It’s one of the questions I’m asked most often — and also one of the most important questions a business owner can ask. But “how much does an accountant cost?” is the wrong starting question. The right question is “what do I get for what I pay, and what does it cost me to get less than that?” Because in accounting, the cheapest option is almost never the most cost-effective one.

Compliance-Only vs Advisory: The Price Difference That Matters

Compliance-only: Your accountant prepares your tax returns and BAS, processes what happened last year, and lodges it with the ATO. They do not proactively contact you, do not advise on structure, and do not flag opportunities. Typically $2,000–$5,000 annually for a small business.

Advisory: Your accountant reviews your current structure, contacts you before 30 June with specific actions, models the tax impact of major decisions, helps you choose the right entity structure, manages trust distributions strategically, and maximises superannuation contributions. Typically $6,000–$15,000 annually — but delivers far more in value.

A compliance-only accountant who costs you $20,000 in unnecessary tax is more expensive than an advisory accountant who saves you $35,000.

What a Cheap Accountant Actually Costs You

• Overpaid tax: An incorrect or suboptimal structure can cost $20,000–$60,000 or more in unnecessary tax annually
• Missed deductions: Industry-specific deductions you never knew existed
• ATO risk: Incorrect lodgements, missed deadlines, and non-compliant trust resolutions create penalties far exceeding any fee saving
• Poor decisions: Without a proactive advisor, business owners make costly structural mistakes
• Missed opportunities: Every year without a bucket company, optimal super, or income splitting is compounding lost wealth

Typical Price Ranges (2026–27)

• Individual tax return (business owner, investment income): $300–$800+
• Small business sole trader compliance: $800–$2,000 annually
• Company + individual tax returns: $2,500–$5,000 annually
• Trust + company + individual (group): $4,000–$10,000 annually
• SMSF annual compliance: $1,500–$3,500 annually
• BAS preparation (quarterly): $200–$500 per quarter
• Virtual CFO / advisory retainer: $1,000–$5,000 per month

The ROI of Quality Advice: Real Example

Scenario A: Business owner earns $250,000 as sole trader. Pays $2,500/year compliance accountant. Tax paid: ~$90,000. Total annual cost: $92,500.

Scenario B: Same owner engages Pinnacle. Restructure into trust and bucket company, split income with spouse, maximise super. Tax now ~$52,000. Annual accounting fee: $8,000. Total annual cost: $60,000.

Net saving in Scenario B: $32,500 per year. After five years: over $160,000 in additional wealth. The advisory fee paid back over 400% in the first year.

How to Evaluate an Accountant’s Fees

• What exactly is included? Get a written scope of services
• When do you proactively contact me? A compliance accountant waits for your call. An advisor calls you before year-end.
• When did you last review my structure? If never or years ago, that’s a red flag
• What specific tax savings have you identified? If they can’t answer with specifics, you’re paying for compliance, not advice

How Pinnacle Approaches This With New Clients

When a new client comes to Pinnacle, we start with a conversation — not a quote. We understand your business, income, structure, and goals. From there, we scope the engagement and provide a clear, fixed-fee proposal.

Every Pinnacle client gets proactive communication before year-end and an accountant who understands that their job is to save you money — not just to process numbers. Explore our services here.

To get a clear fee proposal, contact Pinnacle today.

Frequently Asked Questions

Are accounting fees tax deductible?

Yes. Fees paid to an accountant for preparing your tax return and managing your tax affairs are deductible — including business compliance, trust and company returns, BAS preparation, and general tax advice.

Is a fixed-fee arrangement better than hourly billing?

Fixed fees provide cost certainty and are generally preferred by business owners. At Pinnacle, we use fixed-fee agreements for all standard engagements, with clear terms for out-of-scope work.

How often should I meet with my accountant?

At minimum, once a year for your year-end review. Better practice is quarterly. Regular contact isn’t just about catching problems — it’s about staying ahead of opportunities.

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BOOK APPOINTMENT

Yes. A business owner can claim motor vehicle expenses even when the registration is in someone else’s name, provided a private arrangement makes them the real owner of the vehicle. The ATO states you do not have to be the registered owner. What matters is who paid for the vehicle and who uses it to earn income.

It is one of the most common questions we get asked, and it almost always arrives the same way: the client has bought a ute or a van, paid for it out of their own pocket, uses it every day for work, and then notices the registration papers have a different name on them. A spouse. A parent. A former business partner. The immediate assumption is that the deduction is gone.

It usually is not. This article explains what the ATO actually requires, what evidence you need, how the deduction is calculated once ownership is established, and the traps that turn a valid claim into an audit problem. It is written by Mina Baselyous, a Chartered Tax Advisor (CTA), Certified Practising Accountant (CPA) and Registered Tax Agent who deals with this exact issue across a Melbourne client base every tax season.

Why the Registration Certificate Is Not the Test

A registration certificate records who the vehicle is registered to for road-use purposes. It is not a title deed and it does not decide who owns the vehicle for tax. Ownership is decided by who acquired the vehicle and who bears the cost of it. That is why the name on the rego papers, on its own, neither creates nor destroys a deduction.

This catches people out because registration feels official. It is issued by a state authority, it has your details on it, and it sits in the glovebox looking like proof of ownership. But state road authorities register the person responsible for the vehicle on the road. The tax question is a different one: did you incur this cost, and did you incur it in earning your assessable income.

In practice, says Mina Baselyous (CPA, CTA, Registered Tax Agent), the mistake we see most is a business owner quietly dropping a legitimate claim because of a piece of paper that was never the deciding factor in the first place.

What the ATO Actually Says About Cars You Do Not Own on Paper

The ATO’s published position is explicit. Its 2026 individual tax return instructions state that you do not have to be the registered owner of a car, but if you are not, you need to show that a private arrangement made you the owner or lessee. Once you can show that, you work out your claim exactly as if the car were registered in your own name.

The ATO goes further and gives a worked example of a person who bought a car from a parent, pays all the running costs, and is the only person who drives it. The registration was never transferred and remains in the mother’s name. The ATO accepts the claim, because the private arrangement made the daughter the owner. You can read the full position on the ATO’s page covering expenses for a car you own or lease (current as at October 2026).

There is one important exclusion. A car provided under a salary sacrifice or novated lease arrangement is not a car you own or lease, and the running costs are not yours to claim. That is a genuinely different situation from paying for a vehicle yourself and leaving the registration unchanged.

What Counts as Proof That You Are the Real Owner

Because the position rests on substance rather than the certificate, the paper trail does the work. The ATO will not take the arrangement on trust in an audit, so the evidence needs to exist before the claim is made, not be reconstructed afterwards. The stronger and more contemporaneous the record, the easier the conversation.

What we ask clients to produce:

• The purchase invoice or contract of sale for the vehicle, ideally naming you as the buyer.
• Bank statements, loan documents or finance contracts showing the purchase price came from you or from your business.
• Evidence that you bear the ongoing costs: fuel, insurance, servicing, tyres and registration renewals.
• Evidence of who actually uses the vehicle, and for what.
• A short written acknowledgement from the registered person confirming that you are the owner, signed and dated.

That last point is the one most owners skip and the one that costs them. A single page, signed at the time, converts an arguable position into a documented one. It takes ten minutes and it is the difference between a claim that holds and a claim that becomes a negotiation.

How the Deduction Is Worked Out Once Ownership Is Established

Once you are treated as the owner, the vehicle type decides the method. For a car, meaning a vehicle designed to carry a load under one tonne and fewer than nine passengers, there are two methods: cents per kilometre, or the logbook method. For anything outside that definition, neither method applies and you claim the business portion of your actual running costs instead.

Cents per kilometre

The rate is set each year by legislative instrument. For the 2026-27 income year the rate is 91 cents per kilometre, set by the Income Tax Assessment (Cents per Kilometre Deduction Rate for Car Expenses) Determination 2026, registered on the Federal Register of Legislation on 23 June 2026. For 2025-26 the rate was 88 cents. Either way the method is capped at 5,000 business kilometres per car per year, which is a hard ceiling of $4,550 for 2026-27. Our guide to the ATO cents per km rate for 2026-27 sets out how the rate is applied.

