To start a business in Australia you validate the idea, choose the right structure (sole trader, company, partnership or trust), register an ABN, business name, GST and PAYG, open a separate business bank account, set up Xero and bookkeeping, arrange the right insurances, and plan your tax from day one. Getting the structure and registrations right first protects your assets and legally lowers your tax.

Most people starting a business are focused on the idea. The product, the service, the pitch. What they don’t realise is that the decisions made in the first 90 days, covering structure, registrations, insurance and tax planning, will determine whether the business is tax-efficient, asset-protected, and built to last. Get them right and you’re set up to grow. Get them wrong and you spend the next decade fixing expensive mistakes. If you would rather acquire an established operation than start from scratch, read our guide to buying a business in Australia.

Mina Baselyous, CPA and Chartered Tax Adviser, has worked with hundreds of Melbourne small business owners from before day one through to sale and succession, and Pinnacle Accounting & Advisory holds 81 five-star Google reviews from owners who set up the right way. The biggest differentiator between businesses that thrive and those that struggle? It’s rarely the idea. It’s the foundations.

This guide covers every step you need to take to start a business in Australia the right way — structure, registrations, legal setup, premises, insurance, employment, superannuation, finances, and tax planning. We’ve also put together a downloadable Business Startup Checklist covering every step in this guide so you can tick them off as you go.

Section 1: Validate Your Idea and Write a Business Plan

According to the ATO, the two most common reasons new businesses fail are a lack of validated demand and insufficient capital. In plain terms: nobody wanted what they were selling, or they ran out of money before they could find out.

Start With Simple Validation

Before you register anything, answer these questions honestly:

• Are people already paying for this? (If yes, the market exists. If not, you’re pioneering — much harder.)
• Who are your first five paying customers? Not hypothetical customers — real people who have committed, or would commit, money today.
• What is your unfair advantage? Why would someone choose you over the alternatives?

If you can’t answer these questions, you need more validation before you commit capital to registrations, fit-outs, equipment, or stock.

Writing a Business Plan That Actually Works

A business plan is not a document you write once and file away. It’s a living reference that keeps you honest. At minimum, it should cover:

• Mission and target market — who you serve and what problem you solve
• Revenue model and pricing — how you make money and what you charge
• 12-month cash flow forecast — projected income, outgoings, and the point at which the business becomes cash flow positive
• Competitive advantage — what makes your offer meaningfully different
• Key risks and how you’ll mitigate them

At Pinnacle, we help clients build realistic financial projections and stress-test their numbers before they commit capital. If you’re serious about getting this right, book a consultation before you start — it’s the highest-leverage conversation you’ll have.

Section 2: Choose the Right Business Structure

This is the most consequential decision you’ll make. The structure you choose determines how you’re taxed, how your assets are protected, and how difficult it is to bring in partners, investors, or sell the business one day. Most accountants gloss over this. At Pinnacle, it’s the conversation we insist on having before anything else is registered. For a deep-dive comparison, see our guide to types of business structures in Australia.

Sole Trader

The simplest and cheapest structure to set up. There is no separation between your personal assets and your business — you are the business. This means unlimited personal liability: if the business is sued or can’t pay its debts, your home, savings, and personal assets are at risk. All profit is taxed at your personal marginal rate, which can reach 47% (including the Medicare levy). Suitable for early-stage testing, very low-risk activities, or where annual turnover is modest.

Partnership

Two or more individuals sharing a business. Each partner is jointly and severally liable — meaning you can be held personally responsible for your partner’s actions and debts. A partnership agreement is essential. This structure is rarely recommended for growing businesses due to the liability exposure and complexity it creates.

Company (Pty Ltd)

A company is a separate legal entity. Your personal liability is generally limited to your shareholding (though directors have personal obligations — more on that below). The flat tax rate for base rate entities (small businesses with passive income under 80% of total income) is 25%. All other companies pay 30%. For a direct comparison of the two most common structures for established owners, see our guide to company vs trust.

