Author: Dev BFeatured

With less than two months until Payday Super begins on 1 July 2026, the Australian Taxation Office has been actively correcting the misconceptions it is hearing most often from employers and super fund trustees. Research from Employment Hero found that 58 per cent of SME employers were not aware of the changes coming under Payday Super, which explains why so many misunderstandings are still circulating close to the deadline.

In this post, we address the five most common myths we are hearing, and explain what the ATO actually requires. All five are grounded in official ATO guidance and public statements, including remarks made by ATO Deputy Commissioner Emma Rosenzweig as part of the ATO’s public employer education campaign.

If you have been putting off your preparations because something you read or heard made it sound like the deadline is flexible or the rules are simpler than they appear, this article is for you.

Myth 1: There Is Nothing to Do Until 1 July 2026

MYTH #1

Common misconception: “Payday Super starts on 1 July, so I don’t need to think about it until then.”

FACT

What you need to know: This is one of the most dangerous assumptions an employer can make right now. While the rules officially begin on 1 July 2026, the preparation required before that date is substantial, and for some businesses it cannot be completed in a matter of days. ATO Deputy Commissioner Emma Rosenzweig addressed this directly in April 2026, stating that many employers will need time before 1 July to plan for cashflow changes, check that payroll systems are ready, and transition away from the Small Business Superannuation Clearing House (SBSCH), which permanently closes on that same date. According to the ATO’s own fact-or-fiction resource, the time to act is now, not in late June. Three things that take time and cannot be rushed: switching away from the SBSCH, testing that your payroll software is updated and compatible with new SuperStream and STP reporting requirements, and identifying and correcting any existing errors in your super payments that would be rejected by funds from 1 July onward.

The ATO’s Payday Super checklist for employers outlines every step that should be completed before the start date, including reviewing error messages from funds, setting up a correction process, and confirming your payroll software’s readiness timeline.

Myth 2: Payday Super Means I Need to Pay My Employees More Often

MYTH #2

Common misconception: “Because super has to be paid on payday, I will need to increase how often I pay my staff.”

FACT

What you need to know: Payday Super changes when super must be paid, not how often you pay your employees’ wages. The frequency of your payroll, whether weekly, fortnightly, or monthly, is set by employment contracts, modern awards, or enterprise agreements. Payday Super does not change any of that. What it does change is this: whenever you do pay wages, you must also pay super at the same time, and that contribution must be received by the employee’s super fund within 7 business days of that payday. So if you run a weekly payroll, your super contributions will need to be made and received weekly. If you run a fortnightly payroll, contributions will need to follow every fortnight. The ATO confirmed this clearly in its April 2026 employer communications, with Deputy Commissioner Rosenzweig explaining: ‘If you pay wages weekly, you pay super weekly. If you pay wages fortnightly, you pay super fortnightly.’

 

What this means in practice You cannot change your payroll frequency to reduce how often you need to make super contributions. Your payroll frequency is legally determined. What you can do is ensure your payroll processes and payment systems are set up to send super contributions on every payday, not just once a quarter.

Myth 3: Payday Super Just Means Super Funds Receive Contributions More Often

MYTH #3

Common misconception: “The only real change under Payday Super is that contributions arrive at super funds more frequently.”

FACT

What you need to know: This myth underestimates the scope of the change. Payday Super is not only about payment frequency. According to the ATO’s May 2026 practice update, Payday Super raises expectations on speed, accuracy, and responsiveness across the entire contribution process. For employers, this means contributions must be calculated correctly, submitted on time, received within 7 business days, and contain accurate data so that super funds can allocate them without rejection. A payment that is sent on day one but contains incorrect member account information could still result in a late payment if the rejection and resubmission process pushes receipt beyond the 7 business day window. For super funds, the rules have also tightened. Super funds now have only 3 business days to allocate or return a contribution, compared to the previous 20 business days. This means the entire system needs to operate with much greater speed and precision than before.

You can read more about the updated SuperStream standards and what they mean for employers on the ATO’s Payday Super overview page

Myth 4: What Super Funds Do Has No Impact on Whether Employers Are Compliant

MYTH #4

Common misconception: “Super fund behaviour is the fund’s problem. As long as I send the payment, my obligations are met.”

FACT

What you need to know: This assumption is incorrect, and it matters in a very practical way. Under Payday Super, a contribution is only considered on time if it is received and can be allocated by the super fund within 7 business days of payday. Simply sending the payment is not enough. Super fund actions directly influence whether an employer’s contribution is treated as on time or late. The ATO’s May 2026 practice update specifically addressed this point, confirming that super funds can support employer compliance by: – Rejecting incorrect contributions within the required timeframe – Providing clear and timely error messaging so employers can correct and resubmit quickly – Maintaining high quality member account data, including consistent ABNs and account numbers When a fund delays processing or provides unclear rejection messages, it directly reduces the employer’s ability to fix errors within the 7 business day window. This is not just a theoretical risk. It is a reason why employers should review their existing contribution data now to minimise the chance of rejections from 1 July.

 

Action you can take now Check all existing super contributions you are making. Any contributions currently generating warning or information messages from super funds could be rejected outright from 1 July. Correct these before the start date so you are not working against a rejected payment under the 7 business day window from day one.

Myth 5: Submitting a Payment on Day 7 Means It Is On Time

MYTH #5

Common misconception: “I have 7 business days to pay, so submitting on day 7 satisfies the deadline.”

FACT

What you need to know: This is a critical misunderstanding that could catch many employers out. The 7 business day deadline is measured from when the super fund receives the contribution, not from when you submit the payment. ATO Deputy Commissioner Emma Rosenzweig made this point very clearly in April 2026: ‘A payment only counts once it is received by the employee’s fund, not when it is submitted. Submitting on day 7 may not allow enough time. You don’t get an extension for rejected payments, so make sure there is enough time to correct any errors and for contributions to reach funds within the 7 business days.’ If you use a commercial clearing house, the processing time the clearing house needs must be factored into your timing. A clearing house may take one to three business days to process and transmit your payment. Waiting until day 6 or 7 to submit leaves no room for rejected payments to be corrected and resubmitted in time. The ATO’s recommended approach is simple: pay super on payday itself, at the same time as wages. This gives the maximum possible time for the payment to travel through the system, be processed, and be received and allocated by the fund within the window.

More detail on the timing rules and what counts as a compliant payment is available on the ATO’s payment deadlines for Payday Super page.

A Quick Summary of All 5 Myths

The Myth	The Reality
Nothing to do until 1 July	Preparation must start now. Payroll updates, SBSCH exit, and error correction all take time.
Payday Super changes how often staff are paid	Pay frequency is unchanged. Super must now follow every payday, whatever that frequency is.
It is only about more frequent contributions	It raises expectations on speed, accuracy, and responsiveness across the whole system.
Super fund actions don’t affect employer compliance	They do. Rejections, delays, and poor error messaging all affect whether contributions are received on time.
Submitting on day 7 means it is on time	Receipt by the fund is what counts. Submit well before day 7 to allow processing time and room for corrections.

What Should You Do Right Now?

Regardless of which of these myths you may have previously believed, the action required is the same. There is limited time before 1 July 2026, and the following steps should be your priority:

• Exit the SBSCH immediately if you are still using it. There will be no read-only access after 30 June 2026. Download your records and move to an alternative payment method now.
• Contact your payroll software provider and confirm when their Payday Super updates will be ready and tested.
• Audit your current super contributions for any warnings or information messages. These could become outright rejections from 1 July.
• Set up a process to correct rejected payments quickly so that any issues can be resolved and the fund still receives the contribution within 7 business days.
• Plan your cashflow to account for super being paid with every wage run rather than quarterly.
• Speak to a qualified accountant if you are uncertain about any aspect of the transition.

The ATO’s first year compliance approach confirms that employers who genuinely try to do the right thing and fix mistakes quickly will not be the focus of enforcement action. However, as the ATO’s compliance approach statement makes clear, this is not a free pass. It is an acknowledgment that genuine good-faith efforts will be treated differently from wilful non-compliance.

Need Help Getting Ready for Payday Super?

At JMB Consultants, we are helping Australian businesses of all sizes prepare for the Payday Super transition. Whether you need help reviewing your payroll obligations, understanding qualifying earnings, or planning your exit from the SBSCH, our team is available to guide you through the process.

Contact JMB Consultants to speak with an accountant who understands the Payday Super rules and can help you put the right systems in place before 1 July 2026.

Disclaimer: This article is intended as general information only. It does not constitute legal or financial advice. Information is based on ATO guidance and public statements current as of May 2026. You should seek professional advice tailored to your specific circumstances before taking action.

If you employ staff in Australia, one of the biggest changes to the superannuation system in decades is about to take effect. From 1 July 2026, the way you pay your employees’ superannuation will change permanently. The old quarterly payment schedule is being replaced with a new obligation to pay super on every payday, at the same time as salary and wages.

This is called Payday Super, and it is now law. Whether you run a small business with a handful of staff or manage a larger workforce, this change affects how you calculate, pay, and report superannuation contributions. Getting it right from day one is important, because the penalties for non-compliance under the new rules are significant.

This guide explains everything you need to know about Payday Super in plain language, including what is changing, what you need to do before 1 July, and how to avoid the most common mistakes.

What Is Payday Super?

Payday Super is a reform introduced by the Australian Government requiring employers to pay the super guarantee at the same time as each employee’s salary or wages. According to the Australian Taxation Office, from 1 July 2026, all employers must pay each employee’s super guarantee on the day they pay that employee’s wages, and the contribution must be received by the super fund within seven business days of that payment.

This replaces the current system, where employers pay super quarterly in arrears. Under the old system, employers had until 28 days after the end of each quarter to pay super for that period. Under Payday Super, the window is significantly shorter, and the consequences for missing it are more immediate.

The legislation behind this reform is the Treasury Laws Amendment (Payday Superannuation) Act 2025, which was passed by Parliament and is now law.

How Is Payday Super Different from the Current System?

The table below shows the key differences between how super works now and how it will work from 1 July 2026.