Logbook method

A twelve-week logbook establishes a business-use percentage that then applies to every running cost: fuel, insurance, servicing, interest on the finance, and the decline in value of the vehicle. The logbook is valid for five years unless the pattern of use changes. For a vehicle doing real business kilometres, this method is almost always the larger claim, and it is the only one that lets you deduct depreciation.

Utes, vans and vehicles that are not cars

A one-tonne ute, a large van or a motorcycle is not a car for these purposes. The two methods above are unavailable. You claim the business proportion of actual costs, supported by receipts and a reasonable basis for the business-use percentage. Most owners still keep a logbook-style record, because it is the simplest way to evidence the split.

Where Business Owners Get This Wrong

The ownership question is usually the easy part. The errors that cause real damage sit around it, and they tend to surface only when the ATO asks a question or when the vehicle is sold. These are the four we see most often across our client base.

• Two parties claiming the same vehicle. If the registered person has claimed anything on the vehicle, even a portion of the running costs, that has to be unwound before you lodge. Only one taxpayer can hold the asset.
• Claiming depreciation without solid ownership evidence. Decline in value can only be claimed by the holder of the asset, and in most cases that is the legal owner. Running costs are more forgiving than depreciation, so the evidence bar for depreciation is higher.
• Ignoring the fringe benefits tax angle. If the registered owner is a company or a trust rather than a family member, the arrangement can look like a vehicle being made available to an employee or associate. That is an FBT question and it needs to be worked through before the position is locked in.
• Buying the vehicle in the wrong entity in the first place. Registration is fixable. Putting a significant asset in an entity that has no business use for it, or that exposes it to creditors, is a structuring problem that costs far more than the deduction.

Vehicle claims also sit squarely inside the ATO’s compliance focus. We have written separately about the ATO crackdown on personal versus business deductions, and motor vehicles feature in it every year because the private-use split is so easy to overstate.

What to Do If Your Vehicles Are Registered in the Wrong Name

Deal with it now rather than at lodgement. Gather the purchase invoices and payment evidence, put a signed acknowledgement of ownership in place, confirm nobody else has claimed the vehicle, and start a logbook if one does not exist. Then decide whether the registration should simply be transferred, which is usually the cleanest answer.

The bigger question is whether the vehicle is in the right entity at all. For an established business, a work vehicle is rarely just a deduction. It is an asset sitting somewhere in your structure, exposed to whatever risks that entity carries, and it will eventually be sold with tax consequences attached. That is the conversation worth having, and it is the one most compliance-only accountants never start. Our complete guide to small business tax deductions covers where vehicles fit alongside the rest of your claims, and the tax planning work is where the structural decisions get made.

Frequently Asked Questions

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If you’re reading this and it’s already late June, some of your best options have already closed. That’s the reality of year-end tax planning — the most powerful strategies require time to implement, and the 30 June deadline is absolute. This checklist is designed to help Australian small business owners take action well before year-end to capture every available advantage for the 2026–27 financial year.

Why June Is Already Too Late for Some Actions

• Trust distributions: Must be resolved before midnight 30 June — cannot be backdated
• Superannuation contributions: Must be received by the fund by 30 June to be deductible this year
• Asset purchases: Must be installed and ready for use by 30 June to claim this year’s write-off
• Pre-payments: Must be paid (not just invoiced) by 30 June

Start your planning conversations with Mina in March or April — not June. Learn more about our year-round tax planning approach here.

Action 1: Review and Resolve Trust Distributions

The trustee must pass a resolution before 30 June documenting how the trust’s income is distributed. No resolution = all income taxed at 47% in the trustee’s hands.

The resolution process should include reviewing each beneficiary’s income and marginal rates, estimating the trust’s net income, deciding distribution amounts (including any bucket company amounts), and preparing and executing the formal trustee resolution — dated and signed before 30 June.

Action 2: Maximise Superannuation Contributions

For 2026–27, the concessional contributions cap is $30,000. Personal contributions must be received by the super fund by 30 June. Allow at least 3–5 business days processing time. If using the Small Business Superannuation Clearing House (SBSCH), contributions must be made by 18 June 2027.

Check your carry-forward amounts via myGov — if your balance is under $500,000, you may have significantly more than $30,000 available. See our payday super compliance guide here.

Action 3: Asset Purchases and Instant Write-Off

For eligible small business entities (turnover under $10 million), depreciating assets can be immediately deducted. The asset must be installed and ready for use by 30 June. Ordering equipment that won’t arrive until July doesn’t count. Read our 2026 instant asset write-off guide here.

Action 4: Pre-Pay Deductible Expenses

Small business entities can deduct prepaid expenses where the service is provided within 12 months of payment. Common qualifying prepayments:

• Business insurance premiums
• Interest on investment loans (where the lender allows prepayment)
• Software subscriptions and licenses
• Professional association memberships

Action 5: Review Capital Gains and Losses

If you have capital gains this year, review whether you have any assets at a loss that you could sell before 30 June to crystallise the loss and offset the gain. Capital losses can only offset capital gains — excess losses carry forward indefinitely.

Action 6: Review Division 7A Loan Accounts

If you have a company and you’ve borrowed money from it, the minimum yearly repayment must be made before 30 June. Failing to make the repayment results in the shortfall being treated as an unfranked dividend. Read our complete Division 7A guide here.

How Pinnacle Approaches This With Small Business Clients

At Pinnacle, we proactively reach out to every small business client in March–May to review their year-to-date position and identify year-end opportunities. We don’t wait for you to call us — we contact you.

For trust clients, we prepare the trustee resolution each year — no client of Pinnacle has ever missed the 30 June deadline. If you’re not receiving this level of proactive service from your accountant, contact Pinnacle today.

Frequently Asked Questions

Can I do tax planning after 30 June?

Some actions remain available — such as personal concessional super contributions with a notice of intent — but the key actions (trust distributions, super payments, asset purchases, prepayments) are all date-locked. After 30 June, your options for the year just ended are limited.

Is there anything I can do if I missed the trust distribution deadline?

Unfortunately, no — not for the current year. All trust income is assessed against the trustee at 47%. This is one of the most severe and unavoidable consequences of missed trust compliance. Going forward, set calendar reminders in May each year.

When should I buy assets to claim this year’s write-off?

The asset must be installed and ready for use by 30 June. As a practical matter, aim to complete asset purchases by mid-June to allow time for delivery and installation.

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Join the Melbourne business owners who work with a CPA and Chartered Tax Advisor, so you can focus on growing your business while we take care of the numbers.

BOOK APPOINTMENT

If you died tomorrow, most Australian small businesses would stall within days, because nobody else can sign, access the bank, approve payroll or act as director. For a sole director and sole shareholder company, section 201F of the Corporations Act lets your personal representative appoint a new director, but only once your estate is being administered.

Nobody wants to write this article and nobody wants to read it. It is also, in my experience, the single largest unmanaged risk sitting inside a profitable Australian small business, and it costs nothing but a weekend to fix.

I am Mina Baselyous, a Certified Practising Accountant (CPA), Chartered Tax Advisor (CTA) and Registered Tax Agent in Melbourne. This article sets out what actually stops when the owner is suddenly not there, what the law allows, and the continuity file every business owner should have built before they need it.

What Actually Stops on Day One

Within about 48 hours the practical problems start, and almost none of them are about strategy. They are about access and authority: who can release a payment, who can authorise a wage run, who can sign a contract, who can talk to the bank, and who is legally the company. In most small businesses the answer to all five is one person.

The scale of the exposure is national. The Australian Small Business and Family Enterprise Ombudsman’s small business data portal records 2,741,087 actively trading small businesses as at 30 June 2026, with 97 per cent employing fewer than 20 people. The overwhelming majority of those are entirely dependent on one or two individuals.

In our experience working with established businesses, the ones that survive an unexpected loss are never the ones with the best strategy. They are the ones where a second person already had authority, and where somebody other than the owner knew where things were kept.

The Sole Director Problem

If your company has one director and that director is you, the company loses its capacity to act the moment you do. It cannot appoint a new director itself, because appointing directors is something the company does through its directors or members, and there are none available.

The Corporations Act 2001 anticipates this. Section 201F provides that where a person who is the only director and only shareholder of a proprietary company dies, or cannot manage the company because of mental incapacity, and a personal representative or trustee is appointed to administer their estate or property, that personal representative or trustee may appoint a person as director of the company. They may also appoint themselves.

Read that closely, because the protection has a gap in it. The power only arises once a personal representative has actually been appointed to administer the estate, and obtaining a grant of probate takes time, often months. During that window the company has no director, and in practice that means no lawful authority to trade, employ, pay or sign.

Note too that section 201F is written for the single director and single shareholder company. If your company has two directors, or your shares are held by a trust, different rules and different documents apply, which is one reason the corporate trustee question and your share structure matter more than most owners assume. Your solicitor should confirm how your constitution and shareholders agreement interact with all of this.

The Eight Things Nobody Else Can Do

Work through this list honestly and mark each one with a name other than your own. Most owners cannot fill more than two or three. Every blank is a point where the business stops, and every one of them can be addressed in advance without giving away control today.

• Authorise a payment from the business bank account. Second signatory or a second authorised user with an appropriate limit.
• Run and approve payroll. Staff still need to be paid on the 15th whatever else has happened.
• Act as director of the company. A second director, or a documented plan under section 201F.
• Act as trustee, if a trust is involved. A corporate trustee with a second director is far more robust than an individual trustee who has died.
• Lodge the BAS and deal with the ATO. Your registered tax agent can generally continue, which is one practical argument for using one.
• Access the systems. Accounting file, bank, email, payroll, job management, website, domain and phone system.
• Invoice customers and chase debtors. Revenue stops at the point invoicing stops, and the debtors ledger is usually the business’s largest asset.
• Tell people. Staff, key customers, suppliers, the bank and the landlord, in that order, with a prepared message rather than an improvised one.

The Continuity File

The deliverable is a single document, updated annually, that a competent person could pick up and run the business from for ninety days. It does not need to be elaborate. It needs to exist, and someone other than you needs to know where it is and how to open it.

• Entity map. Every company, trust and partnership, with ACNs, ABNs, directors, shareholders, trustees, appointors and where the original constitutions and deeds are held.
• Authority list. Who can sign what, at what limit, and which documents grant that authority.
• Access. A password manager with emergency access nominated to a named person, rather than a list in a drawer. Never store credentials in the continuity document itself.
• Key relationships. Accountant, solicitor, bookkeeper, bank manager, insurance broker, top ten customers and critical suppliers, with direct contact details.
• Money map. Bank accounts and facilities, loan balances and terms, leases, direct debits, and the recurring obligations that must keep being paid.
• Operational essentials. Where jobs are tracked, how quotes are priced, which customers are mid-project, and what is committed but not yet invoiced.
• The ninety day plan. Plain instructions: what to keep doing, what to pause, who to call first, and who is empowered to make decisions.

If you already have clean books and a monthly reporting rhythm, half of this exists already. That is a practical argument for the Virtual CFO model beyond the strategic one: an external party who knows your numbers, your structure and your obligations is a continuity asset in their own right.

The Money Side

Authority keeps the business operating. Funding keeps it solvent while it adjusts. A business that loses the person who generates most of its revenue will usually face a sharp revenue drop and unchanged fixed costs, at the same time as it needs to pay for a replacement and possibly buy out a departing owner’s family.

• Key person cover. Insurance held to give the business cash to survive the gap and recruit. Structuring it correctly, including who owns the policy and the tax treatment of proceeds, needs both financial and tax advice.
• Buy sell agreement. Where there is more than one owner, a documented and funded agreement about what happens to the departing owner’s equity, so the survivors are not in business with a grieving family and the family is not stuck holding unsaleable shares.
• Your own debt exposure. Personal guarantees given to the bank and the landlord do not disappear. Your estate may be exposed to them.
• Estate structure. How business assets pass, and whether a testamentary trust is appropriate, is a conversation for your solicitor with your accountant in the room.

The Division 7A Loan Nobody Thinks About

If you owe your company money through a shareholder loan account, that debt does not disappear when you do. It remains an asset of the company and a liability of your estate, and the complying loan obligations, including minimum yearly repayments, continue to apply.

This catches families badly, because the loan is often large, the estate is often illiquid, and missing a minimum yearly repayment can convert the shortfall into a deemed unfranked dividend at exactly the worst moment. If you carry a Division 7A loan, it belongs on the continuity file with a note about how it would be funded.

In practice, says Mina Baselyous (CPA, CTA, Registered Tax Agent), the shareholder loan is the item I most often find has never been discussed with the owner’s spouse. They know the business is worth something. They have no idea there is a debt attached to it in their partner’s name.

The same applies to how you take money out day to day. If your remuneration runs through a loan account rather than a documented wage or dividend, the position is harder for everyone to unwind later. Our guide to owner drawings versus paying yourself a real wage covers the alternatives.

Build It in a Weekend

You do not need a project. You need one document, four conversations and a calendar reminder. Most owners who do this tell us afterwards that the relief was disproportionate to the effort, largely because the risk had been sitting there unnamed for years.

• Saturday morning. Write the entity map, the authority list and the key relationships page. Two hours.
• Saturday afternoon. Set up emergency access in a password manager and nominate a person.
• Monday. Call your solicitor about the sole director position, your will and any shareholders agreement.
• Tuesday. Call your accountant about the loan account, the structure and who can act with the ATO.
• Wednesday. Call your broker about key person and buy sell funding.
• Then diarise it. Review it every year when you do your tax planning, because structures and people change.

There is a broader dividend here too. Every step that makes your business survivable without you also makes it more valuable and easier to sell, because a buyer is purchasing a business rather than your personal presence. Our guides to building a business that runs without you and selling your business approach the same work from the opportunity side rather than the risk side.

Frequently Asked Questions

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Yes, you can renovate or upgrade a warehouse held in your SMSF, but the funding source decides what is allowed. If the fund owns the property outright, it can pay for improvements from its own money. If the property sits under a limited recourse borrowing arrangement, borrowed money can only maintain or repair it, never improve it.

It is one of the most common questions we get from business owners who have bought their own premises through super. The warehouse needs a mezzanine, a bigger roller door, a new office fit-out or solar on the roof, the business is happy to pay for it, and everyone assumes the fund can just write the cheque. Sometimes it can. Sometimes doing exactly that quietly breaks the borrowing arrangement and costs the fund far more than the upgrade.

This article walks through the actual rules, in the order you need to apply them, written by Mina Baselyous, a Chartered Tax Advisor (CTA), Certified Practising Accountant (CPA) and Registered Tax Agent based in Melbourne. By the end you will know whether your warehouse can be upgraded, who is allowed to pay for it, and the sequence that keeps the fund compliant.

First question: does the fund still owe money on the warehouse?

Everything turns on whether there is still a limited recourse borrowing arrangement (LRBA) over the property. A fund that owns its warehouse outright has broad freedom to improve it using fund money. A fund still repaying an LRBA is heavily restricted, because the borrowing rules in the Superannuation Industry (Supervision) Act 1993 attach conditions to what the borrowed asset can become.

This is not a niche problem. The ATO’s SMSF quarterly statistical report for the March 2026 quarter, published 16 June 2026, counted 672,805 SMSFs holding an estimated $1.06 trillion in assets, and business premises held through a fund are one of the most popular structures Australian business owners use. A large share of those properties were bought with a loan that is still running.

So before you price a single quote, answer this: is there a loan, and is it an LRBA? If yes, read the LRBA section below before you commit to anything.

Repair, maintenance or improvement: where the ATO draws the line

The ATO splits work into three categories in SMSFR 2012/1, its ruling on limited recourse borrowing arrangements. Maintenance prevents deterioration. A repair remedies damage or defects and restores function without changing the asset’s character. An improvement significantly alters the state or function of the asset for the better. The category decides what money can pay for it.