Important: a company cannot access the individual 50% CGT discount. If you sell the business or a business asset held in a company, the capital gain is taxed at the full company rate with no discount. Director obligations — particularly around ATO lodgements, PAYG, and super — come with personal liability. Failing to meet these obligations can trigger a Director Penalty Notice from the ATO, making you personally liable for the company’s tax debts.

Discretionary (Family) Trust

The most flexible structure for tax planning. A discretionary trust allows the trustee to distribute income to beneficiaries in proportions decided each year — enabling income to be directed to lower-income family members to minimise the overall tax burden. Assets held in the trust are generally protected from business creditors. Individual beneficiaries who receive capital gains distributions from the trust can access the 50% CGT discount — a significant advantage over a company. A corporate trustee (a company acting as trustee) adds an additional layer of asset protection and is strongly recommended.

Unit Trust

Units (like shares) represent fixed entitlements to trust income and assets. Less flexible than a discretionary trust for income splitting, but commonly used in joint ventures or where outside investors are involved, because the ownership interests are clearly defined.

Multi-Level Group Structures: Pinnacle’s Speciality

Most sophisticated Australian business owners don’t operate through a single entity. They use layered structures — and the design of that layering determines how efficiently the business is taxed, how well it’s protected, and how much is available to you after tax. Here are the most common configurations:

• Family Trust → Trading Company: The trust holds shares in the trading company. Business profits flow up from the company (as franked dividends) to the trust, which distributes to beneficiaries at their marginal rates. The franking credits attached to the dividends offset the tax beneficiaries owe.
• Family Trust → Holding Company → Trading Company: A holding company sits between the trust and the trading entity. The holding company receives dividends from the trading company and retains earnings at the lower company tax rate (25% where it is a base rate entity). This is additional asset protection — the trading company runs operations; the holding company accumulates value away from operating risk.
• Investment/Bucket Company: A bucket company can receive distributions from the family trust and pay company tax at 25–30%, effectively “capping” the tax on income that would otherwise push individual beneficiaries into the top marginal rate. Retained earnings in the bucket company then grow at the lower rate.

Which entity holds the stake in your trading entity determines everything: how profits are taxed, how capital gains are treated when you sell, and how well your personal assets are protected if the business faces a claim. This is why the structure conversation must happen before you register anything. For more on CGT outcomes, see our guide to CGT small business concessions.

⚠️ Important — Proposed Legislative Changes (May 2026 Budget):

The May 2026 Federal Budget proposed material changes to the taxation of trust distributions in Australia. These include potential minimum tax rates on distributions from discretionary trusts, and significantly higher effective tax rates — potentially exceeding 60% — on investment and bucket companies that receive distributions from family trusts. These proposals are subject to legislative finalisation and, if enacted, could materially change the after-tax efficiency of trust-based structures. The information in this section reflects current law. Before establishing or changing any business structure, seek current qualified tax advice. This is exactly why proactive planning and regular structure reviews matter — call us before you decide.

Section 3: Registrations — What You Need and When

ABN (Australian Business Number)

Apply via abr.gov.au — it’s free and usually issued within minutes. You need an ABN before you start trading; suppliers and clients will ask for it before paying you. Sole traders apply in their personal name; companies and trusts apply in the entity name (after the entity is established).

TFN (Tax File Number) for the Entity

Each entity — company, trust — needs its own TFN, completely separate from your personal TFN. Apply via ato.gov.au after the entity is established. The entity’s TFN is used for lodging its own tax returns.

Business Name Registration

If you trade under any name other than your own legal name, you must register a business name with ASIC. Costs from $44 per year (1-year registration) or $102 for 3 years. Renewal is mandatory — don’t let it lapse, as you lose the name. See our guide to ASIC annual review fees and business registrations for full compliance details.

