From 1 July 2026, the way employers pay super is changing. These FAQs explain what Payday Super means for your business, what’s different, and what you need to do to get ready.
Contents
The Basics
1. When does Payday Super start?
1 July 2026. From that date, employers must pay super at the same time as salary and wages. You can start paying more frequently before then to help your business adjust, but it’s not compulsory until July.
2. What exactly is changing?
Most businesses currently pay super quarterly. Under Payday Super, you’ll need to pay super every time you pay your employees. Weekly pay means weekly super. Fortnightly means fortnightly. Monthly means monthly. The amount doesn’t change — just the timing.
3. What’s the deadline?
It’s not enough to just send the money on payday. The super must land in your employee’s fund within 7 business days of payday. That’s a big shift from the current system, where you have until 28 days after the end of the quarter.
4. Does this apply to all employers?
Yes — every employer in Australia, regardless of size. That includes sole traders with just one employee. There’s no small business exemption.
5. What counts as “payday”?
It’s the day you actually pay an employee their salary or wages. The legislation calls it the “Qualifying Earnings day.” Every payday triggers a super obligation.
6. I already pay super monthly. Do I still need to change anything?
Possibly. If you pay staff fortnightly but only pay super monthly, you’ll need to align super with each pay run. The rules require super to be paid on payday and received by the fund within 7 business days — not just by month-end.
ATO Clearing House (SBSCH)
7. Can I keep using the ATO’s free clearing house?
No. The Small Business Superannuation Clearing House (SBSCH) is closing permanently on 1 July 2026. It was built for quarterly processing and can’t handle the speed Payday Super requires. Access ends at 11:59 pm on 30 June 2026.
8. What do I need to do if I use the SBSCH?
Switch to a commercial clearing house or payroll software that can process super each pay run. Before the SBSCH closes, make sure you download all your historical records and employee data — once it shuts down, that information is gone for good.
9. What are my alternatives?
Most payroll platforms (Xero, MYOB, QuickBooks, Employment Hero, and others) now have built-in super payment features that handle calculation, submission, and tracking. Standalone commercial clearing houses are also an option. Not sure what’s right for your business? Have a chat with us and we’ll help you work it out before the deadline.
Calculations & Qualifying Earnings
10. What are “Qualifying Earnings”?
Currently, super is calculated on “Ordinary Time Earnings” (OTE). Under Payday Super, this changes to “Qualifying Earnings” (QE). For most businesses, QE works much the same as OTE. The main difference is that salary sacrifice amounts are now explicitly included — so salary sacrifice can’t be used to reduce your super guarantee obligation. If your employees are on straightforward pay arrangements, you’re unlikely to notice a difference.
11. Will I end up paying more super?
In most cases, no. The super rate itself doesn’t change. But if you have employees on salary sacrifice, complex pay structures, or earnings close to the maximum contribution base, the calculation changes may affect what you owe. The biggest shift for most businesses won’t be how much you pay — it’s when the money leaves your account. If you’re unsure, we can take a look at your payroll and check.
Penalties & Compliance
12. What happens if super is paid late?
If the money doesn’t reach the employee’s fund within 7 business days of payday, you may cop the Superannuation Guarantee Charge (SGC). That includes the unpaid amount, daily compounding interest, and an administrative uplift penalty of up to 60%. The new SGC is expected to be tax-deductible — but penalties for paying the SGC itself late are not.
13. What if the delay is the bank’s fault, not mine?
Doesn’t matter — you’re still on the hook. The law cares about when the fund receives the money, not when you sent it. Bank transfers can take up to three business days, and clearing houses may add more on top. So you should be initiating payment on payday, not a few days later, to give yourself enough room within the 7-day window.
14. Will the ATO come down hard from day one?
They’ve said they’ll take a “measured approach” in the first 12 months. In practice, that means they’ll go easier on businesses that are genuinely trying to get it right — updated systems, payments going out on time, issues being fixed quickly. But it’s not a free pass. If you’re ignoring the rules or repeatedly missing deadlines, expect enforcement action from the start.
15. What if I make a genuine mistake on one pay run?
If you pick it up quickly, lodge a voluntary disclosure with the ATO, and pay what’s owed, the uplift penalty may be reduced. A clean compliance history helps. This is one of the big reasons to use automated systems and keep solid records — you want to spot problems before the ATO does.
Cash Flow & Planning
16. How will this affect my cash flow?
Right now, you might be sitting on two or three months’ worth of super before it’s due. Under Payday Super, that money leaves your account every pay cycle. For some businesses, that could mean tens of thousands of dollars that’s no longer available as a buffer. You won’t be paying more overall — but you’ll need the cash on hand much sooner. We’d strongly recommend modelling the impact for your business sooner rather than later.
17. I’m a seasonal business. How do I manage super during the quiet months?
This is one of the trickiest parts of Payday Super for businesses with ups and downs in revenue. You’ll need to put money aside during the busy periods to cover super when things slow down. A dedicated cash reserve for super, or adjusting your invoicing and collection cycles, can help smooth things out. Talk to us about building a cash flow forecast that works around your seasonal pattern.
Payroll & Systems
18. What if an employee’s super fund rejects a payment?
You’re still responsible for meeting the 7-day deadline. If a payment bounces — wrong fund details, closed account, processing error — you need to sort it out and resubmit as fast as possible. This is why it’s so important to keep employee super fund details up to date. Check them during onboarding, and ask staff to let you know straight away if anything changes.
19. I use a bookkeeper or external payroll provider. Is this their problem or mine?
The legal obligation sits with you as the employer. If someone else handles your payroll, you need to make sure they understand the new rules and that their systems can meet the 7-day deadline. Have a conversation with them now about how they’re planning to handle Payday Super — and get clear on who’s responsible for what. If something goes wrong, the ATO will be looking at you, not your bookkeeper.
Contractors & Special Cases
20. Does Payday Super apply to contractors?
It can. If a contractor is paid mainly for their labour, they’re generally treated as an employee for super purposes. If you’re already paying super for a contractor, you’ll need to meet the same 7-day deadline as you would for any other employee. Not sure whether your contractors are caught by this? Worth checking now rather than after the deadline — we can help you work it out.
21. What about directors who take a salary?
Yes — working directors who are paid a salary or director’s fees are generally entitled to super. Under Payday Super, their contributions need to be paid on the same basis as everyone else: within 7 business days of payday.
Getting Ready
22. What should I be doing now?
Five things. First, check your payroll software can handle super with every pay run — talk to your provider to confirm. Second, if you use the SBSCH, start moving to a new clearing house or integrated payroll solution now. Third, model your cash flow so you understand how more frequent super payments will hit your business. Fourth, make sure all your employee super fund details are up to date and correct. And fifth, talk to your accountant sooner rather than later — the earlier you start, the smoother the transition.
23. Do I need to speak to my accountant?
Yes. Payday Super affects your payroll, your cash flow, your systems, and your compliance obligations. It’s not a single change — it’s a shift in how your business operates. Getting advice now gives you time to prepare properly and avoid expensive mistakes down the track.
If you’ve got questions about how Payday Super will affect your business, get in touch with our team. A quick conversation now can save you a lot of time, money, and stress later on.
