How can I legally pay a referral commission to an external person if they do not have a ABN?

Question

NikkiATO · Accepted Answer

For external referrers who don't have an ABN, you have a few options: If they're making a one-off referral, they could complete a Statement by a supplier form (https://www.ato.gov.au/forms-and-instructions/statement-by-supplier-not-quoting-an-abn). This allows you to pay them without withholding tax if they meet certain criteria (like the payment being under $75 or being a hobby activity). If they don't provide an ABN and don't give you a Statement by a supplier form, you can still pay them. But you'd have to withhold tax at the top marginal rate (https://www.ato.gov.au/businesses-and-organisations/hiring-and-paying-your-workers/payg-withholding/payments-you-need-to-withhold-from/withholding-from-suppliers/withholding-if-abn-not-provided) (currently 47%) from payments to them. This is called no-ABN withholding. For ongoing referrals, you might encourage them to check the Are you in business? (https://www.ato.gov.au/businesses-and-organisations/starting-registering-or-closing-a-business/starting-your-own-business/are-you-in-business) page - as they may need to apply for an ABN. For your internal employees, you're right - referral bonuses should be processed through payroll with PAYG tax withheld as part of their normal salary and wages.

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