WORKING AS A CONTRACTOR? WHAT YOU NEED TO KNOW ABOUT GETTING AN ABN

You've been offered some work, but instead of being put on the payroll, you've been told:

“You'll need an ABN.”

For many people starting out as contractors, freelancers or sole traders, that's the first time they've had to think about running a business.

An Australian Business Number (ABN) is an 11-digit number used to identify your business when dealing with clients, government agencies and other businesses.

Getting an ABN is relatively straightforward. Understanding what comes with it is just as important.

1. Make sure you're actually a contractor

Just because someone tells you to get an ABN doesn't automatically make you an independent contractor.

Employees and contractors have different rights and obligations. The real nature of the working relationship matters.

Things such as who controls how the work is performed, whether you can work for other clients, how you're paid, who provides equipment, whether you can delegate the work and who bears the commercial risk can all be relevant.

2. Applying for an ABN is free

You can apply for an ABN through the Australian Business Register.

For many people contracting on their own, the simplest structure is operating as a sole trader.

Be careful of websites offering to obtain an ABN for a fee. You can apply directly through the Australian Government's ABN registration service without paying an application fee.

3. Remember that tax may not be taken out

One of the biggest differences you'll notice as a contractor is that the amount paid into your bank account may not have income tax deducted from it.

That doesn't mean the income is tax-free.

Depending on your circumstances, you'll need to declare your business income and may need to make tax payments yourself.

4. Understand GST

Having an ABN doesn't automatically mean you need to charge GST.

However, businesses generally need to register for GST when their GST turnover reaches $75,000 or more.

If you're registered for GST, this will affect how you invoice clients and your reporting obligations.

An accountant can help you determine when registration is required and how GST applies to your work.

5. Superannuation can be complicated

Don't automatically assume that because you're a contractor, the person engaging you has no superannuation obligations.

In some circumstances, a contractor who is paid mainly for their labour can still be treated as an employee for superannuation purposes.

6. Put the deal in writing

Before starting work, understand:

• what you're being engaged to do;
• your hourly, daily or project rate;
• when invoices will be paid;
• who pays expenses;
• who owns the work you produce;
• insurance requirements;
• how either party can terminate the arrangement; and
• what happens if there's a dispute.

A written contractor agreement can prevent a lot of problems later.

The bottom line

Having an ABN can give you the flexibility to work for yourself, build your own client base and operate your own business.

But an ABN isn't just a number.

Once you start contracting, you need to think like a business owner: keep records, issue proper invoices, understand your tax and GST obligations, consider insurance and superannuation, and make sure you understand the contracts you're signing.

And most importantly, remember that being told to “get an ABN” doesn't necessarily mean you're legally a contractor.