Contents
Payday Super
Six things every small business needs to know before 1 July 2026
If you employ staff, one of the biggest changes to hit your business in years is coming on 1 July 2026. It’s called Payday Super, and it fundamentally changes how and when you pay superannuation.
Under the current system, you have until 28 days after the end of each quarter to pay your employees’ super. That’s about to end. From 1 July, you’ll need to pay super at the same time as wages, with contributions reaching your employees’ super funds within seven business days of each payday.
The total amount you owe doesn’t change. But the timing, the systems, the compliance rules, and the consequences of getting it wrong all do. Here are the six key areas you need to understand.
1. Your Cash Flow Will Be Affected
This is the change most businesses will feel first. Instead of four quarterly super payments, you’ll be making 26 (fortnightly) or 52 (weekly) payments per year. The quarterly buffer that many businesses have relied on to manage short-term cash flow simply disappears.
The cash flow impact is real. Under the current system, you might hold two or three months’ worth of super in your account before it’s due. Under Payday Super, that money leaves every pay cycle. For a business with 10 employees on average salaries, that could mean tens of thousands of dollars you no longer have as a buffer. Employment Hero’s modelling of over 300,000 businesses put the average working capital shift at $124,000 — though the actual impact on your business will depend on your team size, pay levels, and pay cycle. Either way, the time to model this for your business is now, not in June.
2. Your Payroll System Needs to Keep Up
Going from 4 super submissions a year to 26 or 52 is a massive jump in processing volume. Your payroll system will need to calculate, submit, and track super contributions with every single pay run — automatically and accurately.
If you’re still relying on manual processes, spreadsheets, or disconnected systems, those gaps will be exposed quickly under Payday Super. One missed step on one pay run could trigger penalties. Check with your payroll software provider now to confirm their system is Payday Super-ready, and start testing before July.
3. The ATO’s Free Clearing House Is Closing
If you use the ATO’s Small Business Superannuation Clearing House (SBSCH) to process super, it’s closing on 1 July 2026. It stopped accepting new registrations in October 2025, and existing users have until 30 June to transition to an alternative.
The SBSCH was built for quarterly batch processing and simply can’t support the speed and frequency Payday Super demands. You’ll need to move to a commercial clearing house or an integrated payroll solution that can handle real-time payments. Don’t wait until the last minute — migrating takes time, and you’ll want to test your new setup before the old one switches off.
4. The Penalties Are Tougher
Under the new rules, the Superannuation Guarantee Charge (SGC) is assessed per payday, not per quarter. If a contribution doesn’t reach an employee’s fund within seven business days, you’ll face the shortfall amount, interest, and an administrative uplift of up to 60%.
Here’s the catch many businesses miss: even if you initiate the payment on time, bank transfers can take up to three days. Add clearing house processing time, and you could breach the seven-day rule without realising it. The ATO has said it will take a measured approach in the first year for businesses making a genuine effort — but that’s not a free pass.
5. How Super Is Calculated Is Changing
Super will now be calculated on “qualifying earnings” (QE) instead of “ordinary time earnings” (OTE). QE is a broader measure that includes salary sacrifice contributions and other amounts. For most employees on simple pay arrangements, there will be no difference. But if you have staff on salary sacrifice, variable pay, or earnings near the maximum contribution base, it’s worth reviewing.
The maximum super contribution base is also moving from a quarterly to an annual threshold. This means one-off bonuses that previously pushed an employee over the quarterly cap may now attract super if total annual earnings stay below the annual limit. For some businesses, this will mean paying more super for certain employees.
6. Directors Face Greater Personal Risk
If you’re a company director, Payday Super raises the governance stakes. The Safe Harbour provisions under the Corporations Act — which protect directors pursuing a restructuring plan — require that employee entitlements are paid on time. Under the new rules, every missed payday super payment could disqualify you from Safe Harbour protection.
The director penalty regime also becomes more immediate. With the ATO receiving per-payday data instead of quarterly reports, shortfalls are identified faster, and Director Penalty Notices can follow sooner. Treasury has openly acknowledged the reform may trigger an increase in insolvencies among businesses that have been using quarterly super as an informal cash flow tool.
What You Should Do Now
The 1 July 2026 deadline is firm, and the businesses that prepare early will transition smoothly. Those that don’t risk cash flow surprises, system failures, and penalties that are far more punishing than under the current rules.
We recommend every business take these steps now: model the cash flow impact of per-payday super payments, confirm your payroll system is ready, migrate off the SBSCH if you use it, and review your employee pay structures for any calculation changes.
If you’d like help preparing for Payday Super, we’re here for you. Whether it’s a cash flow forecast, a payroll review, or simply a conversation about what these changes mean for your specific situation, reach out to our team. A small investment of time now will save you from a much bigger headache later.
Cash Flow & Financial Impact
How payday super will change the way your business manages money
If you run a small business with employees, you’re probably used to paying superannuation once a quarter. You set aside the money, lodge it by the due date, and move on. It’s a rhythm most businesses have followed for years.
That rhythm is about to change significantly.
From 1 July 2026, the new Payday Super rules require you to pay super at the same time as your employees’ wages. Not quarterly. Every single payday. And the money must reach your employees’ super fund within seven business days.
For small businesses, this is one of the most impactful changes in years — and the biggest area it will hit is your cash flow.
What This Means in Practice
Under the current system, if you pay staff fortnightly, you only need to settle super four times a year. That gives you up to three months of breathing room between payments. Many businesses use that buffer to manage seasonal dips, cover unexpected expenses, or simply keep operations running smoothly.
Under Payday Super, that buffer disappears. Instead of four lump-sum payments, you’ll be making 26 (fortnightly) or even 52 (weekly) super payments per year. The total amount you owe doesn’t change, but the timing does — and timing is everything when it comes to cash flow.
Industry modelling suggests the average small-to-medium business paying staff fortnightly could need an additional $124,000 in working capital from day one just to manage the transition. That’s not extra money you’re paying — it’s money you need available sooner than before.
Which Businesses Will Feel It Most?
Not every business will be affected equally. If your revenue is steady and predictable, you may adjust without too much difficulty. But if your business experiences seasonal fluctuations, irregular income, or operates in industries like hospitality, retail, or construction, the shift could create real pressure.
Research suggests that more than one in five small and medium businesses could struggle with the cash flow impact of these changes. Businesses that have historically relied on the quarterly super cycle as an informal cash flow tool will feel the pinch the hardest.
Treasury has been transparent about this. They’ve acknowledged that the reform may trigger financial difficulties for some businesses — particularly those already operating on tight margins.
How to Prepare
• Start modelling now. Map out what your super obligations will look like on a per-pay-run basis, not quarterly. Understand the dollar impact across a full year.
• Build a cash buffer. If possible, begin setting aside super with every pay run now, even though it’s not yet required. This helps you adjust gradually rather than facing a sudden shift in July 2026.
• Review your payment terms. If you invoice clients on 30 or 60-day terms, consider whether your collection cycle aligns with more frequent super payments.
• Talk to your accountant. A cash flow forecast tailored to your business can identify potential shortfalls early, before they become a problem.
Don’t Wait Until July
The businesses that will navigate this transition smoothly are the ones that start planning now. Cash flow surprises are the kind of problem that’s far easier to prevent than to fix.
