By Max Newnham
Among the many changes introduced with the GST, one of the more far reaching income tax changes was the establishment of the Australian Business Number system. From July 1, 2000 strict regulations have required businesses to quote their ABN on official documentation, especially on invoices that they issue.
Like many things to do with the Australian taxation system, the responsibility has been put on business owners to comply with the ABN regulations, and if they breach these regulations the ATO can impose massive penalties.
When a business pays an expense, and the supplier has not quoted an ABN, they are required to deduct 46.5 per cent from the amount being paid. Businesses are also required to keep their ABN details up-to-date.
The penalties imposed by the ATO differ depending on the seriousness of the breach of the regulations. Penalties are imposed in penalty units, which for the 2018 financial year are $210. Penalties can range from five penalty units for not registering for PAYG withholding tax when required, 20 penalty units for not issuing a tax invoice when required, up to 60 penalty units for making a false or misleading statement when applying for an ABN.
In addition to the penalties, breaches of the PAYG withholding income tax regulations can result in a business paying the amount that should have been deducted to the ATO, plus an interest penalty.
Q. My son has started working as a sub contractor but hasn’t applied for an ABN, he has said he is going to use a mate’s ABN. I have advised against it but I believe he is still using his mate’s ABN.
I don’t think it’s a good idea for many reasons but mostly I’m not sure of the legalities of not using your own ABN for business use. Can you advise of the pros and cons of this?
A. The problem with what your son and his friend are doing is that both could face stiff penalties from the ATO, depending on what is actually happening.
If your son is using his friend’s ABN, issuing invoices to customers that show his details as the person being paid, he could be regarded as making a false or misleading statement with regard to the ABN and face a penalty of up to $12,600.
If your son is using the ABN and invoice details of his friend, and the friend is collecting the amount invoiced and then paying it on to him, he would in breach of the PAYG withholding regulations relating to either payments to employees that do not quote a tax file number or businesses that do not quote an ABN.
This could result in his friend having to pay to the ATO the 46.5 per cent withholding tax that should have been deducted from the payment to your son, pay interest based on the length of time from when the PAYG withholding tax should have been deducted, plus pay a penalty that can be imposed for each time the requirement to withhold the correct tax was breached.
Source: The Age
