What You Need To Know About Working On An ABN As A Backpacker

Have you ever heard other backpackers talking about an ABN? Did you know what your fellow travelers were talking about? So what does that mean? First of all ABN stands for Australian Business Number. That is something different than your Tax File Number, your TFN, which every backpacker needs to work in Australia on a working holiday. In this article you’ll find out what this means for (not only in regards to money) you and what you should look out for.

ABN - short for Australian business number
ABN - short for Australian Business Number

What is an ABN

So your future employer tells you that you are going to work for them on an ABN. What is that all about? First off, you always need a TFN (9 digit number) to be employed in Australia on a working holiday. However, if you work using an ABN (11 digit number), that means you are going to have a small business

Say what? No desk, no office, I don’t have a business! Well you do, you work as a sole trader and invoice your employer for the work you did. To be precise, the word employer is actually misleading as in this case you are going to offer your skills to a customer who is going to pay for it if you want so.

Yet, it will often be seen as an employer-employee situation. Most of the time the company you are going to work for will assist you with the application process for your ABN. There are some cases in which travelers are really going to work as freelancers (some backpackers with a background in trades, journalism, etc.). However, most of the time companies are going to subcontract you, which is often questionable.

Often this sounds great at first as  your future employer might tell you that you don’t have to pay tax on your earnings or he only makes a comment about that on the side. However, you are obliged to pay tax on your earnings. This means your tax will not be deducted as you go, instead you will have to make sure to pay them when lodging your tax return at the end of the tax year (end of March). And there is more that you need to know about working on an ABN as a backpacker.

Working on an ABN - most backpackers will be working as labourers
Working on an ABN - most backpackers are working as louberers

Why should a backpacker work using an ABN?

If you are on a working holiday in Australia and back at home you already did some freelance work you might continue doing exactly this over here in Australia. Among these jobs are many trades such as carpenters, plumbers, electricians, etc. But there are many more such as graphic designers, journalists, tutors and consultants. Basically any kind of profession where you offer a service to someone and run a small business. If this is the case you can easily apply for your ABN online.

However, make sure that you really act as a business and you are not employed. You provide your service to a client and you are going to invoice them for it and you keep track of all the paperwork and save some money for when you lodge your tax return at the end of the financial year and pay your taxes. Aside from a few exceptional cases you are required to lodge your tax return. However, it is not very complicated with the online platform that the ATO, the Australian Taxation Office, provides.

If you got your own small business you can work on an ABN
If you run your own small business go and work on an ABN (source: flickr, by Sean MacEntee)

Be careful when you work on an ABN

If you decide to work with an ABN while you travel you should be aware of the following:

  • The difference between being an employee and being an independent contractor (self-employed)
  • Risks as a sole trader (independent contractor)
  • How much tax you have to pay

Differences between employees and independent contractors

You have got different rights and obligations whether you are an independent contractor or you are an employee. As a sole trader for example you are responsible for paying taxes and taking care of insurance yourself. Backpackers are often not aware of this.

So be wary of possible sham contracting. This means that you are required to apply for an ABN and officially you are an independent contractor, but the circumstances of your job indicate that you are in a typical employer-employee relationship. And you might not even be told about your duties as a sole trader like taking care of insurance yourself!

Be careful when you work on an ABN as a backpacker (source: flickr, by Ibbotson Brady)

Risks as a sole trader

When you work using an ABN you have to take care of several risks yourself compared to when you are an employee. This is a very important aspect of being a sole trader when you are on a working holiday in Australia. You can look online for options to insure yourself.

Paying taxes when you are self-employed

When you are on a working holiday in Australia and you are employed your tax is deducted from your regular earnings. It is called PAYG, which stands for Pay As You Go. However, as a traveler using an ABN you will have to take care of paying your taxes yourself. So you should always save some money for when you lodge your tax return at the end of the financial year at the end of March.

The tax brackets and the amount of tax you are required to pay as a sole trader is the same as when you are employed. Moreover, you will have to pay 10% GST (Goods and Service Tax), but this only applies if you earn more than $75.000 per year. For most backpackers this will be irrelevant.

You have to make sure to pay your taxes when working on an ABN (source: flickr, by reynermedia)

To conclude, you can definitely work with an ABN when you are on a working holiday in Australia. However, you should be aware of all of your obligations and potential traps you might fall into. For some backpackers who were already running a small business back home this makes perfect sense. Whether they be tradesmen, designers or who knows what. There are endless possibilities. Unfortunately, in a lot of cases it will be sham contracting and you should know what you are up to. All the best and I hope you can save enough money for your next road trip.

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