Payroll & Systems
Your payroll is about to get a lot busier - Here's how to get ready
When Payday Super kicks in on 1 July 2026, it won’t just change when you pay super. It will change how much your payroll system has to do, how often it has to do it, and how little room there is for error.
For many small businesses, payroll has been relatively straightforward: process wages each pay cycle, then batch super contributions quarterly. Payday Super turns that into a continuous obligation — super must be calculated, submitted, and tracked with every single pay run.
The Scale of the Shift
Consider the numbers. If you currently pay super four times a year and you pay your staff fortnightly, you’re about to go from 4 super submissions to 26. Pay weekly? That’s 52.
Each of those submissions needs to be accurate, timely, and properly recorded. Industry analysis suggests this could represent a 60% increase in administrative overhead for the average small business. That’s not an exaggeration — it’s the reality of processing super at the same frequency as wages.
What Your Payroll System Needs to Do
Under Payday Super, your payroll system will need to handle several things seamlessly:
• Calculate super contributions for each employee on every pay run, based on “qualifying earnings” (the new term replacing ordinary time earnings).
• Submit contributions electronically through SuperStream with every pay cycle.
• Track payment status to confirm that funds have reached each employee’s super fund within seven business days.
• Generate proof-of-payment records in case of an ATO audit or dispute.
If your current system can’t do all of this automatically, you’re at risk of manual errors, missed deadlines, and penalties.
The Danger of Manual Processes
If you’re still managing super contributions through spreadsheets, manual uploads, or disconnected systems, Payday Super will expose those gaps quickly. Manual processes that worked fine for quarterly payments become unsustainable when they’re required 26 or 52 times a year.
One missed step, one overlooked employee, one delayed upload — and you could be facing a Superannuation Guarantee Charge with interest and penalties. The margin for error shrinks dramatically under the new rules.
How to Prepare
• Audit your current payroll setup. Can it process and submit super with every pay run without manual intervention? If not, it’s time to upgrade.
• Contact your payroll software provider. Most major providers (Xero, MYOB, QuickBooks, and others) are updating their systems for Payday Super. Find out what changes are coming and whether you need to activate new features.
• Automate wherever possible. The fewer manual steps in your super process, the lower your risk of errors and late payments.
• Test before July. Run a few pay cycles as if Payday Super is already in effect. Process and submit super with each pay run and see how your system handles it. Better to find problems now than after the deadline.
Get Ahead of the Curve
Payroll changes sound unglamorous, but getting this wrong will be expensive. The businesses that invest a little time now in checking and upgrading their systems will save themselves significant headaches later.
Clearing House Closure
The ATO's free super clearing house is closing - What you need to do now
If your business uses the ATO’s Small Business Superannuation Clearing House (SBSCH) to process super payments, this is important: the service is shutting down on 1 July 2026, and it’s not coming back.
Since 1 October 2025, the SBSCH has already stopped accepting new registrations. Existing users can continue using it until 30 June 2026, but after that date, no new contributions will be processed. Any payments attempted through the system after closure simply won’t go through — putting you at immediate risk of missed deadlines and penalties.
Why Is It Closing?
The SBSCH was designed for a world where super was paid quarterly. It processed payments in batches, which worked fine when employers only needed to submit four times a year.
Payday Super changes that equation entirely. Super now needs to be paid with every pay cycle and received by funds within seven business days. The SBSCH simply cannot support the speed, frequency, and real-time tracking that the new rules demand. It wasn’t built for this, and the ATO has confirmed it won’t be upgraded — it will be retired.
What This Means for Your Business
If you’re one of the many small businesses that have relied on the SBSCH as your go-to super payment method, you now have two challenges happening at once:
• You need a new clearing house solution that can handle payday-frequency super payments and confirm receipt within the seven-day window.
• You need to be set up and tested before 1 July 2026 — not scrambling on the day the old system goes dark.
This isn’t just a change of provider. It’s a change in how your entire super payment process works. The new solution will need to integrate with your payroll, process payments in real time, and give you visibility into whether contributions have been received on time.
Your Options
The good news is there are a number of commercial clearing house and integrated payroll solutions available that are specifically designed for Payday Super compliance. Many of the major payroll software providers — including Xero, MYOB, and Employment Hero — offer built-in super payment features that handle everything from calculation to submission to tracking.
When evaluating your options, look for a solution that:
• Integrates directly with your payroll system so super is processed as part of your normal pay run.
• Supports SuperStream-compliant electronic payments to multiple funds.
• Provides real-time tracking so you can confirm contributions have reached employees’ funds within seven business days.
• Is already Payday Super-ready, or has a clear roadmap for compliance before July 2026.
Don’t Leave This Until the Last Minute
Migrating from one payment system to another takes time. You need to set up the new provider, test it with a few pay runs, train your team (or yourself), and make sure everything is working before the SBSCH closes. The worst-case scenario is finding out in July that your new system doesn’t work as expected and you have no fallback.
Compliance & Penalties
The new penalty framework is stricter than you think - Here's what's at stake
One of the most important things to understand about Payday Super isn’t just that you need to pay super more often. It’s that the consequences of getting it wrong are more severe than under the current system.
Under today’s rules, if you miss a quarterly super deadline, you face the Superannuation Guarantee Charge (SGC). It’s not pleasant, but the quarterly cycle means you have larger windows and fewer deadlines to manage.
From 1 July 2026, the compliance framework tightens significantly. And for small businesses, the risks are real.
How the New Penalties Work
Under Payday Super, the SGC is assessed per payday, not per quarter. Every time you pay wages, you trigger a super obligation. If that contribution doesn’t reach the employee’s super fund within seven business days, the SGC clock starts ticking.
The new SGC includes:
• The shortfall amount — the super you should have paid.
• Interest (notional earnings) — calculated on the unpaid amount.
• An administrative uplift of up to 60% — this is the real sting. It’s a penalty applied on top of the shortfall and interest, and it can vary depending on your compliance history.
If you’ve been consistently paying on time and make a genuine mistake, the uplift may be reduced. But if you have a pattern of late payments, expect the full force of the penalty.
On top of the SGC, additional penalties may apply if you don’t pay the charge within 28 days of receiving an ATO notice. Unlike regular super contributions, SGC amounts and penalties are generally not tax-deductible.
The Hidden Risk: Processing Delays
Here’s something many small businesses don’t realise yet: even if you initiate a super payment on time, it might not arrive at the fund within seven business days.
Standard bank transfers can take up to three business days. If your clearing house or payment gateway adds another day or two for processing, you’re already eating into your seven-day window. A rejection or error could push you over the line entirely — and you may not even know it happened until the ATO flags it.
This is one of the trickiest aspects of Payday Super for small businesses. You can do everything right on your end and still be caught out by the payment infrastructure.
The First-Year Grace Period (With Conditions)
The ATO has said it will take a “measured approach” to compliance during the first 12 months. In practice, this means they’ll differentiate between businesses that are genuinely trying to comply and those that aren’t.
If you can show that you’ve updated your systems, are making payments on time, and are actively addressing any issues, you’re likely to be treated as low risk. But this is not a free pass. The ATO will still be monitoring, and repeated or careless non-compliance will be met with enforcement action.
How to Protect Yourself
• Understand the seven-day rule inside out. Know how long your payments take from initiation to fund receipt, and build in a buffer.
• Automate your payments. The less manual intervention required, the lower your risk of delays and errors.
• Keep records. Maintain clear proof-of-payment documentation for every pay run. If the ATO comes knocking, you want a clean paper trail.
• Monitor your compliance history. A strong track record may reduce penalties if something goes wrong.
Take This Seriously
The penalty framework under Payday Super is designed to be taken seriously. A 60% administrative uplift on top of shortfall amounts can turn a small oversight into an expensive problem.
Calculation Changes
Super guarantee calculations are changing - What "Qualifying Earnings" means for your business
Payday Super doesn’t just change when you pay super. It also changes how super is calculated. If you’re a small business owner, it’s important to understand these shifts — because they could affect how much you owe and for which employees.
From OTE to Qualifying Earnings
Under the current system, super guarantee is calculated as 12% of an employee’s “ordinary time earnings” (OTE). OTE generally includes base salary, commissions, shift loadings, and some allowances, but excludes overtime.
From 1 July 2026, the calculation shifts to “qualifying earnings” (QE). QE is a broader concept that brings together OTE, salary sacrifice contributions, and certain other amounts that are currently part of an employee’s salary or wages for super guarantee purposes.
For most employees on straightforward pay arrangements, the practical difference may be minimal. But if you have staff on salary sacrifice arrangements, complex pay structures, or variable earnings, QE could change your super liability. It’s worth understanding exactly which payments are now captured.
The Maximum Contribution Base Is Going Annual
Here’s a change that could affect businesses with higher-income employees.
Currently, there’s a maximum super contribution base (MSCB) applied quarterly. If an employee’s earnings exceed the quarterly cap, you’re not obligated to pay SG on the amount above it.
Under Payday Super, the MSCB moves from a quarterly threshold to an indexed annual threshold. This smooths out the calculation across the full year.
Why does this matter? Consider an employee who earns a steady salary but receives a large one-off bonus in one quarter. Under the current system, that bonus might push them over the quarterly cap, meaning you don’t owe super on the excess. Under the annual threshold, that same bonus is spread across the year’s cap. If the employee’s total annual earnings stay below the annual limit, you’ll owe SG on the full amount — including the bonus.
For some businesses, this will mean paying more super for certain employees than they do today. For others, it may simplify things by removing the need to monitor quarterly caps.
Per-Payday Calculations
Another practical shift is that SG will be calculated on a per-payday basis rather than accumulated quarterly. This means your payroll system needs to correctly determine QE for each pay run, apply the 12% rate, and submit the contribution — all within the seven-day window.
If you have employees with variable hours, fluctuating earnings, or irregular payment schedules, this adds complexity. Each pay run becomes its own SG event, and errors compound faster when you’re processing 26 or 52 times a year instead of four.
How to Prepare
• Review your employee pay structures. Identify anyone on salary sacrifice, variable pay, or earnings near the MSCB. These are the areas most likely to be affected by the calculation changes.
• Update your payroll system. Ensure it can calculate SG based on qualifying earnings (not just OTE) and apply the new annual MSCB threshold correctly.
• Understand the QE definition. Work with your accountant to confirm which payments are included in qualifying earnings for each employee.
• Plan for the annual cap. If you’ve been monitoring quarterly caps for high-income employees, you’ll need to adjust your approach.
Get Clarity Before July
The shift from OTE to qualifying earnings might sound like a technicality, but it can have real dollar implications for your business. The annual MSCB change could also affect your super obligations for certain employees.
Director & Governance Obligations
Why payday super raises the stakes for company directors
If you’re a director of a small business, Payday Super isn’t just an HR or payroll issue. It’s a governance issue that could directly affect your personal legal exposure.
The new rules don’t just change how super is paid — they change the legal landscape around director responsibilities, insolvency protections, and personal liability.
The Safe Harbour Problem
Under Australian insolvency law, directors have a duty to prevent a company from trading while insolvent. The Safe Harbour provisions under the Corporations Act provide some protection — they allow directors to continue trading while pursuing a restructuring plan, provided certain conditions are met.
One of those conditions is that employee entitlements are being paid on time. And from 1 July 2026, super is front and centre.
Under Payday Super, if your company is not paying super contributions within seven business days of each payday, you may not be eligible for Safe Harbour protection. This is a significant change. Previously, with quarterly deadlines, there was more flexibility. Now, every missed payday super payment could undermine your ability to rely on Safe Harbour if your business faces financial difficulty.
For directors of businesses with fluctuating revenue or tight cash flow, this creates a much narrower path. You need to be meeting super obligations in real time to maintain your legal protections.
Personal Liability for Directors
Directors should also be aware of the director penalty regime. Under existing law, the ATO can issue Director Penalty Notices (DPNs) to recover unpaid super. If super goes unreported or unpaid for more than three months, the penalty becomes “lockdown” — meaning it can only be discharged by paying the full amount. It cannot be avoided through voluntary administration or liquidation.
With Payday Super, the shift from quarterly to per-payday obligations means shortfalls can accumulate faster and become visible sooner. The ATO will have much more frequent data points to identify non-compliance, and the window for DPN lockdown is tighter.
In plain terms: if your company falls behind on super under the new rules, the personal risk to you as a director escalates more quickly than it did before.
Treasury’s Frank Acknowledgement
It’s worth noting that Treasury has openly acknowledged the reform is likely to trigger an increase in insolvencies. Many businesses have historically used the quarterly super cycle as an informal cash flow tool — holding contributions until the due date to manage short-term liquidity.
That practice is no longer viable under Payday Super. Businesses that can’t fund super with every pay run will need to either restructure their operations or face the consequences. For directors, this means having honest conversations about your company’s financial position — now, not in July.
How to Protect Yourself
• Know your obligations. Understand how the Safe Harbour provisions interact with Payday Super and what you need to do to maintain eligibility.
• Monitor cash flow closely. Build cash flow forecasts that incorporate per-payday super obligations and flag potential shortfalls early.
• Stay current on super payments. Even one missed payment could have consequences. Ensure your payroll and payment systems are automated and reliable.
• Document your decision-making. If your business faces financial difficulty, keeping clear records of your efforts to comply and restructure can support a Safe Harbour defence.
• Get professional advice early. If you’re concerned about your company’s ability to meet Payday Super obligations, speak to your accountant and a restructuring advisor before problems escalate.
This Is Not One to Ignore
Payday Super raises the governance bar for company directors. The stakes are personal, the timelines are tighter, and the consequences of non-compliance are more immediate.
If you’d like help preparing for Payday Super, we’re here for you. Whether it’s a cash flow forecast, a payroll review, or simply a conversation about what these changes mean for your specific situation, reach out to our team. A small investment of time now will save you from a much bigger headache later.
The 2026–27 Federal Budget, delivered by Treasurer Jim Chalmers on the evening of 12 May 2026, is one of the most significant overhauls of the Australian tax system in nearly three decades. In a single Budget, the Government has made changes to capital gains tax, negative gearing, trust distributions, superannuation, electric vehicles, research and development, and a range of cost-of-living measures. Almost every one of our clients will be affected in some way.
We have prepared this summary to explain the key measures in plain language and to highlight what they mean for you. Many of these changes are still subject to draft legislation, and a number of details are not yet fully confirmed — we have tried to reflect that honestly throughout.
What is clear is that these changes are significant, broad, and for many clients will require a review of existing arrangements. We encourage you to read through the summaries below and to contact us to discuss anything that may be relevant to your situation.
Table of Contents
1. The $1,000 Instant Tax Deduction
From 1 July 2026, eligible Australian taxpayers who earn income from work will be able to claim a flat $1,000 deduction for work-related expenses — without needing to keep receipts or itemise individual costs. This is a choice, not an automatic change, and you will still need to decide whether the flat deduction or your actual expenses gives you the better result.
Who Is Eligible?
Australian tax residents who earn income from work, including wages, salaries, and sole trader business income. If your income comes only from investments or rental properties, this deduction does not apply.
Will It Save You Money?
The saving depends on your tax rate. At 32% (30% plus the Medicare Levy), the saving is $320. At 47% (45% plus the Medicare Levy), the saving is $470. If you currently claim more than $1,000 in legitimate work-related expenses, your actual expenses remain the better option.
Charitable donations, union and professional association membership fees, and other non-work deductions can still be claimed on top of the $1,000 flat deduction.
From your accountant:When we prepare your return, we will compare both options and ensure you claim in the way that gives you the best outcome. If you have questions about your work-related expenses in the meantime, please give us a call. |
2. $250 Working Australians Tax Offset
The Budget introduces a permanent Working Australians Tax Offset of up to $250 for Australians who earn income from work — including wages, salaries, and the business income of sole traders. This offset does not take effect until the 2027–28 financial year, meaning most clients will first see the benefit when their 2027–28 tax return is lodged and processed.
Key Points
- The offset reduces tax owed, rather than providing a direct cash payment. If you pay little or no tax, the benefit will be reduced or nil.
- It applies to individuals with income from work — not investment or rental income only.
- It increases the effective tax-free threshold for work income by nearly $1,800 to approximately $19,985 — or up to $24,985 for those also eligible for the Low IncomeTax Offset.
- This is a permanent measure, unlike previous one-off cost-of-living offsets.
Note: If you have an outstanding tax debt or other liabilities, the offset may be applied against what you owe rather than appearing as a refund.
From your accountant:If you have an outstanding tax debt, this offset may reduce what you owe rather than generating a refund. Please reach out to us ahead of your 2027–28 return so we can review your full position and ensure you receive the maximum benefit available. |
3. Changes to Fringe Benefits Tax Exemption for Electric Vehicles
Since 2022, battery electric vehicles provided through novated lease or salary packaging arrangements have been fully exempt from Fringe Benefits Tax (FBT). The 2026–27 Budget announces a phased wind-back of that exemption.
What Is Changing and When
- Until 31 March 2027: Full FBT exemption remains in place for all eligible EVs.
- From 1 April 2027: Full exemption only applies to EVs priced at $75,000 or less. EVs above $75,000 but below the Luxury Car Tax threshold receive a reduced 25% FBT discount only.
- From 1 April 2029: The 25% FBT discount applies to all EVs below the Luxury Car Tax threshold, regardless of price.
Important: If your current EV is priced above $75,000, you may lose the full FBT exemption from 1 April 2027 — regardless of when you entered your arrangement. Legislation has not yet been released and no assumptions should be made about existing arrangements being automatically protected.
From your accountant:If you currently have an EV under a novated lease or are considering entering one, the rules are changing in ways that could significantly affect your after-tax cost. Please contact us before making any changes or committing to a new lease so we can walk through the numbers with you. |
4. Changes to the Capital Gains Discount
One of the most significant measures in this Budget is the replacement of the 50% CGT discount with cost base indexation for capital gains arising on or after 1 July 2027, combined with a new 30% minimum tax on net capital gains. This applies to all CGT assets — including shares, investment properties, and business assets — held by individuals, trusts, and partnerships.
Transitional Rules
The 50% CGT discount continues to apply to all gains arising before 1 July 2027. If you sell an asset before that date, the existing rules apply in full. For gains arising on or after 1 July 2027, the new indexation method applies — your original cost base is indexed for CPI to reduce the taxable gain.
Special Concession for New Residential Properties
Investors in new residential properties will be able to choose between the 50% CGT discount or cost base indexation with the minimum tax — whichever produces the better outcome. Income support and Age Pension recipients will be exempt from the minimum tax.
What This Means for Business Owners
For businesses built from scratch — where goodwill has a zero cost base — the impact is particularly significant. Indexation can only adjust a cost base that exists; a zero cost base produces no reduction. Every dollar of goodwill gain accruing after 1 July 2027 will be fully taxable at the owner’s marginal rate, subject to the 30% minimum tax. The Small Business CGT Concessions remain available, but their effective value is reduced.
The Budget confirms expanded rollover relief for three years from 1 July 2027 to support businesses wishing to restructure out of discretionary trusts into a company or fixed trust — without triggering a CGT liability at the time of transfer. This is a genuine and time-limited opportunity.
From your accountant:Whether to hold or sell an existing asset will be a different decision for every client. If you own a business through a trust or as a sole trader, the question of whether your current structure still makes sense is more pressing than it has been in 25 years. Please contact us to discuss — we can model the numbers for your specific situation. |
5. Changes to Negative Gearing - What Property Investors Need to Know
Negative gearing occurs when the costs of owning an investment property exceed the rental income it generates. Under the current rules, that net loss can be deducted against other income, including salary or wages, reducing your overall tax bill.
What Has Changed
- Existing investment properties are fully protected. If you already own a negatively geared investment property, your ability to offset losses against other income continues unchanged for as long as you hold that property.
- For established residential properties acquired after 7:30pm AEST on 12 May 2026, the rules change from 1 July 2027. Losses from those properties will only be deductible against rental income or capital gains from residential properties. Excess losses are carried forward — they cannot reduce salary or wage income.
- Newly constructed properties are exempt. Where you purchase a new build that adds to Australia’s housing supply, negative gearing deductions remain fully available.
- Contracts entered into before 7:30pm on 12 May 2026 — including those not yet settled — are covered by the grandfathering provisions.
Combined effect: The negative gearing changes interact directly with the CGT changes confirmed in the same Budget. Together, the overall economics of acquiring a new established investment property have shifted materially.
From your accountant:If you are considering purchasing another investment property, the rules have changed in ways that affect both your ongoing cash flow and your future capital gains position. Please contact us before you proceed so we can model the after-tax return under the new rules. |
6. Changes to the Taxation of Trust Distributions
The 2026–27 Budget announces the introduction of a 30% minimum tax on discretionary trusts from 1 July 2028. This is an announcement — not yet a law. No legislation has been released and all details are subject to change.
What Has Been Announced
From 1 July 2028, trustees of discretionary trusts will be required to pay a minimum tax of 30% on the taxable income of the trust. Beneficiaries — other than corporate beneficiaries — will receive non-refundable credits for the tax paid by the trustee, similar in concept to franking credits on dividends.
Practical Impact
The practical effect is a significant increase in the tax cost of distributing trust income to beneficiaries who pay tax at a combined rate below 30%. Where a beneficiary’s actual tax liability is less than the credit received, the excess is permanently lost — it cannot be refunded. The breakeven point falls at approximately $131,600 of income.
The Rollover Relief Window
The Budget confirms expanded rollover relief for three years from 1 July 2027 to support businesses and individuals wishing to restructure out of discretionary trusts into another entity type before the minimum tax takes effect.
Fixed trusts, widely held trusts, complying superannuation funds, special disability trusts, deceased estates, and charitable trusts are not subject to the measure. A number ofexclusions apply to certain types of income, including primary production income.
From your accountant:We cannot provide definitive advice on this measure yet — the legislation does not exist — but early engagement will maximise your options when it does. Please contact us so we can begin reviewing your trust arrangements now and be ready to act quickly once the detail is confirmed. |
7. Superannuation - Key Changes from 1 July 2026
While much of Budget night’s focus was on CGT, negative gearing, and trusts, there are several important superannuation changes taking effect from 1 July 2026.
Higher Tax on Large Superannuation Balances
From 1 July 2026, if your total superannuation balance across all funds exceeds $3 million, the earnings attributable to the portion above that threshold will be subject to an additional 15% tax — effectively doubling the tax rate on those earnings from 15% to 30%. This legislation received Royal Assent on 13 March 2026 and is now law. The tax is calculated on the fund’s adjusted taxable income — an earlier proposal to include unrealised gains was removed before the legislation passed.
Transfer Balance Cap Increase
The transfer balance cap — the maximum amount you can hold in a tax-free retirement phase pension — increases from $2.0 million to $2.1 million from 1 July 2026. If you are planning to commence a retirement phase pension, this increase may present a planning opportunity.
Payday Super
From 1 July 2026, employers are required to pay superannuation contributions at the same time as wages, rather than quarterly. Payroll systems will need to be updated before the changeover date, and contributions must reach the employee’s fund within seven business days of each pay date.
From your accountant:Whether your superannuation balance is approaching $3 million, you are planning to commence a retirement pension, or you are a small business employer preparing for payday super — these changes require attention before 1 July 2026. Please contact us to discuss your situation. |
8. Key Business Measures
Instant Asset Write-Off — Now Permanent
The $20,000 instant asset write-off has been confirmed as a permanent feature of the tax system for small businesses with annual turnover of less than $10 million, from 1 July 2026. The write-off applies on a per-asset basis, allowing eligible businesses to immediately deduct the full cost of assets under the threshold in the year they are first used or installed.
Loss Carry-Back for Companies — From 1 July 2026
Companies with aggregated annual global turnover of less than $1 billion will be able to carry back a tax loss and offset it against tax paid in either of the two previous financial years. If your company paid tax in 2024–25 or 2025–26 and subsequently incurs a loss in 2026–27 or later, a cash refund may be available. The carry-back applies to revenue losses only and is limited by your company’s franking account balance.
Loss Refundability for Start-Up Companies — From 1 July 2028
From 1 July 2028, small start-up companies with annual turnover under $10 million that incur a tax loss in their first two years of operation will be able to convert that loss into a refundable tax offset — capped at the value of FBT and withholding tax on wages paid to Australian employees.
R&D Tax Incentive — Changes From 2028
From 1 July 2028, the R&D Tax Incentive is being reformed. The offset rates for core R&D expenditure increase by 4.5 percentage points. The intensity threshold drops from 2% to 1.5% and the turnover threshold for the refundable offset rises from $20 million to $50 million. However, supporting R&D expenditure will no longer be eligible — only core R&D expenditure qualifies. The minimum expenditure threshold increases from $20,000 to $50,000.
From your accountant:If your company has paid tax in recent years and is expecting a loss, please contact us as a matter of priority — a cash refund may be available sooner than you think. For R&D claimants, please get in touch well ahead of 2028 so we can review your claim structure and assess the impact. |
9. Other Budget Measures
Fuel Excise — Temporary Relief Ending 30 June 2026
The 32 cent per litre reduction in fuel excise, introduced on 1 April 2026, was a temporary three-month measure. It has not been extended and the full excise rate returns from 1 July 2026. If your business is a heavy fuel user, please factor this into your budgeting. Businesses using fuel for business purposes may also be eligible to claim fuel tax credits.
Medicare Levy Low-Income Thresholds Increased
The Medicare levy low-income thresholds have been increased by 2.9% from 1 July 2025 to provide relief for low-income individuals and families. The threshold for singles increases to $28,011, and the family threshold increases to $47,238.
Foreign Purchases of Established Dwellings — Ban Extended
The temporary ban on foreign purchases of established residential dwellings has been extended to 30 June 2029. Existing exemptions — including for permanent residents and New Zealand citizens — continue to apply. For the majority of clients this will have no direct impact.
From your accountant:If your business is a heavy fuel user, contact us to check whether you are eligible to claim fuel tax credits. If you have any questions about how any of the measures in this summary apply to your circumstances, please reach out. |
What Should You Do Now?
The measures announced in this Budget are far-reaching, and the right response will be different for every client. Some changes take effect immediately, some from 1 July 2026, some from 1 July 2027, and others from 1 July 2028. What is clear is that waiting is not a strategy — the sooner you understand how these changes affect your specific situation, the more options will be available to you.
As a starting point, ask yourself:
- Do you own investment properties — both existing and any you are considering?
- Do you operate a business through a sole trader structure or a discretionary trust?
- Are you a beneficiary or trustee of a discretionary trust?
- Is your superannuation balance approaching or exceeding $3 million?
- Are you a small business employer with payroll systems to update before 1 July 2026?
- Has your company paid tax in recent years and is it now experiencing or expecting a loss?
- Does your business currently claim the R&D Tax Incentive?
None of these issues need to be resolved overnight — but all of them benefit from early advice. Please do get in contact with us if you have concerns or questions.
More Resources
If you’d like more detail, here are some extra resources:
Disclaimer: This communication provides general information only based on the 2026–27 Federal Budget announcements of 12 May 2026. It is not a substitute for professional advice tailored to your individual circumstances. Many measures are subject to the release of draft legislation and final details may change. You should seek independent professional advice before taking action based on any information contained herein.
© 2026 Advisers Digest. All rights reserved.
Things you need to know for the new financial year
For Individuals
2023 tax season – what the ATO is looking for
These are the key areas the ATO is particularly focusing on:
- Work-related expenses
- Rental property income and deductions
- Capital gains from crypto, property, and shares
Also on the ATO’s radar this year, is income that you might not realise needs to be declared.
For example:
- Side hustles (other than genuine hobbies with no profit-making intention)
- Crowd funding
- Food delivery, Ride sharing, AirBNB etc
- Income from social media and other online activities
- Income received in cash (other than genuine gifts)
- Non-cash income and barter transactions
ATO Data Matching
Every year the amount of information the ATO has access to, increases. They now have access to information on residential rental properties from:
- Property managers
- Landlord insurance providers
- Financials institutions that provide loans for residential rental properties
- Sharing economy providers (AirBNB etc)
- Income protection policies
Therefore anyone with a rental property needs to be careful to include everything accurately – the ATO will know if you don’t!
Of particular concern, as the ATO believes this is often done incorrectly, is where the loan for a rental property is refinanced or funds drawn down. Any funds drawn from the loan for any purpose other than the property itself, means that the interest cannot be claimed in full. The apportionment calculations can get get complex very quickly, so it’s best to avoid if at all possible.
The end of LAMITO
LAMITO is the Low and Middle Income Tax Offset.
This was a temporary measure introduced by the government in the 2019 budget, and then extended during Covid. It resulted in extra tax refunds (or lower tax payable (of between $675 and $1,500 for individuals).
The government has not extended LAMITO, and so it ended on 30 June 2022.
You may notice therefore, that your refund may not be as large this year as in the last few years.
The Low Income Tax Offset – which is a separate offset of up to $700 – will continue.
Changes to work from home deductions
The rules for claiming work from home expenses have changed significantly.
If you work from home – either regularly or occasionally – I recommend reading this article.
Deductions for car expenses
For anyone claiming car expenses on a cents/kilometre basis, the rate for 2023 was $0.78/km. This is up from $0.72/km in 2022.
The rate for the 2024 financial year (1 July 2023 onwards) will be $0.85/km.
Electric vehicles using the logbook method can use 4.2c/km in lieu of fuel expenses – this only includes fully electric vehicles, not hybrids. As with the cents/kilometre method, you need to keep a record of how you have calculated the number of kilometres claimed.
Guides to deductions
The ATO has published some handy guides for various occupations, on what you can and can’t claim as a deduction.
They also have some guides for general deductions.
For Businesses
Technology Investment Boost
This was originally announced in the March 2022 budget – and was confirmed as law late June 2023.
The Technology Investment Boost allows small businesses with revenue less than $10 million to claim a deduction of 120% (ie, an extra 20%) for eligible expenses and depreciating assets for the purpose of their digital operations or digitising their operations.
The bonus deduction applies to eligible expenditure incurred between 7:30pm (AEST) on 29 March 2022 (budget night) and 30 June 2023. Eligible expenditure is capped at $100,000 per financial year.
Skills and Training Boost
Like the Technology Investment Boost, this was announced in the March 2022 budget and has recently become law.
This boost allows small businesses with revenue of less than $50 million, a deduction of 120% (again, an extra 20% bonus deduction) on eligible expenditure on external training provided to their employees.
The training must have been provided by an RTO (Registered Training Organisation) and must have been between 7:30pm (AEST) on 29 March 2022 and 30 June 2024 – ie it runs for a year longer than the Technology Investment Boost.
More information on both Boosts can be found here.
Super Guarantee (ie, super on wages)
Super guarantee will increase by 0.5% to 11% from 1 July 2023.
This applies to all payruns with a payment date of 1 July onwards.
Temporary Full Expenses / Instant Asset Write Off
For the last couple years, most businesses that have purchased business assets could claim 100% of the cost in full in the year that it was purchased and ready for use.
This finished on 30 June 2023.
From 1 July 2023, the threshold for claiming the cost of new business assets in full reduced to $20,000. Anything costing more than that will need to be depreciated over time.
STP Finalisation
For anyone with employees who are not also owners of the business:
Single Touch Payroll (STP) is required to be finalised by 14 July 2023.
For anyone with only “closely held” employees – ie, you only employ yourself and no one else:
STP is required to be finalised by the date your own return is lodged.
Wages and PAYG Withholding now prefilling on activity statements
From July 2023, labels W1 (Gross Wages) and W2 (PAYG Withheld) will be pre-filled by the ATO using information reported through Single Touch Payroll (STP).
This should save businesses a bit of time in completing activity statements (BAS’s and IAS’s) and help with avoiding typo’s and errors.
Upcoming changes to how super is paid on wages – “Payday Super”
The government has recently announced that, from 1 July 2026, employers will be required to pay super on employee wages each payday. This is a significant change to the current requirement to pay quarterly.
The logistics on how exactly this is to be done have not yet been confirmed.
While it won’t begin for three years, employers need to be aware of this now and start factoring it into your future cashflow planning.
Please do get in touch if you would like to discuss any of these topics, or how they might affect you.
If you have ever worked from home – either regularly or every now and then – Please read this!
- Traditional fixed-rate method – 52c per hour covering electricity, cleaning, and depreciation on home office furniture and equipment. Internet, phone, and stationery could be claimed separately.
- Covid short-cut method – 80c per hour covering electricity, cleaning, depreciation on home office furniture and equipment, internet, and phone. Stationery could be claimed separately.
- Actual method – portion of actual costs, based on either usage or the size of your office depending on the type of expense.
The Revised Fixed-Rate Method
The new hourly rate is 67c per hour.
It covers internet, phone, electricity, stationery, and other work-related consumables.
Depreciation on home office furniture and equipment can be claimed separately.
You do not need to have a dedicated work area or office to use the new method.
If more than one person works from home, then each of you may choose to use different methods.
ie, one might prefer the Revised Fixed-Rate Method, and the other might prefer the Actual Method.
If at least one person in the household is using the Actual Method, then it is important to apportion any joint expenses (eg. electricity, internet etc) so that there is no double up in the deductions claimed.
If you use the Revised Fixed-Rate method, you cannot also claim separately for mobile phone and internet. This is different to what has been done in previous years.
You will only be able to claim the Revised Fixed-Rate Method for hours worked at home. Any phone usage outside the home is ignored and not claimable.
If you are living with your parents, and even if you are paying board to them, then you might not be able to use the Revised Fixed-Rate Method at all.
What happens if an invoice or bill is in someone else’s name – for example, if the electricity bill is in one spouse’s name only?
If you want to use the Revised Fixed-Rate Method, and one of the included expenses is not in your name, and someone else has paid the bill from their own bank account (ie, not a joint account), then:
You will need to keep evidence that you have contributed towards the payment of the expense. The person who actually paid the bill will need to provide you with a written receipt as evidence of your contribution towards the expense.
In this scenario, if you do not contribute towards the payment of the expense, then you cannot use the Revised Fixed-Rate Method.
Yes this applies even between spouses for joint household bills such as electricity and internet – and yes that makes no sense in the real world!
If the expense is paid from a joint bank account, and you contribute funds into that account, then at is counted as contributing to the expense and receipts aren’t necessary.
Record Keeping Requirements Have Changed!
Importantly, the new rules require more detailed record-keeping than in previous years. If you do not keep all of the required records then you may not be able to claim any deduction for home office expenses from the 2023 financial year onwards.
Records you must keep, to be eligible to use the Revised Fixed-Rate Method:
- Record of actual hours worked from home, and
- Proof of additional running expenses, and
- (where relevant) Evidence you have contributed towards bills that are not in your name
Record of actual hours worked from home – for the period 1 July 2022 to 28 February 2023:
You will need to keep a record of the estimated total number of hours worked during this period. A detailed logbook is not required, however you must be able to substantiate the number claimed.
Record of actual hours worked from home – for the period 1 March 2023 onwards:
You will need to record the actual hours worked from home – logbook or timesheet-style.
Estimates are no longer sufficient. Only actual contemporaneous records will do.
This record must be kept for every day that you work from home. An estimate based on a logbook kept for only a period of time (such as is the case for vehicle deductions), will not be accepted by the ATO.
Proof of additional running expenses:
For each financial year, you will also need to keep:
At least one monthly or quarterly bill for each of – internet, phone, electricity.
Stationery and consumables – receipts for at least one item purchased
Depreciation on home office furniture and equipment
Depreciation isn’t included in the Revised Fixed-Rate Method, and so can be claimed separately.
To claim a deduction for this, you will need:
- Copies of al receipts or invoices – EFTPOS receipts are usually not sufficient, unless they include details of what was purchased
- If any equipment is not used 100% for work, then you will need to keep a logbook for a representative 4 week period, showing all personal and work-related use.
The Actual Method
Given the relatively low rate per hour of the Revised Fixed-Rate Method, you might prefer to keep your options open and be able to claim whichever of the two methods – Revised Fixed-Rate or Actual – gives you the best outcome. To do this, you will need to meet the record-keeping requirements of both.
This is what you will need to be able to use the Actual Method:
(Not all of these will be relevant to everyone)
Proof that you worked from home
You can either:
- Record the actual number of hours worked from home during the year (you might already have this as part of the requirements for the Revised Fixed-Rate Method)
- Keep a logbook for a representative 4 week period to show the usual pattern of working from home
- Use your electricity bill to calculate the average cost of electricity per hour (ie, the cost per unit of power multiplied by the average number of units used per hour)
- Multiply that by the number of hours worked from home.
To claim a portion of cleaning expenses, you first need to calculate the portion of your house that is your home office:
- Determine the size of your house in square metres
- Determine the size of your home office in square metres
- Divide the size of your office by the size of your house and multiply by 100, to get a percentage
- Multiply that percentage by the cost of cleaning
Also remember to include the use of streaming services such as Netflix and Spotify in your logbook as personal usage – subscription and data costs are not deductible just because you listen to them while working!
And lastly...
The definition of “working from home” means that that work undertaken at home must be substantive and directly related to income producing purposes. Minimal tasks such as checking emails or taking phone calls at home do not count.
You do not need to incur every expense that is covered by either method in order to use that method.
The new rules – and especially the record keeping requirements – are far more complex than in previous years. And you can be sure the ATO will be enforcing them.
Please do get in touch if you would like to discuss how these changes affect you.
The ATO’s Practical Compliance Guideline for the Revised Fixed-Rate Method is here.
The ATO has also published a detailed article of Work From Home deductions here.
Everyone has done this – you get a large bill and think to yourself, where am I going to find the money to pay this? And with the cost of everything currently going upwards at an alarming velocity, finding sufficient cash when bills are due can be tricky.
Don’t let the ATO cause you angst. Life is too short to be stressed about expenses, especially tax ones.
The TL;DR (Too Long; Didn’t Read) for busy people:
Instead of trying to find a large amount in one go, put aside small amounts often. The goal is that when the large bill arrives, you have already saved up enough to pay it.
This article talks specifically about tax bills, however you can apply similar principals to any large expense.
There are two ways to go about this:
- The, I don’t want to put too much effort into this, method; or
- Science
1. The, I don’t want to put too much effort into this, method
This is also known as trial and error, or educated guessing.
It goes something like this:
- Set up a new bank account in your business’ name, and call it some sort of savings account. Tax Savings, Stress-Reducing Savings, be creative. (As an accountant, I am of course not creative, so I’m quite sure you can do better than me).
It doesn’t need to specifically be a savings account, however you might prefer that it be an account that earns interest. As interest rates continue to rise, you may as well get some benefit out of the situation, however minor that may be. - If you are registered for GST, then each month move 25-30% of your income for the month into that account.
- If you are not registered for GST, then each month move 20-25% of your income for the month into that account.
- This last step is very important – do not use the money in this savings account for anything other than paying the ATO.
If, at the end of the year you find you have money leftover – ie, you have saved too much – then take yourself and a special friend out to a nice dinner and then in the following year reduce the percentage you put aside by a bit (or not, as you choose).
If however you find that you have not saved enough, then in the following year increase the percentage you put aside by a bit.
That is the trial and error part. Repeat this process every year and within a few years you should get to a percentage that more or less covers your tax bills.
2. Science
This method takes a bit more work, but is more accurate without the need for tedious trial and error. It does instead involve potentially tedious mathematics as it requires actual calculations of tax payable. You can, if you like, build in an extra amount for a nice dinner at the end of the year with your special friend.
This method works best (ie is easiest) when your business is run through a company, due to the flat company tax rate. However it can still be done, albeit with more of the aforementioned tedious maths, for sole traders, trusts and partnerships.
It is what I myself do and of course I have a spreadsheet for it. Let me know if you’d like to see a sample of my spreadsheet as I am always up for a good spreadsheet discussion.
For a company, it goes like this:
- In the first week of each month, make sure all of your transactions for the previous month have been entered into your accounting software and categorised correctly (that part is very important), and the bank accounts have all been reconciled.
- Run a Profit and Loss Report, and also an Activity Statement or GST or BAS Report – both year to date.
- Your accountant or bookkeeper will be able to help you with steps (a) and (b) if you are unsure how to go about it.
- Calculate 25% (if your company runs a business) or 30% (for investment companies) of net profit year to date. Ask your accountant if you are unsure which rate to use.
- Use the Activity Statement Report to determine net GST year to date.
- Add the two amounts from steps (d) and (e) together.
- Check the current balance of your savings account.
- Put enough funds into the savings account such that the balance of that account equals (roughly) the amount you calculated at step (f). Round it up to a nice number if you prefer to deal in whole dollars.
You might find that, due to the tedious maths involved in tax calculations for individuals, trusts and partnerships, that the second method is not worth bothering with for those structures. And that’s okay. The first method will do just as well.
However if you would like to attempt it, here is how it can be done:
For a sole trader, the calculation of tax payable at step (d) is not as straightforward, as individuals are taxed on marginal rates not a flat fixed rate as companies are.
Tax rates for individual taxpayers are here. Use these at step (d) instead of 25% / 30%.
https://www.ato.gov.au/rates/individual-income-tax-rates/
For partnerships, at step (d) divide the net profit year to date between the number of partners (or calculate each partners’ share if partners do not get equal shares). Then use the individual tax rates to calculate each partners’ tax payable.
Trusts can be a little (and in some cases a lot) more tricky, because trusts themselves do not generally pay tax and the tax calculation at the individual level depends on how much each beneficiary will receive as distribution. The, err on the side of caution and potentially put too much aside approach, would be to base the tax payable calculation on an assumption of one beneficiary receiving the entire net profit of the trust. Otherwise, your accountant may be able to help determine an estimated distribution for each beneficiary that will suffice for these purposes.
In all three cases, remember to take into account any other income that individual taxpayers may have that will affect their tax payable.
Remember this is all an estimate, it does not have to be 100% accurate. The only consequence to getting the calculations wrong, is that you have too much or not enough money set aside for your tax bills. But you will have at least most of it. Pat yourself on the back, you are now stress free.
Has this helped? Let me know if you have tried either of these methods and how they have (or haven’t) worked for you. And if you have another method that works for you, I’d love to hear about it!
Black Cat Accounting Pty Ltd provides efficient accounting services to all businesses, in all sizes, and across all industries.
However, we have a particular focus on startups, and helping new business owners navigate the complexities of starting their own venture. Trust us, we know what a wild ride it can be!