Trade Mark Registration — Not the Same as a Business Name

Registering a business name with ASIC is not the same as protecting your brand. A business name registration simply records that you are trading under that name — it gives you no exclusive right to use it, and it does not prevent a competitor from operating under an identical name in another state or in a different industry. A trade mark registration through IP Australia gives you exclusive legal rights to use your brand name, logo, or slogan across the nominated goods and services class in Australia. The application fee is approximately $250 per class, and registration is valid for 10 years (renewable). If your brand is core to your business — as it is for almost every consumer-facing operation — file your trade mark application before you launch, not after a competitor has beaten you to it.

Industry-Specific Licences and Permits

Depending on your industry, you may need additional licences or permits before you can legally trade — these are entirely separate from your ABN and business name registration. Common examples in Victoria include: a builder’s or tradesperson’s licence (Victorian Building Authority), a food business registration (local council), a liquor licence (Victorian Commission for Gambling and Liquor Regulation), an Australian Financial Services Licence (ASIC), or a real estate agent’s licence (Consumer Affairs Victoria). Operating without the required licence can void contracts, attract significant penalties, and in some cases result in criminal liability. Check requirements with your state regulator and industry association before you open for business.

GST (Goods and Services Tax)

GST registration is mandatory once your annual turnover reaches $75,000 (or $150,000 for non-profits). If you drive Uber, taxis, or other rideshare, you must register from day one regardless of turnover. Below the threshold, registration is optional — but voluntary registration lets you claim GST credits on your business purchases. Once registered, you lodge a BAS (Business Activity Statement) quarterly (or monthly if your turnover exceeds $20 million), and remit 1/11 of your GST-inclusive sales to the ATO.

PAYG Withholding

Register for PAYG withholding when you employ staff or engage contractors under a voluntary withholding agreement. As a registered withholder, you deduct tax from wages and contractor payments on the ATO’s behalf and remit it via your BAS. Failing to register and remit is a serious compliance issue.

PAYG Instalments — Don’t Confuse This With Withholding

PAYG instalments are different. This is the system for prepaying your own income tax quarterly, rather than facing a large lump-sum bill after your annual return is lodged. The ATO automatically enrols you after your first tax return shows a tax liability above the threshold. You pay quarterly instalment amounts — either the ATO’s calculated figure or a varied amount you nominate if your income has dropped. Varying your instalment down must be done before the due date. Understanding this from day one prevents the “surprise” tax bill that catches so many new business owners in their second year.

Payroll Tax — A State Tax That Grows With You

Payroll tax is a state and territory tax on wages paid by employers — it is entirely separate from the PAYG withholding you remit to the ATO. In Victoria, payroll tax applies once your total Australian taxable wages exceed $900,000 per year (the 2024–25 threshold). Most new businesses are well below this level at the start, but the threshold can be reached faster than expected — particularly once certain contractor payments are counted, as arrangements where contractors are effectively engaged on a labour-hire basis can be grouped with wages for payroll tax purposes. The rate and threshold differ by state: NSW, QLD, and SA each operate different settings, and if your business operates across multiple states, you may need to register in each relevant jurisdiction once combined wages exceed the applicable threshold. In Victoria, payroll tax is reported and paid to the State Revenue Office (SRO). Plan for it as you grow — the liability can appear suddenly and be material.

Fringe Benefits Tax (FBT) Registration

If your business provides benefits to employees or their associates that are not cash salary — including a company car available for private use, payment of personal expenses such as school fees or gym memberships, or loans at below-market interest rates — you may be liable for Fringe Benefits Tax. FBT is paid by the employer at a flat rate of 47%. Crucially, the FBT year runs from 1 April to 31 March — not the standard 1 July to 30 June tax year — and FBT returns are due 21 May (or later when lodged through a registered tax agent). Register for FBT with the ATO before you provide any such benefits. The motor vehicle decisions discussed in Section 10 are one of the most common FBT triggers — getting advice on vehicle arrangements before purchase is essential, not an afterthought.

Fuel Tax Credits

If your business uses fuel in heavy vehicles (over 4.5 tonnes) or in off-road machinery and equipment, you’re entitled to claim fuel tax credits. These are claimed on your BAS and can be substantial for trade businesses, transport operators, and those with diesel-powered machinery.

Section 4: Legal Setup — Get It Right Before You Trade

Registering a Company

Register your Pty Ltd company with ASIC via ASIC Connect ($576 registration fee). You’ll need to adopt a constitution (you can use ASIC’s replaceable rules or a solicitor-drafted custom document), establish a share register, issue shares, and appoint directors and a secretary. Your obligations as a director begin immediately — ATO lodgements, PAYG, superannuation — and failing to meet them can result in a Director Penalty Notice making you personally liable for the company’s debts.

Establishing a Trust

A trust deed must be prepared by a solicitor. The deed names the trustee (ideally a corporate trustee — a Pty Ltd company set up for this purpose), the appointor (who has the power to change the trustee), and the classes of beneficiaries. In Victoria, the trust deed must be stamped with the State Revenue Office. The trust’s bank account is opened in the trustee’s name “as trustee for [trust name]” — not in the trust’s name directly, as a trust has no legal personality of its own.

Shareholders’ Agreement — Essential If You Have More Than One Owner

If your business has two or more owners — whether through a company share structure or a trust with multiple unit holders — a shareholders’ agreement (or unitholders’ agreement for a trust) is one of the most important documents you will sign, and it must be in place before you start trading together, not after a disagreement has already begun. This document governs what happens in the situations business partners never want to think about at the start:

• Exit: If one owner wants to leave, what is the process? How is the price determined? Does the remaining owner have first right of refusal before shares can be sold to an outside party?
• Death or incapacity: A buy-sell clause — typically funded by life and TPD insurance on each owner’s life — allows the surviving owners to buy out a deceased or incapacitated partner’s interest at a pre-agreed price, rather than suddenly finding themselves in business with that person’s estate or family.
• Deadlock: When equal shareholders cannot agree on a material decision, what is the resolution mechanism?
• Restraint of trade: If an owner exits and immediately sets up a competing business, what protections apply to the remaining operation?

Have a commercial solicitor draft this before you begin trading. A well-drafted shareholders’ agreement costs a fraction of what a shareholder dispute costs to resolve — and in the absence of one, the Corporations Act default rules apply, which rarely reflect what the parties actually intended.

Set Up Separate Business Bank Accounts — From Day One

Mixing personal and business money is one of the most common and costly mistakes new business owners make. From the moment you start trading, you need at minimum the core business bank accounts every owner needs:

• Business operating account — all income flows in, all business expenses flow out. Nothing else.
• Tax reserve account — transfer approximately 30% of every payment received into this account immediately. This covers GST liability and income tax. This money is not available to spend. Treating it as available is how businesses end up with ATO debt.
• Payroll account (if you have employees) — wages are paid exclusively from this account, keeping payroll visible and auditable.

Watch Mina walk through business bank account setup for Australian small business owners:

https://www.youtube.com/watch?v=GInudl6jcBg

Section 5: Your Premises — Home, Lease, or Own It?

Working From Home

There are two ways to claim home office expenses as a tax deduction, and the difference between them is significant:

• Running costs only (67c per hour method): Covers electricity, internet, stationery, and similar costs. Calculated at 67 cents per hour of business use. This method has no capital gains tax impact on your home.
• Occupancy expenses (proportional method): Covers rent, mortgage interest, rates, and insurance — apportioned by the percentage of the home used for business. This provides a higher deduction but comes with a serious catch: it partially erodes your main residence CGT exemption. When you eventually sell your home, the ATO will tax a proportional share of the capital gain — the share attributable to the period and area used for business.

Many business owners don’t discover this until they’re sitting at a settlement and find a CGT liability on what they believed was a tax-free family home sale. Get advice before you decide which method to use.

Capital Gains: Sole Trader vs Company or Trust — A Critical Difference

This is one of the most important distinctions in Australian tax law, and it’s almost always overlooked at the beginning of a business

Sole trader using personal property commercially: The property sits in your name. Any capital gain on sale is taxed at your marginal rate (up to 47%), although the 50% CGT discount applies if the property was held for 12 months or more. More critically, if you’ve been claiming occupancy expenses, you’ve been progressively eroding your main residence exemption year by year. That exemption could have sheltered 100% of the gain had you not claimed those deductions. Even without formal occupancy claims, if part of your home was exclusively and dedicated to business use (a sealed home office, a workshop), the ATO can still apportion the exemption. The key word is “exclusive” — a room that doubles as a family study does not trigger this.