How the three categories apply to a warehouse

• Maintenance: repainting the exterior, servicing the roller doors, routine gutter and roof work, resealing the hardstand before it cracks.
• Repair: replacing a failed roller door motor, patching a leaking roof, replacing damaged cladding with a modern equivalent, restoring a worn concrete floor.
• Improvement: adding a mezzanine, extending the building, installing a new office fit-out where there was none, adding a solar system, putting in a cool room, resurfacing raw ground into a sealed car park.

Two points catch people out. First, the comparison point is the asset as it was when the fund acquired it, not as it is today (SMSFR 2012/1, paragraphs 16 and 22). The worse the condition on the day of purchase, the more likely later work is treated as an improvement rather than a repair. Paragraph 133 of the ruling is explicit that substantially renovating a run-down building to make it tenantable is an improvement.

Second, you look at the whole asset, not the one part being worked on. Replacing every window in the warehouse is still a repair to the building. Replacing the building is not.

If the fund owns the warehouse outright, you can improve it

Where there is no borrowing, an SMSF can use its own accumulated money to improve a warehouse it owns, including extensions, mezzanines and fit-outs. There is no rule against making fund property better. What there are rules against is how the work is funded, who does it, and what the fund pays for it. Those are the rules that get breached in practice.

The conditions that still apply:

• The fund must pay from fund money. Not the trading company, not the member’s personal account. If a member pays a builder directly, that payment is either a contribution counted against their caps or a breach, and neither is what anyone intended.
• The sole purpose test. The upgrade has to be an investment decision made for members’ retirement benefits, not a favour to the business that leases the shed. In SMSF Regulator’s Bulletin SRB 2020/1, issued 13 March 2020, the ATO makes clear that trustees must be able to show decisions are solely pursuing the fund’s retirement purpose.
• Arm’s length dealing. Every contract, every price, every rate. SRB 2020/1 specifically flags related professionals such as builders who do not charge the fund or charge under market rates.
• Liquidity and the investment strategy. A fund that spends most of its cash on a fit-out and cannot pay a pension or an insurance premium has a different problem. The investment strategy should be updated and minuted before the work starts, not after the auditor asks.
• The lease and the rent. If your business leases the warehouse from the fund, a material upgrade usually means the market rent has moved. Leaving the rent unchanged after the fund spends money improving the premises is exactly the sort of non-commercial arrangement the ATO looks for.

Business real property, which a warehouse used wholly and exclusively in a business will normally be, is also excluded from the in-house asset rules, which is why owning your premises through super works so well in the first place. That exclusion is about the property, though. It does not excuse a related-party building contract priced at mates’ rates.

If the warehouse is under an LRBA, the rules tighten sharply

Under an LRBA, borrowed money may only be used to acquire the asset, to meet expenses connected with the borrowing or acquisition, and to maintain or repair the asset. It can never be used to improve it. Fund money that was not borrowed can pay for improvements, but only while the changes do not turn the property into a fundamentally different asset.

That is the whole rule in two sentences, and each half has teeth.

You cannot borrow to improve, full stop

If borrowed money improves the property while the borrowing continues, the trustee contravenes the borrowing prohibition (SMSFR 2012/1, paragraphs 14 and 15). Redrawing on the loan to build a mezzanine is a contravention. So is a construction facility added to the existing loan. Drawing down further for genuine repairs or maintenance is fine if the loan terms allow it (paragraph 28), which is a distinction worth getting in writing from the lender before you draw.

Fund cash can improve it, until the asset changes character

Accumulated fund money can pay for improvements to a property under an LRBA (paragraph 30). The limit is that alterations must not fundamentally change the character of the asset. If they do, the arrangement stops satisfying the LRBA conditions from that moment, and the fund is left holding a non-complying borrowing (paragraphs 33, 34 and 139).

The ruling’s own examples are useful here. Doubling the number of bays at a car wash was an improvement, but the property remained a car wash, so it was not a different asset (Example 15). A fund-financed shed built on a cattle property was an improvement and not a different asset (Example 13). Building a residence on a hobby farm, or converting residential premises into a restaurant, did change the character (Example 14 and Table 2).

Applied to a warehouse, extending the floor area, adding a mezzanine or fitting out an office within the existing shell will usually leave you with the same industrial property, improved. Subdividing the title, demolishing and rebuilding something else, or converting the site into strata units is where you cross the line. In our experience the conversion cases are the dangerous ones, because they are exactly the projects owners get excited about.

Where a major change is the plan, the cleanest path is usually to pay the loan out first, then improve the property free of the LRBA restrictions. That is a cash flow and timing conversation, and it belongs in your tax planning cycle well before the builder is booked.

The trap that catches tradies: doing the work yourself

If you are a licensed builder, electrician or plumber and you improve your own fund’s warehouse without charging it a commercial rate, the fund’s rental income and the eventual capital gain on that property can be taxed as non-arm’s length income at 45 per cent. This is the single most expensive mistake we see, and it is usually made with the best of intentions.

The ATO’s position is set out in LCR 2021/2, which is legally binding and applies to income derived from the 2018-19 income year onwards. The ruling draws a line between work you do in your capacity as trustee, which does not trigger the rules, and work you do in your individual or business capacity. The factors it weighs include whether you charged the fund, whether you used your business equipment, whether the work required a licence, and whether it was covered by your business insurance.

Example 9 of the ruling makes it concrete. A plumber trustee who fixed a minor leak with her own tools was acting as trustee. The same plumber who carried out a full bathroom and kitchen renovation, scheduled it into her business calendar, used her trade tools and an apprentice, and did not charge the fund, was acting in her individual capacity. The rental income and the later capital gain were non-arm’s length income. Example 10 shows the fix: the electrician who did the work and charged the fund a commercial rate was fine.

The amendments in the Treasury Laws Amendment (Support for Small Business and Charities and Other Measures) Act 2024, which received royal assent on 28 June 2024, softened the position for general fund expenses by capping the amount treated as non-arm’s length income at twice the shortfall. That cap does not apply to expenses tied to a particular asset. Building work on your warehouse is tied to that warehouse, so the full income from the property remains exposed.

In practice, says Mina Baselyous (CPA, CTA, Registered Tax Agent), the mistake we see most is a client doing the fit-out at cost because it feels like they are being generous to their own super. They are not. They are handing the ATO a reason to tax the rent and the eventual sale at the top rate, and a discount that saved forty thousand dollars in build cost can cost many multiples of that on exit.

If you want to do the work, do it properly: quote it, invoice it at a commercial rate, have the fund pay it, and keep the evidence of how the rate was set.

How to actually do it, in the right order

Run the upgrade as a sequence, not as a set of simultaneous decisions. Establish the loan position, classify the work, confirm the funding source, document the trustee decision, contract at arm’s length, then reset the lease and the valuation. Doing these in order is what keeps the audit clean and the tax outcome intact.

1. Confirm the loan position. Is there an LRBA, what is the balance, and can it realistically be paid out before the work starts?
2. Classify every line of the scope. Split the quote into maintenance, repairs and improvements. Mixed scopes are normal and the split needs to be defensible.
3. Match each line to a funding source. Borrowed money to maintenance and repairs only. Fund cash to improvements.
4. Test the different asset question. If the property would come out of the project as something other than the warehouse the fund bought, stop and restructure.
5. Check the fund has the cash. Including contributions, rent and existing commitments, with a buffer. Update the investment strategy and minute the decision before committing.
6. Contract at arm’s length. Written contracts, market pricing, invoices in the fund’s name, payments from the fund’s bank account. No exceptions for related builders.
7. Deal with GST. A fund registered for GST because of commercial rent will generally claim credits on the construction costs. Our guide to GST on commercial property covers the mechanics.
8. Reset the lease and the market valuation. New rent on commercial terms, new valuation for the financial statements, both documented.
9. Brief your auditor early. An auditor who sees the plan in advance is a far cheaper conversation than one who finds it afterwards.

What it costs when it goes wrong

The consequences are not a please explain letter. Breaching the borrowing rules is a reportable contravention that your auditor must lodge. Non-arm’s length income is taxed at 45 per cent and can attach to the property’s rent and its eventual capital gain. In the worst case the fund can be made non-complying, which costs roughly half of it.