What Changes	Before 1 July 2026	From 1 July 2026 (Payday Super)
Payment timing	Quarterly (up to 28 days after quarter end)	Every payday, same day as wages
Receipt deadline	28 days after each quarter ends	Within 7 business days of payday
Calculation base	Ordinary Time Earnings (OTE)	Qualifying Earnings (QE) – new concept
Super rate	11.5%	12%
Reporting	Via STP	Via STP with new QE and Super Liability codes
SBSCH availability	Available to small businesses	Closed from 1 July 2026

What Are Qualifying Earnings?

One of the new concepts introduced by Payday Super is qualifying earnings (QE). This is the term used to calculate how much super you need to pay each employee under the new rules.

According to ATO guidance on qualifying earnings, qualifying earnings include:

• Ordinary Time Earnings (OTE), which covers payments made for ordinary hours of work, including certain types of paid leave, allowances, bonuses, and lump sum payments
• All commissions paid to an employee, regardless of when the work was performed
• Salary sacrifice amounts that would have qualified as earnings had they not been sacrificed to superannuation
• Earnings paid to workers under the expanded definition of employee, including independent contractors paid mainly for their labour

For most employers and employees, the change to qualifying earnings will not result in a different super amount being paid. However, it is worth reviewing your payroll setup to confirm that the right amounts are being calculated.

The super rate also increases to 12% of qualifying earnings from 1 July 2026, up from 11.5% in the current year. This rate change was already legislated and is separate from the Payday Super reform, but both take effect on the same date.

The 7 Business Day Rule Explained

The single most important deadline to understand under Payday Super is the 7 business day rule. A contribution is considered on time only if it is received by your employee’s super fund within 7 business days of the day you pay the employee’s wages. The ATO refers to the day you pay wages as the QE day (qualifying earnings day).

You can read the full detail of payment deadlines on the ATO’s payment deadlines for Payday Super page.

Important: Allow extra time if you use a clearing house If you pay super through a commercial clearing house, the 7 business days still applies from the date you pay your employee’s wages, not from the date you submit to the clearing house. You need to allow enough time for the clearing house to process and transmit the payment to the super fund within that window. The ATO recommends making super contributions on payday itself as best practice.

Extended timeframes for new employees

There is one exception to the 7 business day rule. When you take on a new employee and make your first super contribution for that person, you have 20 business days from the first QE day to get the contribution received by the fund. After that first contribution, the standard 7 business day window applies for all future paydays.

What Is the Super Guarantee Charge Under Payday Super?

If your super contribution is not received by the fund within 7 business days of payday, it is considered late and the Super Guarantee Charge (SGC) may apply. The SGC is not just a penalty on the unpaid amount. It is a more complex calculation that includes an administrative uplift, which can vary depending on your history of meeting super obligations.

Under Payday Super, the SGC framework has been updated. Key points to understand include:

• Penalties can reach up to 200% of the SGC amount, though these can be reduced through voluntary disclosure or where the ATO exercises discretion.
• Penalties of 25% or 50% of the unpaid SGC apply depending on whether prior penalties have been issued.
• Late contributions can reduce the SGC but do not eliminate it if the original deadline was missed.

The ATO has also confirmed a first year compliance approach for the period from 1 July 2026 to 30 June 2027. According to this ATO announcement, employers who make a genuine effort to comply and resolve issues quickly should not be the primary focus of ATO compliance action during the first year. However, this does not mean the rules do not apply. It means that honest mistakes corrected quickly are less likely to result in full enforcement action.

The SBSCH Is Closing

If you currently use the Small Business Superannuation Clearing House (SBSCH), you need to act now. The SBSCH stopped accepting new registrations from 1 October 2025 and will close completely on 30 June 2026. You will not be able to use it for any payments from 1 July 2026 onward.

You need to transition to an alternative payment method before that date. According to the ATO’s guidance on making super payments, your options include:

• Using your existing payroll software, which may already have super payment functionality built in
• Switching to a commercial clearing house offered by a digital service provider
•  Using a super fund portal if your employees are with a single fund

Check with your payroll software provider now to find out when their Payday Super updates will be live and tested.

What Employers Need to Do Before 1 July 2026

The ATO’s Payday Super checklist for employers outlines the key steps you should be taking right now. Here is a summary of the most important actions:

1. Pay your Q3 2025-26 super by 28 April 2026. Super for the January to March 2026 quarter must be paid under the old quarterly rules by 28 April.
2. Check your payroll software. Contact your software provider to confirm when their Payday Super updates will be available and tested. If you rely on a clearing house, check whether it is ready.
3. Transition away from SBSCH immediately. If you are still using the Small Business Superannuation Clearing House, you must move to an alternative before 30 June 2026.
4. Review your error messages. Any super contributions currently generating warning or information messages from super funds should be corrected now. From 1 July, those same issues may result in outright rejection, triggering a late payment and potential SGC.
5. Set up a correction process. You need a system to identify and fix errors quickly so that any rejected contributions can still be resubmitted and received by the fund within 7 business days.
6. Understand qualifying earnings. Review how your payroll calculates super to confirm it will correctly apply the qualifying earnings concept from 1 July.
7. Review your STP reporting. From 1 July, employers must report both qualifying earnings and the super liability amount through Single Touch Payroll using updated codes.
8. Get advice. If you are unsure about any aspect of the transition, speak to a qualified accountant before 1 July.

How Super Funds Play a Role in Employer Compliance

It is worth understanding that your compliance as an employer is partly dependent on how quickly super funds act on the contributions you send. Under the new rules, super funds have only 3 business days to allocate or reject contributions, reduced from the previous 20 business days.

A super fund that acts quickly and provides clear, accurate error messaging gives you the best chance to correct mistakes within the 7 business day window. If a fund delays and your contribution sits unallocated past the deadline, your compliance can be affected even if you acted promptly.

This is why the ATO has also been working directly with super funds to ensure they are ready for Payday Super, not just employers.

Frequently Asked Questions

Does Payday Super apply to all employers in Australia?

Yes. Payday Super applies to all employers who have an obligation to pay the superannuation guarantee for eligible employees. There is no exemption based on business size.

What if I pay employees weekly or fortnightly?

The frequency of your pay cycle does not change the obligation. Every time you pay wages to an eligible employee, a super contribution must be made, and it must be received by the fund within 7 business days. This means weekly-pay employers will need to make super contributions every week.

Can I start paying super on payday before 1 July 2026?

Yes. The ATO confirms you can begin making super contributions on payday now, before the start date. Transitioning early gives your business time to test processes and identify any issues before the rules become mandatory. See About Payday Super on the ATO website for more information.

What happens if a super fund rejects a contribution?

If a super fund rejects a contribution, you need to correct the issue and resubmit the payment so it is received by the fund within 7 business days of the original payday. This is why having a fast error correction process in place before 1 July is so important.

Will the ATO penalise businesses immediately from 1 July?

The ATO has published a first year compliance approach that recognises the transition period. Employers who make a genuine attempt to comply and fix issues quickly should not be the focus of enforcement action during the first year. However, this is a transitional concession, not a permission to be careless. You can read the detail of this approach on the ATO website.

Need Help Preparing for Payday Super?

Payday Super is a significant operational change, not just a rule update. Businesses that leave preparation too late risk system errors, rejected contributions, and compliance exposure from day one.

At JMB Consultants, we work with Australian businesses of all sizes to review their payroll and superannuation obligations, support the transition to Payday Super, and put processes in place that keep you compliant. If you have questions about what Payday Super means for your business, we encourage you to get in touch before 1 July.

Contact JMB Consultants to speak with an experienced accountant about your Payday Super readiness.

Disclaimer: This article is intended as general information only. It does not constitute legal or financial advice. The rules summarised here are based on ATO guidance current as of May 2026. You should seek professional advice tailored to your specific circumstances before taking action.

The Logbook Is Where Most Car Claims Fall Apart

Car expenses are one of the largest deductions many Australian employees and sole traders claim each year. They are also one of the most frequently challenged by the ATO. And when a car expense claim does get challenged, the logbook is almost always at the centre of the dispute.

The ART case we examined in Blog 6 demonstrates exactly how this plays out. A full-time engineer claimed $11,130 in car expenses for the 2023 income year. The ATO disallowed the claim in full. The ART upheld that decision, citing two clear failures: the logbooks were not contemporaneous, meaning they were not recorded in real time at the time of travel, and the logbook entries contradicted independent car service records. The claim did not survive scrutiny because the records did not hold up.

If you use your car for work and want to claim car expenses, this blog explains the two methods available, what a valid logbook actually requires, the mistakes that get claims rejected, and what the ATO looks for when it reviews your records.

Which Method Should You Use?

There are two methods for claiming car expenses in Australia. The right one depends on your circumstances, how far you drive for work, and what kind of records you are willing to keep.

Method 1: Cents Per Kilometre

The cents per kilometre method is the simpler option. For the 2024-25 and 2025-26 income years, the rate is 88 cents per kilometre.

Key features of this method:

• You can claim a maximum of 5,000 work-related kilometres per car.
• The rate covers all car running expenses, including registration, fuel, servicing, insurance, and depreciation. You cannot claim any of these separately on top of the cents per kilometre amount.
• You do not need to keep every receipt, but you do need to be able to explain how you calculated your work-related kilometres. A diary, calendar, or work schedule is the typical form of supporting evidence.

When is this method best?

The cents per kilometre method suits people who drive moderate distances for work and want a simple calculation without detailed record keeping. The maximum deduction under this method for 2025-26 is $4,400 (5,000 km x 88 cents). If your actual car costs are higher than this, or if you drive more than 5,000 work kilometres in the year, the logbook method will likely give you a larger deduction.

Method 2: The Logbook Method

The logbook method allows you to claim the work-related use percentage of your total actual car expenses for the year. There is no kilometre cap under this method, which makes it significantly more valuable for people who drive extensively for work or who have high car running costs.

Under the logbook method, you can claim the work-related portion of:

• Fuel and oil
• Servicing and repairs
• Registration
• Insurance
• Interest on a car loan
• Lease payments
• Decline in value (depreciation) of the car

The work-related percentage is determined by your logbook. This is where the detail and the compliance risk sit.

What a Valid Logbook Actually Requires

A logbook is not just a rough note of where you drove. It is a formal record that must satisfy specific legislative requirements to be accepted by the ATO. For each journey recorded, your logbook must include: the reason for the journey, the start and end date, start and end odometer readings, and the total kilometres travelled for that trip.

