If a contractor's ABN is cancelled, treat the invoice as if no ABN was quoted: withhold 47% of anything over $75 excluding GST, and pay it to the ATO. One thing that surprises most payers: you are not obliged to check ABN Lookup before paying. The obligation bites when you have doubts. If you doubt the ABN quoted is correct, you must withhold.
Do I have to check every contractor's ABN?
No. The ATO's position is that payers do not have to check whether an ABN is valid. What it says next is the part that matters: if you suspect the ABN quoted does not belong to the supplier or their agent, you can check it, and you should withhold if you doubt the ABN quoted is correct.
So checking is optional right up until something gives you a reason to doubt, at which point acting on that doubt is not optional. In practice that means you check when:
- an invoice arrives with an ABN that does not match the name you are paying;
- a long-standing contractor's details change;
- an ABN fails a validation check in your accounting software;
- someone tells you their ABN was cancelled, or you find out another way.
Two ways to check: ABN Lookup, or the ATO's automated line on 13 72 26.
What you withhold, and when you do not
Where no valid ABN is quoted, you withhold 47% of the payment. There are exclusions, and they apply whether or not an ABN is provided:
- the total payment is $75 or less, excluding GST;
- the supplier is an individual under the age set out on the ATO's form and payments do not exceed $350 per week;
- the supply is wholly input taxed, which includes most financial supplies and residential rent;
- the supplier gives you a valid statement by a supplier, and you have no reasonable grounds to think it is false.
That last one is worth reading carefully. A contractor whose ABN has been cancelled because they stopped trading is not automatically entitled to use that form. If they are carrying on an enterprise, they are entitled to an ABN, and being entitled rules the form out.
The mechanics, in order
- Make sure you are registered for PAYG withholding. You cannot withhold without it. If you already withhold from wages you are covered.
- Withhold 47% from the total payment.
- Give the contractor a payment summary for withholding where no ABN was quoted, at the same time you pay them the net amount, or as soon as possible after.
- Report and pay it with your next activity statement.
- Keep the records separate from your other payment records. You cannot claim a GST input tax credit on payments you have withheld from.
One thing you must not do: pay in full on the understanding that an ABN will be quoted later. If you do, you can be penalised for the amount you did not withhold. You can agree to hold the payment until their ABN is sorted out, which is usually the sensible answer for both sides.
What the contractor needs to do
If they are still carrying on an enterprise, they reapply or ask for the ABN to be reactivated, and where they are still entitled they will usually get the same number back rather than a new one. Our guide on reactivating a cancelled ABN covers it.
Worth telling them plainly, because most people do not know: it is an offence to use an ABN after it has been cancelled. Quoting the old number on an invoice is not a technicality.
Most cancellations of this kind are not deliberate. The ABR runs a program that cancels ABNs it is confident are no longer in use, and unreported business income or overdue lodgements are among the indicators. Plenty of people find out from a payer rather than from a letter.
Common questions
What do I do if a contractor's ABN has been cancelled?
Treat it as though no ABN was quoted. Withhold 47% of the payment where it is more than $75 excluding GST, give the contractor a payment summary for no-ABN withholding, and report it on your next activity statement. Tell them, because most cancellations are not deliberate.
Am I required to check ABN Lookup before I pay an invoice?
No. The ATO says payers do not have to check whether an ABN is valid. But if you suspect the ABN does not belong to the supplier, or you doubt it is correct, you must withhold. Once you have a reason to doubt, checking stops being optional in practice.
Can I just pay them and sort the ABN out afterwards?
No. You must not make full payment on the understanding an ABN will be quoted later, and you can be penalised for the amount you failed to withhold. Holding the payment until their ABN is valid is allowed and is usually the better answer for both of you.
Does the 47% apply to small invoices?
Not where the total payment for the supply is $75 or less excluding GST. Above that it applies unless a valid ABN is quoted or another exclusion fits.
They gave me a statement by a supplier instead. Is that enough?
Only if the reason on it is genuine. A contractor carrying on a business is entitled to an ABN, and being entitled rules the form out. If you have reasonable grounds to believe the statement is false or misleading, you are required to withhold anyway.
Do I get the withheld amount back?
No, it is not yours. You pay it to the ATO and the contractor claims it as a credit when they lodge their return, using the payment summary you gave them.
Their ABN needs reactivating? Same number, $99.
Send them our way. Agent-lodged, usually the same day. Free help on 1800 546 526.