Company or trust holding commercial premises: At entity level, a company pays 25–30% on any capital gain with no individual 50% discount. A trust, however, can distribute capital gains to individual beneficiaries who do have access to the 50% discount — often producing a dramatically better tax outcome on the sale of commercial property. This is why the entity holding your business premises matters enormously. Get advice before you acquire commercial property, not after. Once the property is in the wrong name, restructuring is expensive and may trigger its own CGT event.

Renting Commercial Premises

If you’re leasing a commercial space, have a commercial lawyer review the lease before you sign. Make-good clauses (obligations to restore the premises at lease end), personal guarantees from directors, and rent review mechanisms are common traps that can cost significantly more than they appear to at the outset. The rental payments themselves are fully deductible business expenses. Note that most commercial leases attract GST for GST-registered landlords — confirm whether the rent quoted is GST-inclusive or exclusive.

Buying Business Property Via Your SMSF

Your Self-Managed Super Fund (SMSF) can purchase commercial property — including a warehouse, office, or retail space — and lease it back to your business at market rent. This is one of the most powerful wealth-building strategies available to established business owners:

• Rent paid by the business is fully tax-deductible
• Rent received by the SMSF is taxed at just 15% (or 0% in pension phase)
• When the SMSF sells the property after holding it for 12+ months, CGT in accumulation phase is 10% — in pension phase, potentially 0%
• You’re effectively renting from yourself while building retirement wealth inside a tax-advantaged structure

This strategy requires specialist SMSF advice and careful compliance with superannuation laws. Seek qualified SMSF guidance before proceeding.

Section 6: Insurances — Non-Negotiable Protection

Insurance is not optional. It’s the difference between a problem and a catastrophe. Here are the key insurances every new business owner should have in place before trading:

Public Liability Insurance

Covers injury or property damage caused to third parties — a client who slips in your office, a customer whose property you damage during a job. Most landlords, councils, and large clients require evidence of public liability cover before you can even start work. This is almost always the first insurance a new business needs.

Professional Indemnity Insurance

Covers claims arising from professional advice, design, or services — a client who suffers a financial loss as a result of advice you gave. Essential for consultants, accountants, architects, engineers, financial planners, and IT professionals. Often required by professional bodies as a condition of membership.

Workers Compensation

Mandatory in Victoria as soon as you employ any worker — full-time, part-time, or casual. Workers compensation covers employees injured at work, including medical costs and lost wages. Managed through WorkSafe Victoria. Premiums are calculated based on your payroll and industry classification. Failing to hold a policy is a serious offence.

Key Person Insurance

If you are the primary revenue generator in the business, what happens if you’re hospitalised for three months? Key person insurance pays the business a benefit to cover lost revenue, loan repayments, or the cost of bringing in a replacement while the key person is unable to work. This is particularly critical for sole-owner professional services businesses where the entire revenue stream is dependent on one person’s capability and availability.

Income Protection (Personal)

Protects your personal income if you’re unable to work due to illness or injury. Unlike employees, business owners have no sick leave, no employer-funded total and permanent disability cover, and no workers compensation for themselves. Income protection is often most cost-effective when held inside superannuation. Business owners are uniquely exposed — this cover should be in place from day one.

We can refer you to trusted specialist insurance brokers in our network. Speak with us at your strategy consultation.

Section 7: Employing People — Staff vs Contractors

The ATO’s Worker Classification Test

The distinction between an employee and a contractor is not determined by what you call them, whether they have an ABN, or whether they invoice you. The ATO applies a multi-factor test that looks at the whole relationship:

• Degree of control: Who directs how and when the work is done?
• Integration: Is the worker integrated into the business, or are they running their own operation?
• Financial risk: Who bears the financial risk if the work is unsatisfactory?
• Tools and equipment: Who supplies them?
• Ability to subcontract: Can the worker delegate the work to someone else?