In addition to the per-journey entries, your logbook must also record:

• The make, model, engine capacity, and registration number of the car
• The odometer readings at the start and end of each income year, you rely on the logbook
• The total business-use percentage calculated for the logbook period

If this is the first year you have used the logbook method, you must keep a logbook for at least 12 continuous weeks during the income year, and that 12-week period needs to be representative of your travel throughout the year.

Each logbook you keep is valid for five years, but you may start a new logbook at any time. If your circumstances change, such as a change in the type of work you do or a significant change in your working pattern, you may need to start a new logbook.

You must retain your logbook and odometer records for five years after the end of the latest income year that you rely on them to support your claim.

The Most Critical Rule: Contemporaneous Record Keeping

The single most important requirement for a valid logbook is that entries must be made at the time of travel, not reconstructed from memory or other records afterwards.

This is exactly what went wrong in the ART case. The tribunal found that none of the engineer’s logbooks were contemporaneous. They appeared to have been compiled after the fact, and when the entries were compared against independent car service records showing the vehicle’s actual odometer history, the inconsistencies were significant enough to make the entire logbook unreliable.

The ATO’s guidance on the logbook method is unambiguous on this point. A logbook that is written up at the end of the week, month, or year from rough notes does not satisfy the requirement. A logbook that is reconstructed from a work calendar or GPS records after the ATO requests it definitely does not satisfy the requirement.

The contemporaneous rule means: you record each journey in your logbook at the time of making that journey or immediately after you arrive at your destination. Not on Friday afternoon for the week. Not at the end of the month. At the time.

How to Calculate Your Business-Use Percentage

Your percentage of work-related use is worked out by dividing the work-related kilometres by the total kilometres you travelled in the logbook period.

For example, using the calculation from the ATO’s own worked example:

• Total kilometres in 12-week logbook period: 11,000 km
• Work-related kilometres in that period: 6,600 km
• Business-use percentage: 6,600 ÷ 11,000 x 100 = 60%

You then apply that 60% to your total actual car expenses for the full income year to arrive at your deductible amount.

Once you have an established logbook percentage, you can use it for up to five years without keeping a new 12-week logbook, provided your circumstances have not changed significantly. You must, however, maintain odometer readings at the start and end of each income year you rely on the logbook.

What Happens If the Logbook Period Is Not Representative?

The ATO requires that your 12-week logbook period be representative of your typical annual travel pattern. If you keep your logbook during an unusually busy period of work travel, you will end up with an inflated business-use percentage that does not reflect your actual year-round use of the vehicle.

If your work travel varies significantly across the year (for example, you do a lot of site visits during certain seasons but work primarily from an office during others), you should choose a 12-week period that fairly represents the whole year, or consider whether keeping a full-year contemporaneous record would produce a more accurate and defensible result.

Trips You Can and Cannot Claim

Understanding which trips count as work-related is just as important as keeping a valid logbook. Many taxpayers include trips in their logbook that are not actually deductible, which inflates their business-use percentage and creates audit risk.

Trips you CAN claim:

• Travelling between two separate workplaces on the same day (for example, from your main office to a client’s site)
• Travelling from your workplace to a client meeting, job site, or work-related appointment
• Travelling from your home directly to an alternative workplace that is not your regular workplace (this is a narrow exception with specific conditions, see the ATO’s trips you can and cannot claim page)
• Carrying bulky equipment that cannot be stored at your workplace (subject to specific conditions)

Trips you CANNOT claim:

• Travelling from home to your regular workplace. This is private travel, regardless of how early you leave or how late you return.
• Travelling from your regular workplace to home at the end of the day
• Stopping for personal errands during a work trip (the personal portion of that trip is not deductible)
• Any travel that your employer has reimbursed or for which you receive an allowance that is not included in your assessable income

The home-to-work rule catches a lot of people out. The ATO is unequivocal: travelling between your home and your place of business is considered private use. Recording these trips in your logbook as work-related inflates your business-use percentage and is a common audit trigger.

Evidence You Need Beyond the Logbook

The logbook establishes your business-use percentage, but it does not stand alone. To support a logbook method claim, you also need:

• Receipts for all car expenses other than fuel: servicing invoices, insurance renewal, registration papers, loan or lease documents
• Fuel records: either actual receipts or odometer records from which you can make a reasonable estimate of fuel costs
• Depreciation records: documentation supporting the cost of the car and the depreciation calculation, noting that the car limit of $69,674 applies for the 2025-26 income year

You must keep all of these records for five years from the date you lodge the relevant tax return.

The Car Limit and Its Effect on Depreciation Claims

If you purchased a car for work use, the amount you can use to calculate depreciation is capped by the ATO’s car limit. For the 2025-26 income year, the car limit is $69,674. This means that even if you paid $90,000 for a vehicle, the cost you use for depreciation calculations cannot exceed $69,674.

This cap applies to passenger vehicles designed to carry fewer than nine passengers and a load of less than one tonne. It does not apply to motorcycles, commercial vehicles, or vehicles specifically designed for a different purpose.

Electronic Logbooks: The Easier Way to Stay Compliant

One of the most practical ways to maintain a contemporaneous logbook is to use the ATO’s myDeductions tool, which is built into the ATO app. The app allows you to record each trip on your phone at the time of travel, capturing the date, start and end locations, kilometres, and business purpose. At the end of the income year, the data can be exported directly into your tax return.

Using the ATO app for logbook recording essentially eliminates the contemporaneous record-keeping problem, because every entry is time-stamped at the moment it is made. If the ATO ever questions your logbook, you have a digital audit trail with timestamps that cannot be retroactively altered.

There are also third-party logbook apps and GPS-based vehicle tracking systems that are accepted by the ATO, provided the records they generate include all the required fields.

How the ATO Checks Your Logbook

When the ATO audits a car expense claim under the logbook method, it does not simply accept the logbook at face value. Common verification steps include:

Cross-referencing with car service records. Service records contain odometer readings at each service date. The ATO compares these against the logbook’s odometer entries for the same dates. Inconsistencies, as seen in the ART engineer case, are a red flag that the logbook may not reflect actual usage.

Checking GPS and phone data. The ATO can request location data from phones and GPS devices to verify that recorded trips actually took place.

Reviewing employer records. The ATO can check your employment records, roster, and expense reimbursements to confirm which trips were work-related and which were already reimbursed.

Assessing the reasonableness of the business-use percentage. If you claim 90% business use but your employment contract shows you work in an office five days a week with occasional site visits, the ATO will probe whether that percentage is realistic.

Common Logbook Mistakes That Get Claims Rejected

Based on the ART case and ATO compliance guidance, these are the most frequent logbook errors that result in claims being disallowed:

1. Retrospective reconstruction. Writing up the logbook at the end of the quarter or year, rather than recording trips in real time. This is the most common and most damaging error.
2. Inconsistency with independent records. Odometer readings in the logbook that contradict car service records, roadside assistance records, or GPS data.
3. Including home-to-work trips. Recording daily commutes as work-related travel. These trips are never deductible for employees.
4. Missing purpose descriptions. Recording only the destination without describing the business reason for the trip. “Client site” is better than “123 Smith Street.” “Quarterly audit review at client’s office” is better still.
5. Using an expired logbook without updating odometer records. A five-year-old logbook is still valid if your circumstances have not changed, but you must record the odometer readings at the start and end of every income year you rely on it. Forgetting to do this can invalidate the logbook for that year.
6. Claiming reimbursed expenses. Including in your claim expenses for trips or costs that your employer has already reimbursed.

Side-by-Side Method Comparison

	Cents Per Kilometre	Logbook Method
Rate / basis	88c per km (2025-26)	Actual expenses x business-use %
Kilometre cap	5,000 km maximum	No cap
Maximum deduction (at cap)	$4,400	No limit
Records required	Work-related km records	12-week contemporaneous logbook, all receipts, odometer records
Includes depreciation?	Yes (built into the rate)	Yes (claimed separately)
Best suited to	Lower actual costs, simpler records	Higher actual costs, extensive work travel

A Practical Logbook Checklist

Use this checklist to confirm your logbook satisfies ATO requirements:

• Every entry was recorded at the time of each trip, not reconstructed later
• Each entry includes the date, start and end odometer reading, kilometres travelled, and the business reason for the trip
• The car’s make, model, engine capacity, and registration number are recorded
• The logbook covers a minimum 12-week continuous period that is representative of typical annual travel
• Odometer readings at the start and end of every income year, relying on this logbook, are recorded
• Logbook entries are consistent with independent records, such as car service history
• Home-to-work commutes are excluded from business-use kilometres
• All receipts for fuel, servicing, registration, insurance, and loan payments are kept and filed

How JMB Consultants Can Help

Car expense claims under the logbook method are among the most valuable deductions available to employees and sole traders who regularly use their vehicles for work. They are also among the most scrutinised. At JMB Consultants, we can help you:

• Determine which method gives you the largest deduction for your circumstances
• Review your existing logbook to identify any gaps or inconsistencies before lodging
• Set up a contemporaneous logbook system, including using the ATO app, that produces a defensible record
• Advice on the car limit and depreciation calculation for recently purchased vehicles
• Respond to ATO queries or audit requests about prior year car expense claims

Contact us before you lodge your next return to make sure your car expense claims are accurate, complete, and built on records that will hold up to scrutiny.

The information in this blog is general in nature and does not constitute personal tax advice. Please seek professional advice to confirm how these rules apply to your specific circumstances.

Hybrid Work Is Here to Stay. So Is ATO Scrutiny.

Since the shift to flexible and hybrid working arrangements became mainstream, working from home deductions have become one of the most commonly claimed items on Australian individual tax returns. They have also become one of the most frequently reviewed.

The ATO has identified working from home expenses as a key compliance focus area for the current tax season, noting that it sees errors in this category every year. Some of those errors involve people claiming expenses they simply cannot claim. Others involve people with legitimate expenses failing to keep the records required to support them.

The result in both cases is the same: the deduction is disallowed.

The ART case we covered in Blog 6 is a perfect example. The engineer working from home two days per week claimed $2,826 in home utility expenses, representing roughly 70% of his entire household utility bill. The ART disallowed it completely, finding there was no documentary evidence for the underlying expenses, and the apportionment percentage was not fair and reasonable for someone with a two-day-per-week work-from-home arrangement.

This blog explains how the two working from home methods work, what records you need, what you can and cannot claim, and how to make sure your deduction holds up if the ATO ever comes asking.

First: Are You Actually Eligible to Claim?

Before thinking about which method to use or how much to claim, you need to confirm you meet the basic eligibility requirements.

According to the ATO’s working from home expenses page, to claim a working from home deduction, you must:

• Be working from home to fulfil your employment duties, not just carrying out minimal tasks such as occasionally checking emails
• Have incurred additional running expenses as a direct result of working from home
• Have records to prove both the hours worked from home and the expenses incurred

If your employer provides all the equipment and tools you need and you have no additional costs because of working from home, you generally do not have a deductible expense to claim, even if you are physically located at home.

The Two Methods: Fixed Rate vs Actual Cost

The ATO provides two ways to calculate your working from home deduction. Choosing the right one depends on your circumstances, your record keeping, and how much your actual costs differ from what the fixed rate would give you.

Method 1: The Fixed Rate Method (70 cents per hour)

The fixed rate method allows you to claim 70 cents for every hour you work from home during the income year. For 2024-25 and 2025-26, the fixed rate is 70 cents per hour.

The 70 cents per hour rate covers the following additional running expenses automatically, meaning you cannot claim them separately on top of the hourly rate:

• Electricity and gas for heating, cooling, and lighting
• Internet expenses
• Phone usage (mobile and home)
• Stationery and computer consumables

This is important. If you use the fixed rate method, you cannot then claim these items separately elsewhere in your tax return. No double-dipping.

What is NOT covered by the 70 cents per hour rate and can still be claimed separately:

• The decline in value (depreciation) of home office furniture and equipment such as desks, chairs, computers, and monitors
• Repairs and maintenance of home office assets
• Cleaning expenses for a dedicated home office space

How the calculation works:

Simply multiply the total number of hours you worked from home during the income year by 70 cents.

For example, if you worked from home for 800 hours during the 2025-26 income year: 800 hours x $0.70 = $560 deduction

Then add any separate depreciation claims for furniture or equipment.

Record-keeping requirements for the fixed rate method:

You must have a record of the total number of hours you worked from home and the expenses you incur while working at home. Critically, an estimate of your hours is not acceptable. Wanda estimated the hours she worked from home during one period, and this was not accepted, meaning she could only claim for the months where she had kept actual records of her hours.

You must keep:

• A record of the actual hours worked from home for the entire income year, such as a timesheet, diary, calendar entry, or spreadsheet updated at the time of working
• At least one document evidencing each type of expense covered by the rate, for example, one electricity bill and one internet bill

Method 2: The Actual Cost Method

The actual cost method allows you to claim the actual work-related portion of every running expense you incur as a result of working from home. This method takes more effort to calculate and document, but may produce a higher deduction for people with significant home office costs or expensive, depreciating assets.

Under the actual cost method, you can claim the work-related portion of:

• Electricity and gas for heating, cooling, and lighting your work area
• Internet expenses
• Phone expenses (mobile and home)
• Stationery and computer consumables
• Depreciation of home office furniture, computers, monitors, and other equipment
• Cleaning expenses for a dedicated home office
• Occupancy expenses, such as rent or mortgage interest, but only if you have a dedicated area of your home used exclusively as a place of business (this applies more to self-employed people than employees)

How apportionment works under the actual cost method:

You work out your deduction by calculating the actual additional expenses you incur when working from home. For electricity and gas, you can work out the cost using the cost per unit of power you use, multiplied by the average units per hour for each appliance, equipment, or light you use.

For phone and internet, if you receive an itemised phone or internet bill, you need to work out your work-related use over a continuous four-week period and apply that percentage to the full year.

What the ART case teaches us about apportionment:

The engineer in the ART case claimed approximately 70% of his household’s total utility bill. The ART found this was neither supported by evidence nor fair and reasonable for someone working from home two days per week.

A useful starting point for calculating a reasonable apportionment under the actual cost method is to consider:

• What proportion of the year did you actually work from home? (Two days in a five-day working week is 40%)
• What proportion of your home’s floor area does your work area represent?
• Were the expenses genuinely additional, meaning would you have spent that money anyway even if you were not working from home?

If other members of your household who are not working from home are in the same room while you are working, you are not incurring additional costs for lighting, heating, or cooling in that room and cannot claim a deduction for them.

Record-keeping requirements for the actual cost method:

• A record of the actual number of hours worked from home for the entire income year
• A continuous four-week diary or log showing your usual pattern of working at home
• All receipts, bills, and documentary evidence for every expense claimed
• Records identifying the work-related portion of phone and internet use over a representative four-week period

What You Cannot Claim Under Either Method

Regardless of which method you use, there are certain expenses that can never be claimed as working from home deductions:

Occupancy costs for employees. Mortgage interest, rent, council rates and home insurance are generally not deductible for employees working from home, even if you have a dedicated home office. These expenses relate to the cost of owning or renting your home, not to the income-earning activities you perform there. The exception is narrow and applies primarily to self-employed people whose home is their principal place of business.

Private expenses that happen near your work area. If you bought a new television, air fryer, gaming console, or personal appliances and placed them in or near your home office, they are still personal expenses and cannot be claimed. The ATO has publicly called out this type of claim as one of the most common “wild” deduction attempts it sees each year.

Coffee, snacks, or meals consumed while working from home. These are private expenses regardless of the fact that you are working.

The cost of setting up a home office is a capital improvement. Renovations to create or improve a dedicated home office space are capital in nature and are not immediately deductible as working-from-home running expenses. In the ART case, the engineer’s attempt to claim home office renovation costs was specifically rejected.

Children’s education equipment. If a laptop or tablet is used partly for your children’s schooling and partly for your work, you can only claim the work-use portion, and children’s use reduces the deductible percentage accordingly.

The Dedicated Home Office Question

A dedicated home office is a room or area of your home set aside exclusively for work and not used for any private purpose. Having a dedicated home office opens up additional deductions under the actual cost method (such as cleaning costs and, for self-employed people, occupancy expenses) and allows the floor area method to be used for calculating running expense apportionment.

However, the keyword is “exclusively.” A spare bedroom that sometimes doubles as a guest room, a dining room table used for both meals and work, or a lounge room corner where other household members also sit does not constitute a dedicated home office. If your workspace has any private use, occupancy cost deductions are not available to you as an employee.

Depreciation of Home Office Assets

Under both methods, you can claim a separate deduction for the decline in value (depreciation) of assets used for work, such as computers, monitors, printers, desks, and chairs. How this works depends on the cost of the item:

Items costing $300 or less that are used exclusively for work can be written off in full in the year of purchase.

Items costing more than $300 must be depreciated over their effective life. The ATO’s depreciation and capital allowances tool can help you calculate the deductible amount each year.

If an asset is used for both work and private purposes, you can only claim the work-use portion of its depreciation. For example, if your $2,400 laptop is used 60% for work, you can claim depreciation on $1,440 (60% of $2,400) each year over its effective life.

Using the ATO’s Home Office Expenses Calculator

The ATO provides a free home office expenses calculator that can help you work out your deduction under both the fixed rate and actual cost methods. It is worth using this tool when preparing your return to cross-check your calculations before lodging.

You can also use the myDeductions feature in the ATO app throughout the year to keep track of your expenses and hours as you go, rather than trying to reconstruct everything at tax time.

A Side-by-Side Comparison

	Fixed Rate Method	Actual Cost Method
Rate	70c per hour worked from home	Actual expenses incurred
Electricity, internet, phone	Covered by the hourly rate, cannot claim separately	Claim actual work-related portion
Depreciation of assets	Claimed separately on top of the hourly rate	Claimed separately
Occupancy costs (rent, mortgage)	Cannot claim	Can claim if dedicated home office (primarily self-employed)
Records required	Hours log, one bill per expense type	Hours log, diary, all receipts and bills
Best suited to	Simpler arrangements, lower actual costs	Higher actual costs, dedicated home office

A Practical Record-Keeping System That Works

The most common reason working from home claims are disallowed is not that the expenses are illegitimate. It is that the taxpayer cannot prove them. Here is a simple system that satisfies the ATO’s requirements under either method:

Step 1: Keep a daily log. Use a spreadsheet, a calendar app, or the ATO’s myDeductions tool to record the time you start and finish working from home each day. Do this in real time, not at the end of the month from memory.

Step 2: Keep your bills. Save at least one bill per type of expense (electricity, internet, phone) for the year. For the actual cost method, keep all bills for the entire year.

Step 3: Document the business-use percentage for mixed-use items. For your phone and internet, review one month’s usage records to establish what percentage of your calls, data, or usage is work-related, and apply that percentage consistently.

Step 4: Keep receipts for work equipment. Any desk, chair, computer, or monitor you purchased for work purposes needs a receipt so you can calculate depreciation.

Step 5: Keep everything for five years. The ATO can audit returns up to five years back. Records must be retained for five years from the date you lodge the relevant return.

How JMB Consultants Can Help

Working from home deductions are genuinely available to many Australian employees and self-employed individuals, and claiming them correctly is worth the effort. At JMB Consultants, we can help you:

• Choose the right method (fixed rate or actual cost) for your circumstances
• Calculate a fair and reasonable apportionment for mixed-use expenses
• Confirm which expenses qualify and which do not
• Set up a record-keeping approach that works throughout the year, not just at tax time
• Review your prior year returns if you think you may have under-claimed or over-claimed

Contact us before you lodge your 2025-26 return to make sure your work-from-home deductions are accurate, well-documented, and compliant.

The information in this blog is general in nature and does not constitute personal tax advice. Please seek professional advice to confirm how these rules apply to your specific circumstances.

A Costly Lesson in Substantiation

In February 2026, the Administrative Review Tribunal (ART) handed down a decision that should serve as a clear warning to every Australian employee who claims work-related deductions at tax time. A full-time engineer working under a hybrid arrangement claimed over $61,000 in work-related deductions for the 2023 income year. The ATO audited his return, disallowed the vast majority of those claims, and the ART upheld the ATO’s decision in almost every respect.

The reason? Not that the expenses were necessarily illegitimate in nature. The problem was that the taxpayer could not adequately substantiate them.

This case is not an anomaly. It is a textbook illustration of what the ATO looks for when it reviews deduction claims, and it demonstrates exactly how quickly a large deduction claim can collapse when the supporting records are not in order.

Who Was the Taxpayer and What Did He Claim?

The taxpayer was a full-time engineer employed under a hybrid working arrangement, working from home two days per week. For the 2023 income year, he lodged a tax return claiming deductions totalling over $61,000 across the following categories:

Deduction Category	Amount Claimed
Car expenses	$11,130
Work-related travel (taxi and Uber)	$5,347
Clothing expenses	$1,820
Self-education expenses	$4,513
Interest expenses	$15,407
Other work-related expenses (incl. home office renovations)	$17,726
Home utility expenses	$2,826
Donations	$5,316
Total claimed	$63,085+

Following an audit in December 2023, the ATO issued an amended assessment disallowing almost all of these claims. The Commissioner allowed just $1,382 of the $17,726 claimed under “other” work-related expenses, and $68 of the $5,316 in donations. The ATO chose not to apply an additional penalty of $5,034, though it was entitled to do so.

The taxpayer disputed the ATO’s decision in March 2024, arguing that he had not been informed of the required format for submitting supporting documents. Following his objection, the Commissioner allowed a further $129 in travel expenses and $779 in work-related expenses in December 2024. The ART then heard the matter and, on 11 February 2026, ruled in favour of the Commissioner across the board, upholding the ATO’s assessment that the deductions could not be substantiated.

Why the Car Expense Claims Failed

The taxpayer’s role as an engineer required him to conduct site visits, which formed the basis of his car expense claims. He used the logbook method to calculate his business-use percentage and claimed $11,130 in car expenses for the year.

The ART disallowed the claim for two key reasons, both of which are directly relevant to anyone using the logbook method:

1. The logbooks were not contemporaneous. Under Australian tax law, a valid logbook must be kept in real time, meaning entries must be recorded at the time of travel, not reconstructed afterwards from memory or other records. The ART found that none of the taxpayer’s logbooks met this requirement. According to the ATO’s logbook requirements page, a logbook entry must record the date of each journey, its start and end time, the odometer readings at the start and end, the kilometres travelled, and the purpose of the journey. Reconstructing this information after the fact does not satisfy the legislative requirements.
2. The logbook entries were inconsistent with independent records. The ART noted that the logbook entries contradicted other objective records, specifically car service records, which documented the vehicle’s actual usage and odometer readings. When a taxpayer’s self-maintained records conflict with independent third-party records, the tribunal will give weight to the independent records, and the taxpayer’s claim will almost certainly fail.
3. Some expenses had already been reimbursed by the employer. A claim cannot be made for expenses that the employer has already reimbursed. The ATO identified that some of the car expenses claimed had already been covered by the employer, meaning no out-of-pocket cost existed for the taxpayer to claim.

Why the Travel Expense Claims Failed

The taxpayer claimed $5,347 in work-related travel expenses, largely covering taxi and ride-share (Uber) fares. The ART identified two specific problems with this category of claim:

1. No clear separation of reimbursed versus unreimbursed travel. The taxpayer did not provide evidence that clearly identified which travel expenses had already been reimbursed by his employer. Without this separation, it was impossible to determine what portion, if any, represented a genuine out-of-pocket expense eligible for a deduction.
2. The ride-share documentation was inadequate. For the Uber fares, the taxpayer provided ride-share receipts. However, the ART found those receipts did not include the date, time, or destination of travel. Without this basic information, there is no way to establish that the journeys were undertaken for a work purpose rather than a personal purpose. The ATO’s general guidance on work-related travel expenses is clear: you need documentary evidence that connects each expense to a work purpose.

Why the Home Office and Utility Claims Failed

This element of the case is particularly relevant given the number of Australians who have been working from home under hybrid arrangements in recent years.

The taxpayer claimed $2,826 in home utility expenses, representing approximately 70% of his household’s total utility bill. He also claimed part of his “other” work-related expenses for renovations to his home office.

The ART found two significant problems:

1. No documentary evidence supporting the expenses themselves. The taxpayer provided calculations estimating his business-use proportion of utility costs. However, he did not provide documentary evidence that the underlying expenses actually existed, for example, actual electricity or internet bills. Calculations without underlying evidence are not sufficient. Under the ATO’s working from home expenses guidance, whether you use the fixed rate method or the actual cost method, you must hold records of the actual expenses incurred.
2. The apportionment was not fair and reasonable. Even setting aside the missing documentary evidence, the ART was not satisfied that claiming 70% of the entire household utility bill as a work-related expense was a fair and reasonable apportionment for someone working from home two days per week. An appropriate apportionment must reflect the actual proportion of usage that is genuinely work-related, and a claim that captures such a large share of household expenses for a part-time work-from-home arrangement will face significant scrutiny.

Why the Clothing Claims Failed

The taxpayer claimed $1,820 for clothing expenses. Under Australian tax law, clothing is only deductible if it falls into specific categories: it must be a compulsory uniform, a registered non-compulsory uniform, occupation-specific clothing that is not suitable for everyday wear, or protective clothing that guards against the risk of injury or illness.

General work attire, even if purchased specifically to wear to work, is not deductible. The ATO’s clothing, laundry and dry-cleaning expenses page is explicit on this point. Without evidence that the claimed clothing met one of these specific categories, and with no receipts or other supporting documentation provided, the claim was disallowed in full.

The Taxpayer’s Defence and Why It Did Not Work

The taxpayer argued in his objection that he had not been informed of the required format in which documents needed to be submitted. He wrote: the confusion arose because he was unaware of specific requirements regarding the format in which documents needed to be provided.

The ART did not accept this as a valid reason for the failure to substantiate. The obligation to keep records and retain documentary evidence for work-related expense claims is not triggered by a request from the ATO. It is an ongoing legal obligation that exists from the moment an expense is incurred. Taxpayers are required to keep records for at least five years from when a return is lodged, and those records must be adequate to support the claims made.

Claiming that you did not know the requirements, or that you could not locate your records when asked, does not discharge the substantiation obligation.

The Three Golden Rules of Work-Related Deductions

The ATO applies three core tests to every work-related deduction claim. All three must be satisfied:

Rule 1: You must have spent the money yourself and not been reimbursed. If your employer has paid for or reimbursed the expense, you have not incurred a cost and cannot claim it. This caught the engineer on both his car and travel claims.

Rule 2: The expense must be directly related to earning your income. There must be a direct connection between the expense and your income-earning activities. General expenses, private expenses, or expenses incurred to improve your overall employability (rather than your current role) generally do not qualify.

Rule 3: You must have a record to prove it. For total work-related expense claims above $300, written evidence is required for every claim. This means tax invoices, receipts, bank statements, or other documentary evidence. Estimates, calculations, or verbal explanations are not sufficient.

The ATO’s three golden rules page explains these requirements clearly, and they apply equally to all employees regardless of occupation or income level.

Key Takeaways: What Every Employee Should Do

This case provides very clear guidance on what good record keeping for work-related deductions looks like in practice:

For car expenses: Keep a contemporaneous logbook that is updated at the time of every work journey. Ensure the entries are consistent with your vehicle’s service history and odometer records. Never reconstruct a logbook from memory after the fact.

For travel expenses: Keep every receipt or electronic record from ride-share and taxi services, and ensure each record shows the date, time, start point, and destination. Maintain a log that matches each journey to a specific work purpose, and clearly separate any expenses that were reimbursed by your employer.

For home office expenses: Keep your actual utility bills and internet invoices. Calculate your business-use percentage based on a method that is demonstrably fair and reasonable given your actual working pattern. Two days per week from home is a roughly 40% work-from-home arrangement, meaning a 70% household utility claim is very difficult to justify.

For clothing: Only claim items that meet the specific ATO categories for deductible clothing. Keep receipts and, if the clothing carries a logo or constitutes a uniform, keep documentation confirming it is compulsory or registered.

For all claims above $300 in total: Written evidence is mandatory, not optional.

A Note on the $300 Threshold

There is a common misconception that you can claim up to $300 in work-related expenses without any documentation. This is not accurate. If your total work-related expense claims for the year exceed $300, you must have written evidence for every dollar claimed, not just the amount above $300. The $300 threshold is an exception from the written evidence requirement only when your total work-related claims are below that amount.

How JMB Consultants Can Help

Work-related deductions are one of the most common areas where Australian employees either over-claim and face ATO scrutiny, or under-claim and miss out on legitimate entitlements. At JMB Consultants, we can help you:

• Review your deduction claims to ensure they are legitimate and properly substantiated
• Set up a record-keeping system that captures the evidence you need throughout the year
• Advise on which expenses qualify and how to calculate apportionment fairly
• Respond to ATO audit or review queries about prior year deduction claims

Contact us before you lodge your next tax return to make sure your deduction claims are built on solid ground.

The information in this blog is general in nature and does not constitute personal tax advice. Please seek professional advice to confirm how these rules apply to your specific circumstances.

Getting Your BAS Right Matters More Than You Think

For many small business owners, lodging a Business Activity Statement (BAS) is a routine task that happens monthly or quarterly. But routine does not mean simple. GST credit claims are one of the most common areas where businesses make mistakes, and those mistakes can cut both ways: you may be over-claiming credits you are not entitled to, which can trigger ATO scrutiny, or you may be under-claiming, which means you are leaving money on the table.

The ATO has been actively reminding businesses to review their GST credit claims carefully before lodging each BAS. With data matching becoming more sophisticated and audits on the rise, getting your GST claims right the first time is worth the effort.

This blog walks you through the essentials of claiming GST credits correctly, what you cannot claim, how to handle mixed business and private use, and what to do if you have made mistakes in the past.

What Is a GST Credit?

A GST credit (also called an input tax credit) is the GST component you can claim back on things you buy for your business. When you are registered for GST, you charge GST on your sales and pay it to the ATO through your BAS. To avoid double taxation, you can offset the GST you have already paid on your business purchases against the GST you owe on your sales.

According to the ATO’s claiming GST credits page, you can claim a GST credit for any goods and services you buy for your business, provided the purchase meets the eligibility requirements. GST credits are claimed by reporting them on your BAS for the relevant tax period.

The Basic Rule: You Must Be Registered for GST

Before you can claim any GST credits, you must be registered for GST. If your annual business turnover is $75,000 or more (or $150,000 or more for not-for-profits), you are required to register. If you are below those thresholds, registration is optional, but you cannot claim GST credits unless you are registered.