There is also a newer consideration for larger funds. The Better Targeted Superannuation Concessions measure, which the ATO confirms is now law and applies from 1 July 2026, introduces an additional tax on earnings for members with a total super balance above the large super balance threshold of $3 million for 2026-27, with a second threshold at $10 million. A substantial warehouse upgrade lifts the value of the fund. For members near those thresholds, that belongs in the modelling before the project is approved, not after.

How we approach a warehouse upgrade at Pinnacle Accounting & Advisory

We treat a fund property upgrade as a structuring decision, not a bookkeeping one. That means looking at the loan, the lease, the member balances, the business cash flow and the exit plan together, then setting the funding and contracting approach before any money moves. The compliance follows from the structure, not the other way around.

For clients using our Virtual CFO service, this is usually a modelled decision: what the upgrade does to fund liquidity, what the new commercial rent does to the trading business, and whether paying out the LRBA early is the better use of capital. For clients who want help with the surrounding property and entity picture, our articles on buying residential property in your SMSF and tax planning for property investors cover the adjacent decisions.

If you own your premises through super and you are planning works, the time to get advice is while the quotes are still quotes. As a small business accountant in Melbourne, that is the conversation we would rather have twelve weeks early than twelve months late.

Frequently Asked Questions

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Markup and margin are not the same number, and confusing them is why many tradies quietly undercharge on every job. Markup is the percentage you add to your cost; margin is the percentage of the final price you keep as profit. A 30 percent markup is only a 23 percent margin. To actually earn a 30 percent margin you need a 43 percent markup.

If you run an electrical, plumbing, mechanical or building business and you price jobs by adding a set percentage to your costs, there is a good chance you are leaving real money on the table on every quote. I am Mina Baselyous, a CPA and Chartered Tax Advisor, and this guide shows you the difference with worked examples, so you can price jobs that actually hit the margin you think you are charging.

Markup vs margin: the difference that costs tradies money

Markup is measured against your cost; margin is measured against your selling price. Take the same figures as the base and the two percentages are always different, because the denominator is different. Markup divides profit by cost, margin divides profit by price. Since price is bigger than cost, the margin percentage is always lower than the markup percentage.

The formulas are simple. For a job that costs you $1,000 and sells for $1,400: the markup is profit divided by cost, 400 divided by 1,000, which is 40 percent. The margin is profit divided by price, 400 divided by 1,400, which is 28.6 percent. Same job, same dollars, two very different percentages. The danger is adding a 40 percent markup while believing you are banking a 40 percent margin.

Worked example: an electrician pricing a switchboard upgrade

Say an electrician quotes a switchboard upgrade with direct costs of $1,500 in materials and $800 in subcontract labour, so $2,300 all up. He wants a 30 percent gross margin, so he adds 30 percent and quotes $2,990. He thinks he has a 30 percent margin. He does not. His actual margin is the $690 profit divided by the $2,990 price, which is 23 percent.

To genuinely earn a 30 percent margin, the price has to be cost divided by one minus the margin: $2,300 divided by 0.70, which is $3,285. That is $295 more on this one job, and it is pure profit, because the costs do not change. An electrician who runs 150 to 200 jobs like this a year is handing back somewhere between $44,000 and $59,000 of profit, just from using markup thinking when he means margin.

Worked example: a plumber marking up parts

Parts are where the markup trap bites hardest. A plumber buys a hot water unit for $400 and adds a 50 percent markup, charging $600. That feels healthy, but the margin on that part is only $200 divided by $600, which is 33 percent. If the business is built on the assumption that parts carry a 50 percent margin, the real recovery is a third less than planned, and across thousands of parts a year the gap is enormous.

To actually make a 50 percent margin on that unit, the plumber needs to double the cost, a 100 percent markup, and charge $800. In our experience working with trade businesses, this single confusion, markup versus margin on parts, is the most common reason a busy plumbing or electrical business is turning over good money but the bank account never reflects it.

The markup you need to hit the margin you want

Here is the conversion every trade business should pin to the wall. To turn a target margin into the markup you actually have to add, divide the margin by one minus the margin. These are the numbers that matter when you are building a quote.

Margin you want	Markup you must add
20%	25%
25%	33%
30%	43%
35%	54%
40%	67%
50%	100%

Read it the other way and the undercharging becomes obvious. A tradie adding a flat 25 percent to everything is earning a 20 percent margin, not 25. Adding 50 percent gives a 33 percent margin. Adding 100 percent gives 50 percent. If you have been quoting on markup and reporting margin, your real profit has always been lower than the number in your head.

Your labour rate has to carry overhead and margin too

Pricing is not just about marking up parts. Your charge-out rate on labour has to recover the tradesperson’s wage, the overhead that keeps the business running, and a margin on top. A mechanic who pays a technician $45 an hour but charges customers $55 an hour is not making a 22 percent margin, because the $55 still has to cover the workshop rent, tools, insurance, admin wages, superannuation and software before any profit is left.

The right way to set a charge-out rate is to start with the true cost of an hour of labour, including every on-cost and a fair share of overhead, then add the markup that delivers your target margin on top of that fully loaded cost. Most trade businesses that feel busy but broke have a charge-out rate that recovers wages and overhead but leaves no real margin, so every extra job just buys them more work, not more profit. Working out your fixed costs and break-even point is the first step to setting a rate that actually works.

How to build pricing that protects your margin

Fixing this is not complicated, but it has to be deliberate. The trade businesses that make real money treat pricing as a system, not a habit, and they measure margin after the job, not just quote it before. A few practical moves make the biggest difference.

• Quote on margin, not markup. Decide the margin you need, then use the conversion table to find the markup to add. Build it into your quoting template so it happens automatically.
• Load your true cost. Include every on-cost on labour, superannuation, leave, insurance, vehicle, tools, before you add margin. The cost you mark up must be the real cost, not just the wage.
• Price parts and labour separately. They often carry different margins. Lumping them together hides where you are making money and where you are losing it.
• Review actual margin after the job. Compare what you quoted to what the job actually cost. This is where you find the jobs that quietly lose money.
• Hold your price. A small, confident price rise flows almost entirely to profit. Discounting to win work does the opposite, and it is the fastest way to destroy a thin margin.

How Pinnacle helps trade businesses price for profit

Knowing your margin is one thing; building a business around it is another. We help trade and service business owners work out their true cost of labour, set a charge-out rate that carries overhead and margin, and build a pricing model that holds up across every job, not just the big ones. According to the ATO, you can also compare your figures against others in your trade using the small business benchmarks (ATO, 2026), which show the typical cost and profit ratios for your industry.

As Mina Baselyous (CPA, CTA, Registered Tax Agent) puts it, most tradies do not have a revenue problem, they have a pricing problem, and the fix is usually a few points of margin recovered on work they are already doing. If you want to understand the difference between gross and net margin first, start with our guide to profit margins explained, then look at how pricing feeds your overall Virtual CFO numbers.

Frequently Asked Questions

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Drawings are a distribution of profit, not a deduction. A sole trader or partner cannot pay themselves a wage at all, while a company or trust can deduct a salary paid to a working owner. Either way, if your own labour is not costed at market rate, your profit figure is overstated and your business looks healthier than it is.

This is one of those topics that starts as a technical question and ends up being about something else entirely. The mechanics take five minutes to explain. The consequence, that thousands of Australian business owners are quietly subsidising their own business with unpaid labour and calling the result a profit, takes rather longer to deal with.

I am Mina Baselyous, a Certified Practising Accountant (CPA) and Chartered Tax Advisor (CTA) in Melbourne. This article covers what you can and cannot do by structure, what a real owner’s wage actually costs, and why the answer changes how you should price your work.

The Rule Depends Entirely on Your Structure

There is no single answer, because the law treats you differently depending on the entity. In a sole trader or partnership you are the business, so you cannot be your own employee. In a company or trust the entity is separate from you, so it can employ you and deduct what it pays. That distinction drives everything else.

Sole Traders and Partners

The ATO is explicit. In its guidance on deductions for salaries, wages and super contributions, current as at September 2026, it states that as a sole trader you are the business owner and not an employee of your business, which means you cannot pay yourself a salary or wage. Any nominal payment of a salary or wage to yourself is considered a distribution of profit.

