If you`re planning to hire a contractor for your business, one of the first things you should check is their ABN or Australian Business Number. This is a unique identifier assigned to businesses by the Australian Taxation Office (ATO). It`s essential to have an ABN when running a business in Australia because it helps you to:
– Register for GST: If your business has an annual turnover of $75,000 or more, you need to register for GST (Goods and Services Tax). Your ABN is required to do this.
– Open a business bank account: Most banks require you to have an ABN to open a business bank account.
– Avoid withholding tax: If you pay a contractor without an ABN, you may be required to withhold 47% of their payment and remit it to the ATO.
So, can you pay a contractor without an ABN? The answer is yes, but it`s not recommended. If a contractor doesn`t have an ABN, it may be a warning sign that they`re not a legitimate business. This could put you at risk of hiring an unqualified or inexperienced contractor who may not deliver the quality of work you require.
If you do choose to pay a contractor without an ABN, you need to follow specific rules to avoid withholding tax. Under the PAYG withholding rules, you need to ask the contractor to provide a Statement by a Supplier form. This is a declaration that the contractor is not an employee and that they will be responsible for their own taxes. You must keep a copy of this statement for at least five years.
It`s important to note that if you pay a contractor without an ABN, you`re not entitled to claim any GST credits or tax deductions related to that payment.
In summary, it`s strongly recommended to hire a contractor with an ABN. It demonstrates that they are a legitimate business, and you can avoid any tax issues. If you choose to hire a contractor without an ABN, ensure that you follow the PAYG withholding rules and keep a copy of their Statement by a Supplier form to avoid paying withholding tax.