If you are not registered for GST, you cannot include GST in your prices and cannot claim GST credits on your purchases, even if the supplier charged you GST. If your turnover is approaching the $75,000 threshold, it is worth planning your registration timing with your tax adviser.

The Four Core Requirements for Claiming a GST Credit

To claim a GST credit for a purchase, all four of the following conditions must be met:

1. You are registered for GST.
2. You intend to use the purchase for your business (not purely for private or domestic purposes).
3. The purchase does not relate to making input-taxed supplies (such as providing residential rental accommodation, which is GST-free and therefore does not entitle you to GST credits on related purchases).
4. You hold a valid tax invoice for purchases that cost more than $82.50 (including GST) at the time you lodge your BAS.

As the ATO’s page on when you can claim a GST credit explains, you should also check that your supplier is registered for GST before claiming credits. You can verify this using the ABN Lookup tool on the Australian Business Register.

What You Cannot Claim: The Rules Are Clear

The ATO is very specific about what cannot be claimed as a GST credit. According to the ATO’s when you cannot claim a GST credit page, you cannot claim a GST credit in the following circumstances:

No Tax Invoice

For any purchase over $82.50 (including GST), you must hold a valid tax invoice when you lodge your BAS. If you do not have one, you cannot claim the credit until you obtain it. Requests for tax invoices from suppliers should be made before or at the time of purchase, not chased up later when you realise you need them for your BAS.

Cancelled or Reversed Transactions

If a purchase was subsequently cancelled or reversed, you cannot claim a GST credit for it. If you have already claimed the credit in a previous BAS, you need to reverse the claim in your next BAS to avoid overclaiming.

Purchases Without GST in the Price

Not all business purchases include GST. Common examples of GST-free or input-taxed purchases where no GST credit can be claimed include:

• Bank fees and financial services (these are input-taxed and do not include GST)
• Residential rent paid by your business
• Basic food items (which are GST-free)
• Wages and salaries paid to employees
• Government charges such as council rates and stamp duty (in most cases)

Attempting to claim GST credits on these types of expenses is a common error that the ATO identifies through BAS data analysis.

Private or Domestic Purchases

Purchases made entirely for personal use have no business purpose and therefore attract no GST credit entitlement. This sounds straightforward, but the line between personal and business use is often blurred for sole traders and small business owners who use the same assets for both purposes.

Entertainment Expenses

Entertainment expenses (such as meals and drinks for clients or staff) generally cannot be claimed as an income tax deduction, and for the same reason, you usually cannot claim a GST credit for them either. There are narrow exceptions, so if entertainment is a significant part of your business expenses, this is worth discussing with your adviser.

The Car Cost Limit

If you purchase a car for your business, the GST credit you can claim is capped. Specifically, the credit is limited to one-eleventh of the car depreciation limit for the relevant financial year, regardless of what you actually paid. For the 2025-26 income year, the car limit for depreciation is $69,674, which means the maximum GST credit claimable on a car purchase is $6,334 (one-eleventh of $69,674), even if the actual GST paid was higher.

Mixed Use Purchases: The Apportionment Requirement

This is where many business owners get into trouble. If you buy something for both business and private use, you can only claim the GST credit on the business-use portion of the cost.

The ATO’s GST credits page for ride-sourcing provides a clear practical example: if a driver uses their car 10% of the time for ride-sourcing and 90% for personal travel, they can only claim a GST credit equal to 10% of the total GST paid on car-related expenses.

The same principle applies to any mixed-use asset or expense, including:

• A mobile phone used for both work calls and personal use
• A home internet connection is used partly for working from home
• A vehicle used for both business trips and personal errands
• A laptop or tablet used for both business and personal purposes

You must be able to support your apportionment percentage with records. If you claim 80% business use on a phone but cannot show records that support it, you are exposed to a disallowance of some or all of the claim.

Annual Private Apportionment: A Simpler Option

For businesses that find it burdensome to apportion GST credits on every BAS, the ATO offers an option called annual private apportionment. Under this approach, you claim the full GST credit upfront on each BAS throughout the year, and then make a single adjustment for the private-use portion at the end of the financial year.

As the ATO’s calculate your GST credits page explains, annual private apportionment reduces the administrative burden of calculating the business-use percentage on every single BAS. However, it is important to understand that it is not a way of avoiding the apportionment requirement altogether. The adjustment must still be made annually. Please contact our office if you would like help using the annual private apportionment correctly.

The Four-Year Time Limit on GST Credits

Many business owners are unaware that there is a hard deadline for claiming GST credits. According to the ATO’s time limit on GST credits page, you must claim a GST credit within four years of the due date of the BAS in which you could have first claimed it. Once this four-year window closes, the credit expires permanently, and the ATO has no discretion to reinstate it, even if an amendment is still technically open for other purposes.

This means that if you have old, unclaimed GST credits from purchases made in prior years, you need to act within the four-year window, or those credits are gone forever. Do not assume that because you can still amend a BAS, you can still claim the credits.

Nil BAS: You Must Still Lodge

If you have nothing to report for a BAS period (for example, your business had no sales and made no purchases), you are still required to lodge a nil BAS by the due date. Failing to lodge, even when there is nothing to report, can result in the ATO issuing a Failure to Lodge (FTL) penalty.

This catches many newer business owners off guard. Once you are registered for GST and assigned a BAS lodgment cycle, you must lodge every BAS on time, regardless of activity.

Common GST Credit Mistakes to Avoid

Based on ATO guidance and common compliance issues, these are the GST credit mistakes that appear most frequently on BAS lodgments:

Claiming GST on bank fees. Bank fees do not include GST. This is one of the most common errors seen in small business BAS lodgments, and it is easy to make if you are using accounting software that has not been set up correctly to exclude financial supplies from GST credit claims.

Claiming the full credit on a mixed-use purchase without apportioning. Claiming 100% of the GST credit on a phone, vehicle, or computer that has any private use component is an overclaim, and one that the ATO specifically flags.

Claiming credits without a tax invoice. Without a valid tax invoice for purchases over $82.50, you do not have a legal entitlement to the GST credit. Ensure you request and file tax invoices for every purchase above this threshold.

Claiming GST on wages. Employee wages are not subject to GST and cannot attract a GST credit claim. If your payroll is processed through accounting software, double-check that wages are mapped to a non-GST account.

Claiming credits for cancelled purchases. If a purchase was reversed or refunded, any associated GST credit previously claimed must be adjusted in the next BAS.

What to Do If You Have Made Errors on a Past BAS

If you have identified an error on a previously lodged BAS, whether you have overclaimed or underclaimed GST credits, you have several options:

• For small errors (generally under $10,000), you can include an adjustment in your next BAS rather than lodging an amendment.
• For larger errors or errors that span multiple periods, you should lodge a revised BAS through the ATO’s Online Services for Business.
• For unclaimed GST credits from prior years, you must act before the four-year time limit expires on those credits.

The ATO’s online services for business portal allow you to view and revise your BAS lodgments directly.

A Quick BAS Checklist Before You Lodge

Use this checklist before submitting each BAS:

• Do you hold a valid tax invoice for every purchase over $82.50?
• Have you removed any bank fees or financial charges from your GST credit claims?
• Have you apportioned any mixed business and private use purchases correctly?
• Have you excluded any wages, salaries, or superannuation from your GST credit calculations?
• Have you reversed any credits for purchases that were cancelled or returned?
• If you have no activity for the period, have you still lodged a nil BAS?

How JMB Consultants Can Help

GST credit claims are deceptively simple in concept but surprisingly easy to get wrong in practice, particularly when mixed-use assets, input-taxed supplies, or high volumes of transactions are involved. At JMB Consultants, we can:

• Review your BAS lodgments to identify overclaimed or underclaimed credits
• Set up your accounting software correctly to avoid recurring GST errors
• Assist with amending prior BAS lodgments within the four-year time limit
• Advice on annual private apportionment for mixed-use expenses

Contact us before your next BAS is due to make sure your GST claims are accurate, compliant, and fully optimised.

The information in this blog is general in nature and does not constitute personal tax advice. Please seek professional advice to confirm how these rules apply to your specific circumstances.

Billions of Dollars. Thousands of Providers. One Shared Obligation.

Each year, billions of dollars in Commonwealth funding flow to service providers delivering healthcare, disability support, childcare, and aged care services across Australia. These payments keep critical programs running and support millions of Australians who depend on them.

But receiving government funding comes with a responsibility that many providers overlook or underestimate: every dollar received must be correctly declared as income on your tax return.

The ATO has now updated its Government Payments Program (GPP) data-matching protocol and has made it clear that it is actively working to ensure service providers receiving payments from Commonwealth agencies are meeting their tax and superannuation obligations. If you provide services under a Commonwealth program and receive government payments, this blog is directly relevant to you.

What Is the Government Payments Program?

The Government Payments Program (GPP) is a cross-agency initiative established by the ATO to support service providers receiving government payments in meeting their tax, superannuation, and registration obligations.

At its core, the GPP works by collecting payment data from participating Commonwealth agencies and matching it against ATO records. The goal is to identify service providers who may not be correctly reporting their income, who may have outstanding lodgment or registration obligations, or who may not be meeting their superannuation commitments.

The program is not punitive by design. Its stated aim is to promote voluntary compliance and educate service providers about their obligations. However, where non-compliance is identified, the ATO will take action.

Who Does This Affect?

The GPP applies to service providers delivering services under Commonwealth programs. This includes, but is not limited to:

• Aged care providers receiving the Aged Care Subsidy under the Aged Care Act, including those delivering services under the new Support at Home program (which replaced Home Care Packages from 1 July 2025)
• NDIS registered and unregistered providers receiving payments through the National Disability Insurance Scheme
• Childcare providers receiving subsidies under the Child Care Subsidy program
• Healthcare providers receiving Medicare benefits or other Commonwealth health payments
• Clean energy providers receiving payments administered by the Clean Energy Regulator

Service providers can include sole traders, companies, partnerships, and trusts. The obligation to correctly declare income applies regardless of the structure through which the services are delivered.

According to the ATO’s data-matching program protocol, this data collection covers financial years from 2017-18 through to 2025-26, and the ATO expects to collect details on approximately 60,000 service providers each financial year, of which around 9,000 are individuals.