Partners in a partnership are in the same position for the same reason. Money you transfer to your personal account is drawings. It is not an expense, it does not reduce the business profit, and it does not reduce your tax. You are taxed on the whole profit of the business regardless of how much of it you actually took.

Companies and Trusts

Here the position reverses. The same ATO guidance confirms that your company or trust can generally claim a deduction for any salaries and wages paid to you or other workers. A working director can be a genuine employee of their own company, on a real wage, with PAYG withholding and superannuation.

That is a real advantage, and it is one of the reasons the structure question matters so much for an established business. It is covered from the other direction in our guides to moving from sole trader to company and paying yourself from your company tax-effectively.

What Drawings Actually Do to Your Reports

Drawings never appear on your profit and loss. They reduce equity on the balance sheet and they reduce cash, which is why they are one of the seven reasons your profit and your bank balance disagree. If your drawings are showing up as an expense in your accounts, the profit figure you are reading is wrong.

We see this coding error constantly on new client files, and it matters. A business reporting $60,000 of profit when $80,000 of drawings has been incorrectly expensed actually made $140,000, and its tax return is wrong. The reverse error, drawings posted to a loan account and forgotten, creates a different problem entirely, which we come to below.

If you want to see how drawings flow through the reports, our guides to reading a balance sheet and retained earnings follow the same money from profit to equity to the bank.

The Real Problem: Your Labour Is Free on Your Profit and Loss

Here is the part almost nobody is told. If you are a sole trader working sixty hours a week, your labour costs your profit and loss nothing. So the profit figure is not a measure of whether the business works. It is a measure of what is left over after everyone except you has been paid properly.

Work it through with numbers. A business turns over $600,000. Every cost except the owner’s own time comes to $480,000. The reported profit is $120,000, and the owner draws all of it. On paper, a profitable business.

What the business really earns	Amount
Revenue	$600,000
All costs except the owner’s own labour	($480,000)
Reported profit, which the owner draws	$120,000
Cost of replacing the owner with a manager at market rate	($130,000)
Superannuation on that wage at 12 per cent	($15,600)
Real economic profit	($25,600)

The business does not make $120,000. It loses $25,600 and disguises the loss as the owner’s income. The owner is working for below market rate and funding the shortfall with their own time, which is the only input nobody ever invoices for.

In practice, says Mina Baselyous (CPA, CTA, Registered Tax Agent), this is what burnout looks like in a set of accounts. The owner cannot understand why they work harder every year and never get ahead. The answer is in the profit and loss: their own wage is the item absorbing the gap between what the business charges and what it costs to run.

What a Real Owner’s Wage Actually Costs

If you decide to pay yourself properly through a company, budget for more than the gross figure. Superannuation is 12 per cent for 2026-27, and depending on your total wages bill you may also have payroll tax and workers compensation to fund. The true cost of a $130,000 wage is materially above $130,000.

• Superannuation guarantee. 12.00 per cent for 2026-27, per the ATO’s key superannuation rates and thresholds, with a maximum contribution base of $270,830 for the year.
• PAYG withholding. Not an extra cost, but it does change your cash timing, because tax comes out as you go rather than in a lump at lodgement.
• Payroll tax. Once total Australian wages cross the state threshold. Our guide to payroll tax in Victoria covers the thresholds and grouping rules.
• Workers compensation. Premiums are calculated on your wages declaration, so adding a director’s wage can increase the premium.
• Single Touch Payroll reporting. A working director on a wage is reported through Single Touch Payroll like any other employee.

None of that is a reason not to do it. Superannuation in particular is a deduction to the company and a concessionally taxed contribution for you, which is one of the more reliable long term wealth strategies available to a business owner. It is also the discipline that forces the real cost of your labour onto the profit and loss where it belongs.

The Four Legitimate Ways to Take Money Out of a Company

If you operate through a company, there are four proper routes and one very expensive improvisation. The improvisation is transferring money to yourself and sorting it out later, which creates a shareholder loan and lands you in Division 7A.

• Wages or directors’ fees. Deductible to the company, taxed to you at your marginal rate, with superannuation payable.
• Franked dividends. Paid from retained profits, carrying credits for company tax already paid, subject to the section 254T tests covered in our guide to retained earnings.
• Superannuation contributions. Deductible to the company and concessionally taxed in the fund, within the contribution caps.
• Repayment of a loan you made to the company. If you genuinely lent the business money, repaying you is a return of capital, not income.

Anything else is a loan from the company to a shareholder. That requires a written agreement, minimum yearly repayments and interest at the benchmark rate of 8.77 per cent for the 2026-27 income year according to the ATO’s Division 7A benchmark interest rate. Ignore it and the balance becomes a deemed unfranked dividend, taxed in full with no credit. Our guide to Division 7A sets out the traps.

Why This Changes How You Price

Once your own wage is costed into the profit and loss at market rate, your real margin appears, and it is usually lower than you thought. That is not bad news. It is the first honest number you have had, and it is the one that tells you whether your prices work.

From there the arithmetic is straightforward. If the business loses $25,600 after paying you properly, you need roughly that much again in gross profit before the business stands on its own, which is a pricing, mix or volume decision. Our guides to profit margins and how much your business actually needs to make take it from there.

It matters at the other end too. A buyer valuing your business will normalise the owner’s wage to market rate before applying a multiple, precisely because they will have to pay someone to do your job. A business that only looks profitable because the owner works for free is worth far less than its reported profit suggests, as our guide to valuing a business in Australia explains.

What to Do Next

Work out what you would have to pay someone at market rate to do your job, add 12 per cent superannuation, and subtract the total from your reported profit. That single calculation tells you whether you own a business or a demanding job, and it takes about two minutes.

If the answer is uncomfortable, the fixes are pricing, cost structure and delegation, in that order. If the answer is fine but your structure is wrong, that is a different and much easier conversation, and it belongs in tax planning alongside a review of your business structure.

Frequently Asked Questions

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Only the interest portion of a business loan repayment is tax deductible. The principal is a repayment of borrowed capital, not an expense of earning income, so it reduces your bank balance without reducing your taxable income. A $120,000 annual repayment split into $80,000 of principal and $40,000 of interest gives you a $40,000 deduction.

This catches out more established business owners than almost any other rule, because it feels wrong. You sent the bank $120,000. Your accountant claimed $40,000. It looks like something has been missed, and the conversation usually starts with a degree of suspicion.

I am Mina Baselyous, a Certified Practising Accountant (CPA) and Chartered Tax Advisor (CTA) in Melbourne. This article explains why the rule works this way, shows what it costs in real dollars, and sets out how to plan cash flow around it so June is not a shock.

The Rule, and Why It Exists

A deduction is allowed for a loss or outgoing incurred in gaining or producing assessable income. Interest qualifies: it is the cost of using someone else’s money to run your business. Principal does not: handing back money you borrowed is not a cost, it is the reversal of a transaction that never went through your profit and loss in the first place.

The symmetry is the key to understanding it. When the bank lent you $250,000, that money was not income and you were not taxed on it. It went straight onto your balance sheet as cash and a matching liability. When you hand it back, it comes off the balance sheet the same way. Nothing touches the profit and loss at either end.

Interest is different because it was never on your balance sheet. It is a genuine expense of the year, and the ATO lists it among general business operating expenses as interest on money borrowed for producing assessable income or purchasing income-producing assets, current as at September 2026.

What It Looks Like in Real Numbers

Take the Melbourne trade and services company we use throughout this series. It has $290,000 of bank and equipment loans and paid the bank $120,000 during the year. Here is what the tax return sees, and what the bank account sees.

Loan repayments, year ended 30 June 2027	Cash out	Tax deduction
Interest charged by the lender	$40,000	$40,000
Principal repaid	$80,000	nil
Total paid to the bank	$120,000	$40,000

The $80,000 gap is the whole issue. That money left the business, reduced the bank balance, made the balance sheet stronger by reducing debt, and did absolutely nothing for the tax bill. It is one of the seven reasons your profit and your bank balance never agree, which we cover in full in why your profit and your bank balance never agree.

