What is ABN withholding?
ABN withholding occurs when a supplier does not have, or does not advise you with their ABN for the goods or services they supply to your business with a value of more than $70.
When this occurs, you must withhold 47% (top marginal tax rate) from payment. Pay the supplier 53% of the payment and supply them with a PAYG summary of the transaction. You can use the ATO version or create a version of your own (as long as all the details required in the ATO version are present). This will need be prepared at time of payment or very soon after.
You then record the withheld amount in your BAS/IAS for the period the supply occurred in.
The 47% payment is sent to the ATO along with your other withholding obligations (ie PAYG-Withholding). If you are not already registered for withholding, you will need to do so.
At the end of the year, you will prepare the "PAYG Withholding where ABN not quoted - Annual Report." In third report detail all known details of the supplier and transaction.
So what happens to the 47% payment on the supplier's end?
The supplier will lodge a PAYG Withholding Annual Report, along with their income tax return, detailing the amounts withheld because an ABN was not supplied. The 47% will be credited against their tax liability for the year. Thoughts credit can only be used in an income tax return, it cannot be claimed in a BAS.
The Australian Business Register has a tool called the ABN lookup which you can use to verify if an ABN is active and connected to the supplier.
Contact us at Dolman Bateman or Buildersbooks if you are looking for an experienced accountant or Bookkeeper.
This information is not to be relied upon without speaking to your accountant, tax agent or financial adviser depending on the advice