What the ATO Has Just Done

The ATO recently updated its GPP data-matching program protocol to better detect non-compliance and work more effectively with other government entities. This update signals a strengthening of the program, not a winding back of it.

In early 2026, the ATO advised that it would be contacting taxpayers and tax agents by email to ensure that income received from government agencies, specifically including the Aged Care Subsidy and payments under the National Disability Insurance Scheme, was being correctly reported in tax returns. If you are a registered tax agent with clients in these sectors, or if you are a service provider yourself, you may have already received or shortly expect to receive one of these communications.

Is Government Funding Actually Taxable Income?

This is a question the ATO encounters frequently, and the answer is generally yes.

Payments received from providing government services such as healthcare, disability support, and childcare will generally be assessable income. There are some exceptions and nuances, particularly for not-for-profit entities with income tax exemptions, but the default position is that if your organisation receives money for delivering services, that money is taxable income that must be reported.

How you report the income will depend on your entity type, your tax status, and any other reporting obligations that apply to your specific situation. The ATO’s Government Payments Program page provides general guidance on how different types of service providers should report GPP income in their tax returns.

The Two Core Obligations: Records and Reporting

The ATO has highlighted two fundamental obligations for service providers receiving government payments:

1. Keep Accurate Records

Under tax law, you are required to keep records that explain all transactions relevant to your tax affairs for a minimum of five years. For government-funded service providers, this means:

• Records of all payments received from Commonwealth agencies
• Invoices or statements supporting each payment received
• Records of all expenses claimed as deductions against that income
• Records supporting any GST claims made on your Business Activity Statements

Strong record-keeping is not just about compliance. It is your primary protection if the ATO ever contacts you to verify your declared income against what the agency has reported paying you. If the figures match and your records are in order, a data-matching flag will be resolved quickly and without penalty.

2. Report All Income in Your Tax Return

Every payment you receive from a Commonwealth agency for delivering services must be included in your tax return for the year in which it is received (or earned, depending on your accounting method). This applies even if:

• The payment is described as a “subsidy” rather than income
• Part of the payment is passed on to participants or used to cover their expenses
• You are operating as a not-for-profit (unless your organisation holds a specific income tax exemption)
• The payment relates to prior-period services

If you are unsure whether a specific government payment needs to be included in your tax return, this is exactly the kind of question your tax adviser should be able to answer quickly and definitively.

How the Data Matching Works

The GPP operates by collecting payment data directly from participating Commonwealth agencies, including the Department of Health and Aged Care, the National Disability Insurance Agency, the Clean Energy Regulator, and the Department of Education. This data is then matched against ATO records to identify discrepancies.

The matching covers a wide range of compliance indicators:

• Whether the service provider is registered for tax (has a valid ABN, TFN, or is registered for GST)
• Whether income tax returns and BAS lodgments are up to date
• Whether the income declared in tax returns is consistent with the payment data provided by the agencies
• Whether superannuation obligations for any employees are being met

The ATO retains each financial year’s data for five years, which means it can conduct long-term trend analysis, not just a single-year snapshot. If your reporting has been inconsistent across multiple years, the data-matching program is designed to identify that pattern.

What Happens If a Discrepancy Is Found?

If the ATO’s data matching identifies a potential gap between what an agency has reported paying you and what you have declared in your tax return, the typical process is:

Contact and education first. The ATO’s stated approach is to start by contacting service providers and their tax agents to explain the discrepancy and encourage voluntary correction. This may come in the form of an email, letter, or phone call.

Voluntary amendment. If the discrepancy is straightforward, you may be asked to amend your tax return to include the omitted income. Doing so voluntarily and promptly generally results in reduced penalties compared to those that apply when the ATO must pursue the correction through a formal audit.

Formal review or audit. If a provider does not respond to initial contact or if the discrepancy is significant, the ATO may escalate to a formal compliance review or audit. At this stage, penalties and interest on any outstanding tax liability will apply.

Special Considerations for NDIS Providers

NDIS providers face a particularly detailed compliance environment. The NDIA maintains highly structured payment records through the NDIS portal, meaning the data provided to the ATO under the GPP is both comprehensive and precise. Every support delivered and claimed through the system is documented.

For NDIS providers, common compliance risks include:

• Failing to declare NDIS payments received as a sole trader in a personal tax return
• Operating multiple entities and not consolidating income correctly across returns
• Claiming expenses as business deductions without adequate documentation
• Not registering for GST when turnover exceeds the $75,000 threshold

If you are an NDIS provider, sole trader, or otherwise, and you are not working with a registered tax agent, now is a good time to start.

Special Considerations for Aged Care Providers

The aged care sector underwent significant structural change from 1 July 2025, when the Support at Home program replaced the previous Home Care Packages system. Providers transitioning to the new program need to ensure their financial systems are updated to correctly capture and categorise payments under the new structure, and that their tax return reporting reflects the new funding arrangements accurately.

Record-Keeping Checklist for GPP Service Providers

Use this checklist to confirm your records are in order:

• All government payment remittances and statements are saved and filed by financial year
• Your income tax return for 2024-25 includes all government payments received in that year
• Your BAS lodgments are up to date and reflect the correct GST position
• Your ABN registration details are current and accurate with the Australian Business Register
• Superannuation contributions for all employees are correctly calculated and paid on time
• Any amendments needed for prior years have been identified and actioned

How JMB Consultants Can Help

At JMB Consultants, we work with healthcare providers, NDIS service providers, aged care operators, and childcare businesses to ensure their tax affairs are in order. If you have received an ATO communication about the Government Payments Program, or if you simply want to confirm that your reporting is correct before the ATO comes to you, we can help.

We can assist with:

• Reviewing your declared income against payment records from Commonwealth agencies
• Preparing and lodging outstanding tax returns and BAS
• Advising on the tax treatment of different types of government funding
• Setting up record-keeping systems that make annual compliance straightforward

Contact us to make sure your government payment reporting is accurate, complete, and audit-ready.

The information in this blog is general in nature and does not constitute personal tax advice. Please seek professional advice to confirm how these rules apply to your specific circumstances.

The ATO Already Knows What You Earned

If you work as a contractor in Australia and you have been less than thorough about declaring all your income, there is an important reality to understand: the ATO very likely already has a record of what you were paid.

Through the Taxable Payments Reporting System (TPRS), businesses that engage contractors in certain industries are legally required to report those contractor payments to the ATO each year. That means the ATO is cross-checking what you declare in your tax return against what your clients have already reported paying you. If the numbers do not match, you will hear about it.

The ATO has confirmed it is currently seeing contractors across multiple industries either incorrectly reporting or entirely omitting their contractor income through data matching. This blog explains how the system works, who it covers, what happens if you get it wrong, and what you need to do to stay compliant.

What Is the Taxable Payments Reporting System?

The Taxable Payments Reporting System (TPRS) is a framework that requires certain businesses to lodge a Taxable Payments Annual Report (TPAR) with the ATO each year. The TPAR details every contractor the business has paid during the financial year, including the contractor’s name, ABN, address, and the total gross amount paid (including GST).

According to the ATO’s Taxable Payments Annual Report page, contractors can include subcontractors, consultants, and independent contractors, and they can operate as sole traders (individuals), companies, partnerships, or trusts.

The TPRS was first introduced in 2012 for the building and construction industry, specifically to address widespread concerns about income under-reporting among contractors. It has since been extended to cover a broader range of industries.

Which Industries Must Lodge a TPAR?

Businesses operating in the following industries that make payments to contractors are required to lodge a TPAR:

• Building and construction
• Courier and delivery services
• Cleaning services
• Information technology (IT)
• Road freight
• Security, investigation, or surveillance

If your business provides any of these services and engages contractors to perform work on your behalf, you need to report those payments to the ATO via a TPAR. The ATO’s work out if you need to lodge a TPAR page provides a step-by-step guide to determine whether the obligation applies to you, including how to calculate the percentage of your income that comes from relevant services.

What If TPRS Services Are Only Part of What You Do?

If TPRS services are only part of the services your business provides, you need to work out what percentage of the payments you receive are for those services. As a general rule, if less than 10% of your business income comes from the relevant service, you do not need to lodge a TPAR. The building and construction industry is an exception, where the threshold is 50%.

What Contractors Must Report on Their Tax Return

If you work as a contractor in any of the above industries, the business you contract with is required to report the payments they make to you in their TPAR. That information flows directly to the ATO, which then uses it to cross-check the income you declare on your own tax return.

This means you must include all contractor payments you receive in your tax return, regardless of whether you received a formal payment summary, invoice record, or any other documentation. The income is taxable, and the ATO already has visibility over it.

This applies whether you operate as:

• A sole trader
• A company
• A partnership
• A trust

The structure of your business does not change the fundamental obligation to declare what you earn.

How the ATO Is Finding Non-Compliance

The ATO uses data matching to compare TPAR data lodged by businesses with the income figures declared by contractors in their individual or business tax returns. If a discrepancy is identified, the ATO takes a structured approach to resolving it:

Step 1: Initial contact. If the ATO suspects a contractor may have omitted TPRS income, it will contact them directly, typically by letter or phone, requesting they review and amend their tax return voluntarily.

Step 2: Review and audit. If the contractor does not take action in response to the initial contact, the ATO may escalate to a formal review or audit of their business.

Step 3: Penalties and interest. Where income has been omitted, and an audit confirms the discrepancy, penalties and interest charges will apply. The size of the penalty will depend on whether the omission is treated as a careless mistake or a deliberate act.

The ATO’s pre-filling of tax returns through myTax also incorporates TPAR data, meaning many contractors will see income pre-populated based on what their clients have reported. Failing to include this or deleting pre-filled amounts without a good reason is a significant red flag.

The Penalty for Not Lodging a TPAR (For Businesses)

The obligations under the TPRS sit with both the business paying the contractor and the contractor receiving the payment. For businesses that fail to lodge their TPAR on time, the consequences are real.

From 22 March 2025, the ATO will apply penalties to businesses that have not lodged their TPAR for 2024 or previous years and have been issued three reminder letters about their overdue TPAR.

A TPAR must be lodged by 28 August each year. For the 2025-26 financial year, the deadline for lodging the TPAR is 28 August 2026.

It is also worth noting that paper lodgments are no longer accepted after 28 August 2025. All TPAR lodgments must now be submitted electronically, either through the ATO’s Online Services for Business or through compatible accounting software.

