PAYG
No-ABN withholding
No-ABN withholding is the tax a business must withhold from a payment to a supplier who has not quoted an ABN, at the top marginal rate plus Medicare levy, and then pay to the ATO.
No-ABN withholding applies when a business makes a payment to a supplier for goods or services in the course of the payer's enterprise and the supplier has not provided an Australian Business Number. Instead of paying the supplier the full amount, the payer is generally required to withhold tax from the payment at the highest marginal tax rate plus the Medicare levy, and send that amount to the ATO. The supplier is then credited with the amount withheld when they lodge their own tax return.
The rule exists to protect the revenue. People who are in business but are not on the Australian Business Register are harder for the ATO to track, so the system encourages everyone who trades to hold an ABN and quote it. If a supplier gives you their ABN, you can check it on the Australian Business Register to make sure it is valid and active. If they cannot supply one, you must withhold unless a specific exception applies.
There are exceptions. For example, withholding is not required where the supplier is an individual who is not carrying on an enterprise, such as someone selling a private item, and where the payment is wholly private or domestic in nature. In those cases the supplier can give the payer a statement to that effect. The payer should keep a record of the statement and of why they did not withhold. Payments of wages or amounts already subject to other withholding rules are dealt with under those rules instead.
The interaction with GST is separate but related. A supplier who has not got an ABN cannot be registered for GST, and without an ABN the purchaser cannot claim GST credits on the purchase. Even if an invoice shows GST, the payer cannot claim a credit unless the supplier is actually registered and quotes the ABN on a valid tax invoice. A no-ABN payment can therefore cost the payer twice: tax withheld, and credits lost.
The amounts withheld are reported on the payer's BAS under the label for amounts withheld where no ABN is quoted, and the payer must also report it in the supplier payment annual report or as the ATO requires. The payer must pay the withheld amount to the ATO by the usual BAS due date, and should give the supplier a payment summary or equivalent record showing what was withheld, so that the supplier can claim the credit in their return.
A common mistake is for a business to pay the full invoice to a tradesperson without an ABN and then assume no further action is needed. If the ATO later discovers that tax should have been withheld, the payer can be liable for the amount, even though they have already paid the supplier. Always collect an ABN before first payment.
This is a general overview, so check the current rules for your payments with the ATO or a registered tax professional.
Worked example
A café owner pays a casual handyman $2,000 for repairs. The handyman has no ABN and has not given a statement that the work is private. Suppose the withholding rate that applies is 45%, used here only to show the arithmetic: $2,000 x 45% = $900 is withheld and sent to the ATO, and the handyman receives $1,100. The owner reports the $900 on the BAS. The handyman claims the $900 as a credit when lodging a tax return.
Practical tips
- Ask every new supplier for an ABN and verify it on the Australian Business Register before paying the first invoice, to avoid having to withhold.
- If you withhold, give the supplier a record of the amount withheld and keep a copy so that you can prove what you reported on the BAS.
- Remember that you cannot claim GST credits on a purchase from a supplier who is not registered for GST, even if the invoice shows a GST amount.