Owners need ABN

A DELIBERATE policy decision in formulating the Australian Business Number legislation may require thousands of property owners to register for an ABN before 31 May to avoid being taxed at 48.5 per cent, deducted from rental payments, says the Taxation Institute of Australia.

TIA president Ray Conwell said residential property owners who rented out their houses could be caught in an ABN trap if the tenant used any part of the property for business purposes.

“Even if the owner does not know of the tenant’s business use, tax will have to be deducted by the tenant from the rent if the owner does not have and quote an ABN,” he said.

“This means every property owner will need to consider applying for an ABN just in case the tenant uses the property partly for business purposes.”

The ABN was introduced by the Federal Government as part of its New Tax System and requires those receiving payments in the course of business dealings to register for an ABN or have tax withheld at the highest marginal tax rate of 48.5 per cent.

“Suppose, for example, a house owner transfers interstate and rents out his house while he is away to a tenant who, unknown to the owner, runs a part-time word processing and secretarial service from one room in the house,” Mr Conwell said.

“Under the ABN legislation, the tenant will be required to deduct tax of 48.5 per cent from the rental payments unless the owner has and quotes an ABN.”

It means thousands of residential property owners who let their houses will seriously need to consider applying for an ABN to avoid being caught in the trap.

“This will put added pressure on the issuing of ABN’s by the Australian Taxation Office in the period leading up to 1 July when the ATO is barely coping with existing applications,” Mr Conwell said.

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