What Information Is Included in a TPAR?

When a business lodges a TPAR, it is required to report the following details for each contractor:

• Contractor’s name
• Contractor’s ABN
• Contractor’s address
• Total gross amount paid (including GST)
• Total GST included in those payments

This is a highly specific dataset. When the ATO cross-matches this against your tax return, it is not comparing rough estimates. It is comparing precise figures that your client has already committed to in a formal lodgment.

What Payments Are NOT Reportable?

Not every payment made to a contractor needs to be included in a TPAR. Key exemptions include:

• Payments for materials only, where no labour component is involved
• Employee wages (these are covered under PAYG withholding, not the TPAR)
• Incidental labour, such as the delivery of materials with no additional service element

However, if a contractor charges for both materials and labour together on the same invoice, the full amount is generally reportable. Businesses should not attempt to exclude the labour component if it cannot be clearly separated.

Common Mistakes Contractors Make

Based on ATO data matching activity, the most common errors seen among contractors in TPRS industries are:

1. Simply not declaring the income. Whether due to oversight or deliberate omission, failing to include contractor income in a tax return is the primary issue the ATO is currently pursuing.
2. Declaring income in the wrong year. Contractor income is assessable in the year it is received (for cash basis taxpayers) or earned (for accruals basis). Mismatches in timing can create apparent discrepancies with TPAR data.
3. Assuming cash payments are untraceable. Businesses that pay contractors in cash are still required to report those payments in their TPAR. The TPAR obligation sits with the payer, regardless of how the payment was made.
4. Not reconciling pre-filled data in myTax. The ATO pre-fills tax returns with TPAR data. Contractors who do not review this carefully, or who delete pre-filled amounts without properly accounting for them elsewhere, risk triggering an ATO review.

What to Do If You Have Missed Reporting Contractor Income

If you have previously omitted contractor income from your tax return, the best course of action is to address it proactively before the ATO contacts you. Voluntary disclosure before an audit is initiated generally results in reduced penalties compared to an ATO-initiated correction.

You can amend a lodged tax return through myTax or by contacting your registered tax agent. The ATO’s amend a tax return page provides guidance on how this process works.

For Businesses: Are Your TPAR Lodgments Up to Date?

If your business operates in a TPRS industry and engages contractors, you should confirm:

• Whether you are required to lodge a TPAR based on the percentage of income test
• That your contractor records (ABN, name, address, amounts paid) are accurate and complete
• That your TPAR has been lodged by 28 August for the previous financial year
• That you are using electronic lodgment, as paper is no longer accepted

If you have outstanding TPARs from previous years and have already received ATO reminder letters, you should act immediately to avoid financial penalties.

How JMB Consultants Can Help

Whether you are a contractor wanting to make sure your income is correctly reported or a business that needs to confirm its TPAR obligations and lodgment status, JMB Consultants can help you navigate the TPRS requirements with confidence.

We can assist with:

• Reviewing your tax return to ensure all contractor income is correctly declared
• Preparing and lodging your TPAR on time
• Amending prior year returns where income has been omitted
• Advising on your obligations if you operate across multiple TPRS industries

Contact us to get your contractor reporting in order before the ATO’s data matching reaches your door.

The information in this blog is general in nature and does not constitute personal tax advice. Please seek professional advice to confirm how these rules apply to your specific circumstances.

The ATO Is Not Looking Away

If your business handles a lot of cash, now is the time to pay close attention. The Australian Taxation Office (ATO) has made it very clear that it is actively targeting businesses that use cash to avoid their tax, employer, and business obligations. This is not a vague warning. The ATO has dedicated compliance teams, joint government agency operations, and sophisticated data-matching tools specifically aimed at uncovering cash-based non-compliance.

The message from the ATO is direct: keeping transactions off the books is not a mistake. It is a deliberate action, and one that carries serious financial and legal consequences.

What Exactly Is the ATO Targeting?

According to the ATO’s own Businesses Using Cash to Dodge Obligations page, the compliance focus is on businesses that are:

• Failing to report all sales transactions and failing to issue receipts
• Avoiding paying GST, income tax, PAYG withholding, superannuation guarantee, insurance, and work cover protection
• Reporting income below the $75,000 threshold to deliberately avoid registering for GST
• Exploiting workers by not meeting award conditions and work cover protections
• Undercutting honest businesses by offering lower prices for cash

Each of these behaviours represents a choice to operate outside the tax and regulatory system, and the ATO is increasingly equipped to detect all of them.

How Big Is the Problem?

The scale of the shadow economy in Australia is significant. According to the ATO’s shadow economy explained page, a 2016 government taskforce estimated the economic impact of the shadow economy to be as large as 3% of GDP, which equates to roughly $80 billion in today’s terms. More recent data from the ATO’s own tax gap program shows the tax impact of the shadow economy grew from 3.8% in 2017 to 5.4% in 2023, suggesting the problem has roughly doubled over the past decade.

This is why the ATO is not easing up. The resources being dedicated to shadow economy compliance are significant, with funding directed towards advanced analytics, cross-agency joint operations, and targeted industry visits.

How the ATO Detects Cash Non-Compliance

Many business owners assume that cash transactions are harder to trace. That assumption is increasingly wrong. The ATO uses a range of sophisticated tools, outlined on its cash and shadow economy page, to identify businesses that may not be meeting their obligations. These include:

Data matching: The ATO cross-references information from banks, payment platforms, third-party data providers, and government agencies. Even PayID payments and ATM transactions have been used as evidence in audits.

Industry benchmarks: The ATO publishes benchmarks for hundreds of industries. If your reported income falls significantly below what comparable businesses are earning, that discrepancy becomes a red flag.

Community tip-offs: The ATO receives a very high volume of reports each month through its Tax Integrity Centre. Competitors, customers, and former employees regularly report suspected cash economy behaviour. All tip-offs are treated as private, and reporters can remain anonymous.

Protecting honest business visits: The ATO conducts unannounced visits to businesses in high-risk industries, particularly those that advertise as cash-only or where data matching suggests limited electronic payment activity. Hospitality, construction, cleaning, and trades are among the sectors under the most scrutiny.

A Real-World Consequence: The Pizza Restaurant Case

The ATO has published a case study that illustrates exactly what can happen when a business relies on cash to stay off the radar. A pizza restaurant operated mostly on a cash-only basis, directing customers to an ATM at the shopfront to pay for orders. The business failed to keep accurate records and did not report all income.

After an initial audit in 2023 resulted in a 50% penalty for reckless behaviour, the business continued its practices. A second audit was triggered by a community tip-off for the 2024 income year. The ATO found approximately $140,000 in unreported income, along with approximately $80,000 in expenses claimed without adequate proof. The result included a GST shortfall exceeding $17,400, a shortfall penalty exceeding $38,000 for making false and misleading statements, and significant adjustments across income tax reporting.

This example makes clear that the ATO does follow up and that penalties escalate significantly when non-compliance continues after an initial warning.

What Happens to Workers Paid Cash-in-Hand?

The compliance issue is not only about the business. Workers who are paid cash-in-hand or are working off the books are often significantly disadvantaged. According to the ATO, these workers typically:

• Miss out on entitlements such as paid holiday and sick leave
• Do not receive superannuation contributions
• Are not covered by workers’ compensation

If a worker paid cash-in-hand is injured on the job, they may face substantial medical expenses with no insurance protection. This is why the ATO frames its cash economy crackdown not just as a revenue protection measure, but as a worker protection initiative as well.

Which Industries Are Under the Most Scrutiny?

While the ATO’s compliance activity covers all industries, certain sectors attract more attention due to their higher rates of cash transactions and historically lower compliance levels. These include:

• Hospitality (restaurants, cafes, bars)
• Building and construction
• Cleaning services
• Trades (plumbers, electricians, carpenters)
• Road freight and courier services
• Retail (particularly smaller independent stores)

If your business operates in any of these industries, the likelihood of an ATO visit, data review, or audit is meaningfully higher than in sectors with predominantly electronic payment records.

The ATO’s Joint Operations Approach

The ATO does not operate alone. Through its shadow economy action program, it coordinates joint operations with the Fair Work Ombudsman, the Department of Home Affairs, and other Commonwealth agencies. These operations involve surprise visits to businesses where non-compliance is suspected, investigating tax, superannuation, workplace, and immigration obligations simultaneously.

In August 2025, the ATO joined forces with the Fair Work Ombudsman for Operation Sentinel, conducting surprise visits to more than 30 food and hospitality businesses in Darwin. Operations like these are a clear signal that the ATO is committed to coordinated, multi-agency enforcement, not just desk-based audits.

What Are Your Obligations as a Business?

If your business accepts cash payments, your obligations are straightforward:

Report all income. Every dollar of cash received is taxable income and must be included in your tax return and BAS lodgements.

Issue receipts. All transactions should be recorded and receipts provided.

Register for GST if required. If your annual turnover meets or exceeds the $75,000 threshold, you are required to register for GST and charge it on taxable supplies. Deliberately keeping reported income below this threshold to avoid registration is one of the specific behaviours the ATO is targeting.

Pay workers correctly. All employees must be paid in accordance with the applicable award or agreement, receive their superannuation entitlements, and be covered by workers’ compensation.

Keep accurate records. The ATO requires businesses to keep records for at least five years. This includes records of all cash transactions.

Already Off Track? What to Do Now

If you have been operating partly outside the system, the best course of action is to address it proactively. The ATO does have voluntary disclosure provisions, and coming forward before an audit is initiated can reduce the penalties that apply. Penalties are generally higher when the ATO uncovers non-compliance through its own investigations rather than through a taxpayer’s own disclosure.

The ATO’s Tax Integrity Centre provides a point of contact for reporting suspected shadow economy activity. If you are on the other side of this equation and want to get back into compliance, speaking to a registered tax agent is the most practical first step.

How JMB Consultants Can Help

At JMB Consultants, we work with small and medium businesses across a range of industries to ensure their reporting, record-keeping, and employer obligations are properly managed. Whether you need to review your current practices, understand your GST registration requirements, or address outstanding lodgements, we can help you get on the right track before the ATO comes knocking.

Contact us for a confidential conversation about your business’s compliance position.

The information in this blog is general in nature and does not constitute personal tax or legal advice. Please seek professional advice to confirm how these rules apply to your specific circumstances.