The Part That Really Hurts: You Repay Principal With After-Tax Dollars

Because principal is not deductible, the business must earn the money, pay tax on it, and then repay the loan out of what is left. To repay $80,000 of principal, a company taxed at the 25 per cent base rate entity rate must generate roughly $106,667 of pre-tax profit. The extra $26,667 goes to the ATO on the way through.

That arithmetic is worth sitting with. Every dollar of debt you repay costs you more than a dollar of trading performance, and the higher the tax rate on the entity carrying the debt, the worse the ratio gets. For a sole trader on a higher marginal rate, the pre-tax profit required to repay the same $80,000 is substantially more again. Our guide to Australian income tax rates for 2026-27 sets out the relevant brackets.

In practice, says Mina Baselyous (CPA, CTA, Registered Tax Agent), this is why a business can be profitable, well run and still feel permanently short of money. It is servicing debt with after-tax dollars while its accountant reports a healthy profit. Nobody has told the owner that the two facts are perfectly consistent.

What Is Deductible on a Business Loan

Plenty is deductible, just not the principal. The test throughout is purpose: the borrowing must be connected to producing assessable income. Where a loan is used partly for private purposes, the interest must be apportioned, and the ATO does look at this.

• Interest. Deductible to the extent the borrowed funds were used for income producing purposes.
• Loan establishment and borrowing costs. Application fees, valuation fees, mortgage stamp duty on the loan and similar costs, generally deducted over the shorter of the loan term or five years rather than immediately.
• Ongoing bank fees and charges. Account keeping and facility fees on a business account.
• Depreciation on the asset you financed. The asset is deducted through the depreciation rules regardless of how it was funded. Our guide to tax depreciation covers the mechanics.

That last point matters more than owners realise. If you borrow $140,000 to buy equipment, you do not deduct the $140,000 and you do not deduct the principal repayments. You deduct depreciation on the equipment plus the interest on the loan. Deducting the asset and the principal would be claiming the same thing twice, which is precisely why the rule exists.

Where This Bites Hardest

The squeeze is worst where repayments are large relative to the deduction available: short loan terms, fast principal reduction, and assets whose depreciation is capped or slow. Three situations account for most of the pain we see on client files.

• Short term equipment finance. A three year term on a five year asset means principal is repaid far faster than depreciation is claimed, so cash goes out well ahead of the deduction.
• Cars above the car limit. Depreciation is capped at the car limit no matter how much you financed, so a $150,000 vehicle on a five year loan produces large non-deductible repayments against a capped deduction. We work through the numbers in selling a car above the car limit.
• Loans in the wrong entity. Interest is only deductible where the borrowing is connected to producing assessable income in that entity. Debt sitting in the entity that does not earn the income is a structuring problem, not a lending one.

One more to watch: a loan from your own company to you personally is not an ordinary business loan at all. It sits under Division 7A, requires a written agreement, a minimum yearly repayment and interest at the ATO benchmark rate, which is 8.77 per cent for the 2026-27 income year according to the ATO’s Division 7A benchmark interest rate. Get it wrong and the balance becomes a deemed unfranked dividend.

How to Plan for It

You cannot make principal deductible, so the work is in forecasting and structuring. The aim is that the cash needed for principal repayments is identified before the year starts, and that the debt sits in the entity where the interest is deductible against the income it helped produce.

• Split every repayment in your accounts. If the whole repayment is coded to interest, your profit is understated and your loan balance is wrong. This is one of the most common coding errors we correct on new client files.
• Forecast principal separately from tax. Both are non-negotiable cash commitments and neither appears as an expense. Put them side by side in the budget and cash flow forecast.
• Match the loan term to the asset life. Financing a ten year asset over three years guarantees a cash squeeze even if the investment is sound.
• Review where the debt sits. Before refinancing or restructuring, check the interest is deductible in the entity carrying it. This belongs in tax planning, ideally before the facility is signed.
• Watch the balance sheet, not just the profit. Repaying principal makes the business stronger even though it does nothing for tax. That improvement shows up as rising net assets, which is why we read the balance sheet monthly.

What to Do Next

Pull your loan statements for the last financial year and split the total paid into principal and interest. Then take the principal figure and divide it by one minus your entity’s tax rate. That is the pre-tax profit your business had to generate simply to stand still on debt.

Most owners have never calculated that number, and it usually reframes how they think about both borrowing and pricing. If the result is uncomfortable, the conversation to have is about loan terms, entity structure and working capital rather than about finding more deductions. Our guides to the cash flow statement and working capital are the natural next reads.

Frequently Asked Questions

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From 1 October 2026, Australian businesses can no longer add a surcharge when a customer pays by eftpos, Mastercard or Visa, whether that card is debit, prepaid or credit. The cost of accepting cards does not disappear under the Reserve Bank’s decision; it simply moves onto you, so it now has to be built into your pricing like any other cost of doing business.

If you run an established business that takes card payments, this is one of the few regulatory changes that hits your margin directly and immediately. The good news is it is manageable, and the owners who deal with it deliberately will barely feel it. I am Mina Baselyous, a CPA and Chartered Tax Advisor, and this is how we are helping Melbourne business owners respond, protect their margin, and avoid the common mistakes.

What has actually changed

From 1 October 2026, surcharging on eftpos, Mastercard and Visa is banned across Australia, following the Reserve Bank of Australia’s final decision handed down on 31 March 2026. That covers debit, prepaid and credit cards on those networks. You can no longer pass the card-acceptance fee to the customer as a separate line at the terminal.

The ban does not cover every card. American Express, Diners Club, PayPal, and Buy Now Pay Later services such as Afterpay and Zip sit outside it, so surcharging on those is still permitted where it reflects your genuine cost. Alongside the ban, the RBA has lowered the wholesale interchange fees that sit inside your merchant costs, capping domestic debit at 8 cents plus 0.16 percent per transaction, consumer credit at 0.30 percent, and commercial credit at 0.80 percent. The RBA estimates the combined reforms will save consumers and businesses around 1.8 billion dollars a year (RBA, 2026).

Why this matters for your margin

The key point owners miss is that the cost has not been abolished, it has been reallocated to you. Where you previously recovered 1 to 1.5 percent of card sales directly from the customer, from 1 October that amount comes straight off your bottom line unless you have repriced for it. For a business doing 70 percent of its turnover on cards, that can be a meaningful dent in net profit.

In our experience working with owners, the trap is treating this as a minor admin change rather than a pricing decision. The lower interchange caps will reduce your underlying merchant fees over time, which softens the blow, but the timing and size of that benefit depends on your provider and your card mix. You should not assume the two cancel out. Model it on your own numbers.

Less admin at the counter, but a pricing question to answer

One upside is less friction at the point of sale. With surcharging gone on the main networks, there is no more adding a percentage at the terminal and no awkward conversation about debit versus credit. The customer sees one price and pays it. That is a cleaner experience, but it shifts the question from “how do I surcharge” to “how do I price so my margin still works”.

Your options as a business owner

There are four realistic ways to respond, and most established businesses use a combination. The right mix depends on your margins, your competitors, and how price-sensitive your customers are. You treat card acceptance the way you already treat rent, wages and insurance: a cost of doing business that your prices must cover.

• Absorb the cost. If your margins are healthy and card fees are a small share of turnover, you may simply wear it. Simplest option, but it comes straight off net profit, so only choose it deliberately, not by default.
• Lift prices across the board. Build the card cost into your pricing the same way you build in every other overhead. A modest, even increase across your range is usually invisible to customers and keeps your margin intact. For most owners this is the cleanest answer.
• Raise prices and offer a cash or bank-transfer discount. Set your list prices to cover card costs, then reward customers who pay by cash or direct transfer. This is allowed, but it must be a genuine discount off a real price, not a surcharge dressed up as a discount, so take advice on how you present it.
• Stop accepting certain cards. You can decline Amex or BNPL if their cost is too high, and you are still free to surcharge those. Declining eftpos, Mastercard and Visa altogether is rarely wise, because cards drive sales and convenience, but it is an option at the margins.

