Dear Ed archive
June 2008
Do I need to have an
ABN and be registered for
GST to run an editing business from home?
Caitlin
Dear Caitlin
I think it's time you went out and embraced an accountant. Accountants are a bit like editors; they can cut through gobbledegook and present you with a clear explanation in plain English. (Oh, all right, I take it back. Accountants are nothing like editors - but they do love clarity.)
Now for the alphabet soup. An ABN is an Australian Business Number and, yes, you need one even to run a jam stall. You need an ABN unless:
- editing is your hobby
- you want your clients to keep part of your fee every time you invoice them (which is called withholding tax).
You do not have to be registered for GST unless you earn over $75,000, which is known as the GST threshold. That's the good news. However, some businesses will not deal with you unless you are registered for GST, even if you earn less than $75,000. Their accountants assume that every service provider (that's you, by the way) is charging them GST and if you're not charging GST they do an accountant's catch-22 and ask you to add 10% to your invoice to cover the GST you're not registered to collect. You then have to walk around carrying a bucket full of money you weren't registered to collect in an attempt to find someone to give it to. In my experience government bodies are the worst at this trick. (Perhaps they wrote the rule book but never actually got around to reading it.)
When I first went freelance, my accountant said: 'Whatever you do, don't earn over the GST threshold!' If you can remain under the threshold and your clients are happy not to be charged GST, keep it that way because the paperwork is simple. Once you register for GST you will need to add 10% GST to every invoice, and you will need to fill out a quarterly statement called a Business Activity Statement (known, with much nocturnal gnashing of teeth, as a BAS).
Regardless of whether you register for GST, you will need to pay 'pay as you go' tax (or PAYG). Each PAYG instalment is roughly a quarter of your previous year's tax. PAYG instalments assume that your income in, for example, the April-June quarter of 2008 was one-quarter of your total income for the tax year 2006-07.
If you have any further queries, visit the Australian Tax Office website <http://www.ato.gov.au>. The site is a model of clarity but sometimes does a fair imitation of the labyrinth at Knossos, so make sure you wear sensible shoes and take a cut lunch and a thermos with you. Happy trails...
Ed
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