ACN vs ABN: What’s the Difference?
Why Understanding ACN and ABN is Essential for Your Business
Starting a business in Australia involves navigating a variety of regulatory requirements, and understanding key identifiers like the ACN (Australian Company Number) and ABN (Australian Business Number) is crucial. While both terms sound similar, they serve very different purposes in the business world. Knowing the difference between an ACN and an ABN can help ensure you are meeting all legal and tax obligations and can also simplify your administrative processes.
In this article, we will define ACN and ABN, highlight their key differences, and explain how they fit into your business journey.
What is an ACN?
An ACN, or Australian Company Number, is a unique nine-digit number assigned by the Australian Securities and Investments Commission (ASIC) to companies that are legally registered in Australia. This number is used to identify a company and is required when you form a company structure. It is essential for verifying the company's legal status, and it must be included in all formal business documents such as contracts, invoices, and business letters.
The ACN is necessary for companies wishing to be formally recognised in Australia. However, it’s not applicable to other business structures, such as sole traders or partnerships.
What is an ABN?
An ABN, or Australian Business Number, is an 11-digit number issued by the Australian Taxation Office (ATO) that allows businesses to be registered and recognised for tax purposes. This number is required for all businesses operating in Australia, whether they are sole traders, partnerships, or companies.
The ABN is particularly important for tax reporting. It enables businesses to interact with the ATO for taxation purposes, register for GST (Goods and Services Tax), and fulfil other obligations like Pay As You Go (PAYG) withholding. It is also used when dealing with clients or suppliers to confirm that the business is legitimate and registered for tax purposes.
ABN and GST Registration: The $75,000 Threshold
One important consideration for businesses with an ABN is the requirement to register for GST (Goods and Services Tax). If your business has a GST turnover of $75,000 or more in a 12-month period, you are legally required to register for GST with the ATO. This registration means that your business will need to charge GST on your taxable sales and pay GST on your business expenses, and you can claim back the GST paid on your business purchases.
For businesses with a turnover under $75,000, GST registration is optional, but it may still be beneficial depending on your business type and future growth projections. However, you will still need to have an ABN to operate and engage with the ATO.
Key Differences Between ABN vs ACN
Though both the ACN and ABN are used to identify businesses, their purposes and functions are distinct. Below are the main points of difference between the two:
1. Purpose and Use:
- ACN: The ACN is issued specifically to companies and is used to identify a company in a legal context. It is a requirement for companies to be formally registered with ASIC, and it helps to ensure the company’s compliance with the Corporations Act 2001.
- ABN: The ABN serves a broader purpose, as it applies to all types of businesses, including sole traders, partnerships, and companies. It is primarily for taxation purposes and is necessary for business registration, invoicing clients, and paying taxes like GST.
2. Issuing Bodies:
- ACN: The ACN is issued by ASIC, the government body responsible for regulating companies in Australia. ASIC ensures that businesses are compliant with company laws.
- ABN: The ABN is issued by the ATO, which handles all taxation-related matters in Australia. The ATO tracks business operations for tax compliance, including GST registration and income tax obligations.
3. Who Needs Them:
- ACN: The ACN is required only by companies that wish to be registered with ASIC. Sole traders and partnerships do not need an ACN.
- ABN: The ABN is necessary for all business types. Sole traders, partnerships, and companies alike need an ABN to operate legally and fulfil tax obligations.
4. Number Format:
- ACN: The ACN is a nine-digit number, typically formatted as three sets of three digits (e.g., 123 456 789).
- ABN: The ABN consists of eleven digits (e.g., 12 345 678 910), which includes an additional digit compared to the ACN.
How ABN and ACN Work Together
In most cases, companies require both an ACN and an ABN. The ACN is used for the company's registration and identification, while the ABN ensures the business is recognised for taxation purposes. Companies are legally required to obtain both numbers.
For businesses that are not companies, such as sole traders and partnerships, only an ABN is needed. These businesses don’t require an ACN, but the ABN allows them to fulfil tax obligations, invoice clients, and register for GST.
Can You Have an ABN Without an ACN?
Yes, it is possible to have an ABN without an ACN. Sole traders and partnerships are not required to obtain an ACN, as they operate under different structures. These businesses will only need an ABN to be recognised by the ATO and meet their tax obligations.
However, companies need both an ACN and an ABN. The ACN identifies the company to ASIC, while the ABN allows the company to interact with the ATO and comply with tax regulations.
When Should You Apply for ACN and ABN?
For Companies:
- ACN: Apply for an ACN during the company registration process with ASIC. This process is part of the official steps to establish a company as a legal entity.
- ABN: Apply for an ABN through the ATO to ensure that your business can fulfil its tax obligations and operate legally within Australia.
For Sole Traders and Partnerships:
- ABN: Sole traders and partnerships are only required to apply for an ABN with the ATO. The ABN allows these businesses to legally operate, invoice clients, and engage with the ATO for tax purposes.
Summary: ACN vs ABN
- ACN: A unique identifier for companies issued by ASIC and required for company registration and legal operations.
- ABN: A unique identifier for all types of businesses, issued by the ATO and necessary for tax registration and compliance.
- For companies: Both an ACN and an ABN are required.
- For sole traders and partnerships: An ABN is sufficient for tax registration and business operation.
Summing Up
Whether you are starting a company, operating as a sole trader, or running a partnership, understanding the difference between an ACN and an ABN is essential. The ACN is used for company identification and registration with ASIC, while the ABN is necessary for tax compliance and business operations in Australia. Knowing when and how to apply for both identifiers will help you navigate the regulatory landscape and ensure your business is operating legally.
More Resources: