THE Australian Business Number (ABN) plays a critical role in the tax system, but registering an ABN without planning and forethought may be contributing to the black economy rather than acting as a deterrent, according to the Institute of Public Accountants (IPA).
“Whilst we applaud a simple, efficient system, there are not enough checks and balances to ensure the registration of an ABN is appropriate or not,” IPA chief executive officer, Andrew Conway said.
“The ease of applying for an ABN online by applicants who do not understand the legislative test for eligibility and their obligations, has resulted in many obtaining one when not entitled.
“People involved in sham contracting who would otherwise be employees of a company fall into this category.
“There are also individuals applying for an ABN to legitimise a business which does not fully comply with its tax obligations," he said.
“The extension of reportable payments to high-risk industries illustrates how the ABN system has been deliberately misused with the cash economy alive and well.
“When the building and construction sector was subjected to mandatory reporting in 2012, a whopping $2.3 billion of revenue was reported in its first 12 months," Mr Conway said. "Mandatory reporting is being extended to other high-risk sectors to reign in the cash economy.
“When the ABN system was introduced in 2000, it was supposed to hinder the black economy by strengthening the integrity of the tax system but that has simply not been the case.
“Applying for an ABN is an important step and there needs to be more rigour in the process as it is effectively your ‘licence’ to do business. We welcome the Government's consultation on reforming the ABN system to arrest current deficiencies and provide greater system integrity.
“Accountants are well placed to educate applicants of the rights and obligations of having an ABN and more importantly, to vet the applicant’s credentials for commencing a business that meets ABN eligibility criteria," he said. "This check and balance function will no doubt help the government and the ATO in the longer term.
“We urge individuals considering starting a new business, not to just jump online and apply for an ABN but to have a meaningful discussion with their accountant first and to understand what it takes to run a business and your obligations,” Mr Conway said.