.
Here are some of the penalties businesses can face for using a wrong or invalid ABN:
1. Lost revenue
If a supplier does not quote an ABN when a business pays an expense, then they are required to deduct 46.5% from the amount being paid. This is known as “no ABN withholding” and it is taken quite seriously by the ATO. As you can see, that reduces almost half of your payment.
2. Jail time
Some businesses use ABNs that were not originally provided to them by the ATO. This may be due to simple negligence, though it is common with black market operations that want to disguise their business from scrutiny.
This is a serious offence and is not looked upon highly by the ATO. In fact, you can receive up to 2 years in prison if you use a number that is not an ABN as an ABN. This also applies to situations where you simply use a real ABN that is not your own.
3. Hefty fines
If you wilfully misdirect the ATO when you are filing for an ABN, then the financial consequences can threaten the stability of your business. In some cases, businesses can be fined more than ten thousand dollars for such violations.
How the ATO assesses the violation
If you have been suspected of misleading the ATO or using a false ABN, then the ATO will take a number of things into consideration when they decide how to deal with your case. They will look at your knowledge and experience leading to the statement that you made or the action that you committed.
Rest assured that the ATO does take a more graceful approach to those who contact them with an admission of a false or misleading statement before they contact you. You will not be penalised if you take reasonable care when making statements, follow the advice of the ATO, and provide all relevant information to them during the course of an investigation.
How penalties are calculated by the ATO
The ATO relies on the New Tax System (Australian Business Number) Act of 1999 to determine what penalties are imposed on businesses that use an ABN incorrectly. This specifies that penalties will be distributed according to “penalty units” with a certain number of such units being applied to different violations depending on their seriousness.
Penalty units each account for $210, so if you receive a penalty for several penalty units then the total financial damages can add up quickly.
How to apply for an ABN and avoid problems
If you are currently using an ABN incorrectly, you are placing your business at risk of being penalised.There is no need to be in this situation, as the stress and financial penalty can be easily avoided if you apply care and dilligence.
You can apply for an ABN with the Australian Business Registry (ABR) or through a registered tax or BAS agent. Furthermore, if your business is required to register for GST, the ATO requires that you have an ABN. By providing some straightforward information about your business, you will be able to operate within the law and avoid harmful penalties from the ATO.
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