Misclassifying a worker as a contractor when they are legally an employee exposes you to back-payment of superannuation, PAYG withholding, and penalties. The ATO actively audits this area.

Superannuation Guarantee Obligations for Employees

The Superannuation Guarantee (SG) rate for FY 2025-26 is 11.5%, rising to 12% from 1 July 2026. Super must be paid quarterly by the due dates — 28 October, 28 January, 28 April, and 28 July. Paying even one day late triggers the Super Guarantee Charge (SGC), which is not tax deductible and attracts additional penalties. From 2026, the payday super reforms change when super must be paid, so it is worth getting your payroll cycle right. Understand the consequences — read our full guide to the Super Guarantee Charge.

Super Obligations for Contractors

This is one of the most commonly misunderstood areas of employment tax law. If a contractor works principally for your business and is operating as an individual or sole trader (not through their own company or trust), you likely owe them superannuation at the SG rate — even if they invoice you, even if they have an ABN. If the contractor operates through their own company or trust, SG generally does not apply to the company or trust. Get this wrong and you face the same SGC consequences as a missed employee super payment. For a detailed breakdown, read our guide to super obligations for contractors and subcontractors.

The Paperwork: What You Need Before Day One of Employment

• TFN declaration form from each employee
• Superannuation Standard Choice Form
• Fair Work Information Statement (mandatory to provide to all new employees)
• Single Touch Payroll (STP) registration — mandatory for all employers from their first pay event

Fair Work Obligations

You must understand your industry award or enterprise agreement and pay at minimum the award rates for the relevant classification. The National Employment Standards (NES) set minimum entitlements that apply to all employees — including notice periods, annual leave, personal leave, and redundancy entitlements. Unfair dismissal protections apply after a qualifying period — document any performance issues and follow a fair process.

Section 8: Your Own Superannuation as a Business Owner

Business owners are acutely focused on growing their business — and almost universally neglect growing their super. This is one of the most common retirement planning failures we see. Unlike employees, no one is automatically paying super on your behalf unless you set it up yourself.

If You’re a Director Drawing a Salary

If you pay yourself a salary or wage through your company, the company must pay SG contributions on that salary — the same obligation as for any employee. Beyond the mandatory SG, consider salary sacrificing additional amounts into super up to the concessional contributions cap of $30,000 per year (including the SG amount). Contributions within this cap are taxed at just 15% inside super — significantly lower than most business owners’ marginal tax rates.

Personal Deductible Contributions

If you’re self-employed or your employer contributions fall short of the $30,000 concessional cap, you can make personal contributions to super and claim them as a tax deduction. Submit a valid notice of intent to your fund before lodging your tax return. The deduction reduces your assessable income — an effective way to fund your retirement while reducing your tax bill.

SMSF for Business Owners

A Self-Managed Super Fund gives you full control over your investment strategy — including the ability to purchase business real property and lease it back to your business (as discussed in Section 5). Setup and ongoing compliance costs are higher than retail or industry funds; an SMSF generally becomes cost-effective from approximately $250,000 in total member balances. An SMSF requires a licensed auditor annually and comprehensive record-keeping. The flexibility and tax efficiency available to business owners through an SMSF are unmatched — but it must be managed properly.

