ABN withholding period: Why it matters?

February 20, 2024
minutes to read
Jaala Alex
Table of Contents

The ABN withholding period is an essential aspect of tax compliance for businesses operating in Australia. It is when companies are required to withhold tax from payments made to suppliers for goods or services. Understanding the ABN withholding period is crucial for businesses to ensure they meet their tax obligations and avoid penalties. This blog post will take a closer look at the ABN withholding period, including what it is, when it applies, and why it matters.

The ABN withholding period is a rule that applies when a business pays a supplier more than $75 for goods or services, and the supplier has not provided their ABN. In this case, the business must withhold a percentage of the payment as tax. The withholding rate is 47% for charges made to companies. The no ABN withholding period is 42 days from when the supplier was first paid.

It's important to note that if the supplier provides their ABN before the payment is made, the withholding does not apply. Also, if the supplier has quoted their ABN and the payer has checked it through the Australian Business Register, and it is still current and valid, withholding is not required.

The purpose of the no ABN withholding period is to encourage suppliers to provide their ABN so that businesses can correctly report their income to the ATO (Australian Taxation Office) and pay the correct amount of tax.

It's important to note that during the no ABN withholding period, the payer is not liable to pay the withheld amount to the ATO, but the payee is required to report and pay the withheld amount as part of their tax return.

So remember:

  • If there is no ABN on in the invoice then you must withhold paying the full invoice
  • You need to withhold 46.5% of the payment to the supplier for up to 42 days
  • Follow up with the supplier to obtain the ABN and check it's current and valid
  • If the ABN is provided and valid, you can then pay the remaining balance.

ABN Withholding Period FAQs

What is an ABN withholding period?

An ABN withholding period is a period of time during which a business is required to withhold a portion of payments made to an individual or entity that does not have an Australian Business Number (ABN).

When is an ABN withholding period required?

An ABN withholding period is required when a business engages the services of an individual or entity that does not have an ABN and is not considered an employee. This can include independent contractors, consultants, and freelancers.

How does ABN withholding work?

ABN withholding requires a business to withhold a portion of the payment made to an individual or entity that does not have an ABN and remit that amount to the Australian Taxation Office (ATO) on their behalf. The withheld amount is typically 47% of the total payment, representing the highest marginal tax rate.

How long does an ABN withholding period last?

An ABN withholding period typically lasts for the entire financial year in which the payment was made. This means the business must withhold the appropriate amount from each payment made to the individual or entity without an ABN during that financial year.

Are there any exceptions to ABN withholding?

Yes, there are some exceptions to ABN withholding. For example, payments made to non-residents of Australia for services performed outside of Australia are generally not subject to ABN withholding. There are also some exemptions for certain types of payments made to certain entities.

What are the penalties for failing to comply with ABN withholding requirements?

The penalties for failing to comply with ABN withholding requirements can include fines, interest charges, and even legal action. The ATO takes compliance with ABN withholding requirements seriously and expects businesses to comply with their obligations.

How can businesses ensure compliance with ABN withholding requirements?

To ensure compliance with ABN withholding requirements, businesses should maintain accurate records of all payments made to individuals or entities without an ABN and remit the appropriate amount of withholding tax to the ATO on time. Businesses can also seek advice from their tax advisor or the ATO if they have any questions or concerns about their obligations.

The ABN withholding period is a crucial aspect of the Australian tax system that helps small businesses manage their tax obligations. By providing businesses with a clear understanding of when they need to register for an ABN and when they need to start withholding taxes from their payments, the ATO helps businesses stay compliant and avoid penalties. It is essential that all companies operating in Australia understand the ABN withholding period and why it matters.

DISCLAIMER: Team Thrive Pty Ltd ABN 15 637 676 496 (Thriday) is an authorised representative (No.1297601) of Regional Australia Bank ABN 21 087 650 360  AFSL 241167 (Regional Australia Bank).  Regional Australia Bank is the issuer of the transaction account and debit card available through Thriday. Any information provided by Thriday is general in nature and does not take into account your personal situation. You should consider whether Thriday is appropriate for you.

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