Separately from pricing, review the merchant side itself. Ask your provider to confirm the lower interchange caps are flowing through, check whether least-cost routing (sending contactless debit via the cheapest network) is switched on, and compare providers. We often find the quickest win is not a price rise at all, it is a better merchant plan.

What it means for prices and inflation

Expect some businesses to lift prices to recover the cost, which puts mild upward pressure on headline prices. In practice the effect is small and uneven: the lower interchange caps reduce the underlying cost at the same time, and competitive pressure limits how far prices can move. For a well-run business, a considered one-off reprice is enough; there is no need to overcorrect.

How Pinnacle helps you respond

This is exactly the kind of decision we work through with clients before it hits the numbers, not after. We quantify what card acceptance actually costs you as a percentage of revenue, model the price change needed to protect your margin, review your merchant fees and least-cost routing, and make sure any cash-discount approach is set up correctly. As Mina Baselyous (CPA, CTA, Registered Tax Agent) puts it, the owners who win here are the ones who treat a few cents on the dollar as a pricing decision, not a terminal setting.

If you want a clear read on the margin impact for your business and the right pricing response, our Virtual CFO and tax planning services are built for exactly this, and strong cash flow and debtor management make the change easier to absorb.

Frequently Asked Questions

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Profit and cash differ because profit is measured on an accruals basis while your bank balance is not. Unpaid invoices, stock, asset purchases, loan principal repayments, tax and drawings all move cash without moving profit. Reconciling the two, line by line, explains the gap exactly every time.

It is the most common question we get asked, and it is usually asked with an edge to it. The accountant says the business made $135,000. The bank account has less in it than it did a year ago. One of those two things feels like a lie.

Neither is. I am Mina Baselyous, a Certified Practising Accountant (CPA) and Chartered Tax Advisor (CTA) in Melbourne, and this article does the reconciliation in full, on real numbers, so you can do the same with your own and account for every missing dollar.

The Two Numbers Are Measuring Different Things

Profit measures performance over a period. Cash measures liquidity at a point in time. Profit recognises a sale when you issue the invoice, not when you are paid, and recognises an expense when you incur it, not when the money leaves. Your bank balance recognises nothing until the money actually moves.

Once you accept that, the gap stops being suspicious and becomes arithmetic. There are exactly seven things that can cause it, and every one of them is visible on your balance sheet. That is why we always read the two reports together rather than separately, as set out in our guides to reading a balance sheet and reading your profit and loss statement.

The Reconciliation, Line by Line

Here is a Melbourne trade and services company with $2.4 million of sales. It made $135,000 of profit after tax. Its bank balance fell from $85,000 to $42,000, a decrease of $43,000. The gap between the two is $178,000. Every dollar of it is accounted for below.

From profit to bank balance, year ended 30 June 2027	Amount
Net profit after tax	$135,000
Add back depreciation, which never left the bank	$60,000
Less increase in trade debtors, invoiced but not collected	($120,000)
Less increase in stock on hand, bought but not sold	($30,000)
Add increase in trade creditors, received but not paid	$25,000
Add increase in GST and PAYG payable, collected but not remitted	$18,000
Add increase in income tax payable	$15,000
Less equipment purchased, paid in full this year	($140,000)
Add new equipment loan drawn	$120,000
Less loan principal repaid, not an expense	($80,000)
Less dividends paid to shareholders	($46,000)
Movement in cash at bank	($43,000)

Nothing is missing. The business earned $135,000 and then, quite deliberately, converted it and more into customer invoices, stock and equipment, while paying down debt and paying its shareholders. The bank balance falling was the consequence of those decisions, not evidence of a problem.

The Seven Reasons, in Detail

Every gap between profit and cash comes from one of seven items. Five of them consume cash without reducing profit. Two of them reduce profit without consuming cash. Learn all seven and you will never be confused by this again.

1. Money Owed to You by Customers

Every unpaid invoice is profit you have recognised and tax you will pay on income you have not received. Here, debtors grew $120,000 in a year. That is the largest single item in the reconciliation and almost always the largest in real businesses too. Fixing it is process, not sales, and it is covered in our guide to debtor management.

2. Stock and Work in Progress

Buying stock does not create a deduction. It converts cash into an asset sitting on the balance sheet, and only becomes a cost when it is sold. This is why buying hard in June to reduce tax does the opposite: it drains cash and gives you no deduction at all.

3. Buying Assets

The full $140,000 left the bank the day the equipment was delivered. Only $60,000 of depreciation hit the profit and loss. The other $80,000 is a timing difference that will be deducted over future years, and in the meantime it is pure cash outflow.

4. Repaying Loan Principal

The business paid the bank $120,000 in the year: $80,000 of principal and $40,000 of interest. Only the interest was deductible. Repaying principal returns borrowed capital, it is not a cost of earning income, so it reduces cash and does nothing at all to your tax bill.

5. Money You Take Out

Dividends from a company, drawings from a sole trader or partnership, and trust distributions are all distributions of profit rather than expenses of earning it. They never reduce the profit figure. They absolutely reduce the bank balance.

6. Depreciation, Which Works in Your Favour

Depreciation is the one large expense on your profit and loss that never leaves your bank account. It reduces profit and tax without costing you anything in the year, which is why it is the first item added back in any reconciliation. Here it is worth $60,000 of cash you kept.

7. Money You Are Holding for Someone Else

Growth in creditors, GST, PAYG withholding, superannuation payable and income tax payable all add to your cash balance without adding to profit, because you are holding money that belongs to somebody else. In this example that is $58,000 of the $43,000 shortfall covered up.

This is the item to watch. In practice, says Mina Baselyous (CPA, CTA, Registered Tax Agent), a business whose cash position only looks acceptable because the GST and superannuation balances keep growing is not managing cash, it is deferring a reckoning. That is exactly the pattern the ATO has been pursuing since 2025, as we covered in our article on ATO debt collection and director penalty notices.

Do This for Your Own Business

You need three documents: this year’s profit and loss, and the balance sheets at the start and end of the year. Then work down the same list. It takes about twenty minutes the first time and five minutes every time after that.

• Start with net profit after tax.
• Add back depreciation and any other non-cash charges.
• Subtract the increase, or add the decrease, in debtors, stock, work in progress and prepayments.
• Add the increase, or subtract the decrease, in creditors, GST and PAYG payable, superannuation payable and income tax payable.
• Subtract what you spent on assets, and add any proceeds from selling them.
• Add new borrowings and subtract loan principal repaid.
• Subtract dividends, drawings and trust distributions actually paid.
• Compare the total to the actual movement in your bank accounts. It should match to the dollar.

If it does not match, stop. You have found a bookkeeping problem, not a business one. The usual culprits are unreconciled bank accounts, drawings coded to expenses, or loan repayments coded entirely to interest. A clean bank reconciliation is the prerequisite for every report above it.

This exercise is the cash flow statement in plain language. If you want the formal version with the three standard sections, we build it from these same numbers in our guide to the cash flow statement.

When the Gap Is a Warning Sign

A gap is normal. A widening gap, year after year, in the same direction, is not. If profit keeps rising while cash keeps falling, the business is converting an increasing share of its earnings into assets that are not producing a return, and eventually the funding runs out.

• Debtors growing faster than sales. A collections problem dressed up as growth.
• Stock growing faster than cost of sales. Cash buried in lines that are not moving.
• ATO balances growing every quarter. The most dangerous of the three, because it accrues interest and personal exposure.
• Profit up, operating cash flow flat. The trading result is not converting into money.

All four are working capital problems, and all four are fixable without a single extra sale. Our guide to working capital shows how to measure the cycle and what each improvement is worth in dollars.

What to Do Next

Run the reconciliation on your last financial year. If the gap is mostly debtors and stock, you have a working capital project. If it is mostly asset purchases and loan principal, you have a funding and timing question. If it is mostly growth in ATO balances, you have an urgent problem.

Then make it routine. Reconciling profit to cash monthly, alongside your budget and the five financial numbers every business owner must know, turns an annual shock into an ordinary conversation. That rhythm is the core of a Virtual CFO engagement.

Frequently Asked Questions

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