Section 9: Set Up Your Finances

Accounting Software: Before You Trade, Not After

Set up cloud accounting software before your first transaction, not six months in. At Pinnacle, we recommend Xero to every new business client — and for good reason. Xero connects directly to your Australian bank accounts via automated bank feeds, so transactions flow in automatically and you’re reconciling in real time rather than scrambling at quarter end. BAS preparation is largely automated, your bookkeeper and accountant can access the same live file simultaneously without emailing spreadsheets back and forth, and you have a clear snapshot of your profit and cash position any time you log in. It also makes it straightforward to give your accountant direct access to your books — no file transfers, no version conflicts. For a step-by-step look at how Xero’s core reconciliation workflow operates, see our Xero bank reconciliation guide for Australian businesses. Clean, real-time records from day one give you:

• Instant visibility of your profit and cash position at any time
• Automated BAS preparation — no scrambling at quarter end
• Meaningful management reports that tell you where the business actually stands
• A clean audit trail if the ATO ever asks questions

Engage a Bookkeeper From Day One

DIY bookkeeping is one of the most expensive forms of false economy in small business. A competent bookkeeper costs $500–$1,500 per month depending on complexity. The cost of fixing 12 months of incorrect bookkeeping — and the consequential cost of tax decisions made on the basis of wrong numbers — is almost always significantly higher. Your time spent doing your own books is time not spent generating revenue. Outsource it from the start.

ATO Record-Keeping Requirements

The ATO requires business records to be kept for five years. This includes all invoices, receipts, contracts, bank statements, and payroll records. Cloud storage linked directly to your accounting software is the modern standard — attach receipts as they happen via mobile apps, rather than trying to reconstruct everything at tax time from a box of paper.

Understanding Your Business Activity Statement

If you’re registered for GST, you lodge a BAS quarterly (or monthly for turnovers over $20 million). Your BAS summarises GST collected on sales, GST paid on purchases (input tax credits), PAYG withholding you’ve deducted from employee wages, and PAYG instalments you’re prepaying on your own income. The net figure is what you pay or receive. BAS is due 28 days after the end of each quarter — this deadline is extended by one month when you lodge through a registered tax agent, which is a practical reason to engage one from day one.

Section 10: Tax Planning, Digital Presence and Other Essentials

Tax Plan From Day One — Not June

The single biggest tax planning mistake new business owners make is waiting until after 30 June to think about tax. By then, almost every strategy is off the table. Effective tax planning happens throughout the year — particularly in the March-to-June quarter. Work with your accountant quarterly to understand your estimated tax position, make informed decisions about distributions, super contributions, timing of deductible asset purchases, and prepayments. Our tax planning service is built specifically for business owners who want to be proactive, not reactive.

Division 7A — The Trap Inside Every Company

Division 7A is one of the most frequently triggered — and most expensive — tax traps for new Pty Ltd directors. If you take money from the company for personal use without a formal complying loan agreement, the ATO treats it as an unfranked dividend — taxable at your full marginal rate, with no franking credits to offset it. This applies even to informal “I’ll put it back” arrangements. Establish proper loan agreements from day one. Review them annually with your accountant. The consequences of getting this wrong are significant.

Motor Vehicle Decisions

Who purchases the vehicle, how it’s financed, what it’s used for, and what logbook records you maintain all affect what you can legitimately claim. The differences between personal and business ownership, chattel mortgage and novated lease, and the logbook method vs the cents per kilometre method can add up to thousands of dollars in additional tax annually. See our detailed guide to car tax deductions for the full breakdown.

Digital Marketing — Be Findable

Once your structure, registrations, and finances are in place, your next priority is visibility. In 2026, a business without a strong digital presence is effectively invisible to potential customers doing online research. A professional digital marketing agency that understands small business can build your Google presence, social media strategy, and paid advertising — ensuring the business you’ve worked hard to set up actually gets found. We work closely with trusted digital marketing partners and can refer you to professionals who understand your market.

Build Your Advisory Team Early

Certain decisions require specialist legal, financial planning, or insurance advice — structuring, SMSF setup, business sale, partnership agreements, and key person coverage all fall into this category. The business owners who navigate these decisions best are the ones who built their advisory team before they needed it. The combination of a trusted accountant, solicitor, financial planner, insurance broker, and digital marketing specialist is the infrastructure of a well-run business. We can connect you with professionals we trust across all of these disciplines.

Starting a business is one of the most significant financial decisions you will ever make. Getting the foundations right — structure, registrations, insurance, superannuation, and tax planning — from the very beginning saves years of expensive corrections. Mina and the team at Pinnacle Accounting & Advisory work with Melbourne small business owners from before day one through to sale and succession. Book a consultation to get your foundations right.

General Advice Warning: The information provided in this article is general in nature and does not constitute personal financial, tax or legal advice. It has been prepared without taking into account your personal objectives, financial situation or needs. Before acting on this information, you should consider its appropriateness having regard to your own circumstances. Pinnacle Accounting & Advisory is not a licensed financial adviser. For advice tailored to your situation, please contact us directly.

Frequently Asked Questions

This article contains general advice only and does not take into account your specific circumstances. Please speak with a qualified accountant or tax adviser before making financial decisions.

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If you’re planning to sell your business — or even just thinking about it — there’s a set of tax concessions that could save you hundreds of thousands of dollars in Capital Gains Tax. Most small business owners have never heard of them. The Australian Taxation Office calls them the small business CGT concessions, and when applied correctly, they can reduce a capital gain of $700,000 down to zero. Legally.

But here’s the catch: accessing these concessions requires planning. In some cases, you need to have owned the asset for 15 years. You need the right structure in place. And you need to understand the basic conditions before you’re anywhere near a sale — which is exactly why this guide exists.

Whether you’re selling in two years or ten, this is the most important tax planning topic you’ll encounter as a small business owner. At Pinnacle Accounting & Advisory, Mina Baselyous (CPA + CTA) works with Melbourne business owners to structure their affairs well before any sale — because the difference between good planning and no planning can be measured in hundreds of thousands of dollars.

What Are the CGT Small Business Concessions?

The CGT small business concessions are four powerful tax concessions contained in Division 152 of the Income Tax Assessment Act 1997. They exist specifically for small business operators and allow you to reduce — or completely eliminate — Capital Gains Tax when you sell a qualifying business asset.

These concessions are separate to the general 50% CGT discount available to individual taxpayers who hold an asset for 12 months or more. The small business concessions can be stacked on top of the general discount, which is where the real power lies. A gain that might otherwise trigger a massive tax bill can be reduced to nil through careful application of the right concessions in the right order.

The four concessions under Division 152 are:

• The 15-year exemption (Division 152-B)
• The 50% active asset reduction (Division 152-C)
• The retirement exemption (Division 152-D)
• The small business rollover (Division 152-E)

Before you can access any of them, you must first satisfy the basic conditions.

The Basic Conditions — Who Qualifies?

The ATO requires two layers of basic conditions to be satisfied before any CGT small business concession can be applied. Get these wrong and none of the four concessions are available. Get them right and you open the door to potentially life-changing tax savings.

Condition 1: The Entity Size Test

You must satisfy at least one of the following:

• Maximum net asset value (MNAV) test: The total net assets of your entity, plus the net assets of any connected entities and affiliates, must be $6 million or less at the time of the CGT event
• Small business entity test: Your entity’s aggregated annual turnover must be less than $10 million (from 1 July 2016 onwards)

The net asset value test catches many business owners by surprise. It’s not just the value of the business itself — it includes assets held by connected entities and affiliates. If you’ve built significant personal wealth over the years (investment properties, share portfolios, other business interests), these can count towards the $6 million threshold. Business owners with more than $10 million in aggregated turnover who also exceed $6 million in net assets will not qualify.

Always verify the current thresholds with the ATO’s small business CGT concessions page before proceeding, as these figures are subject to legislative change.

Condition 2: The Active Asset Test

The asset being sold must be an active asset — one that is used (or held ready for use) in the course of carrying on a business by you or a connected entity. For shares in a company or interests in a trust, at least 80% of the entity’s assets must be active assets at the time of sale.

The asset must also have been active for at least half of the total ownership period. For assets owned for more than 15 years, the requirement is that it was active for at least 7.5 years.

Passive investment assets generally don’t qualify — vacant land held purely for capital growth, for example, or financial instruments in a listed company. The type of entity through which you hold your business assets significantly affects whether you satisfy these conditions. This is why choosing the right business structure from the outset is so important for long-term tax planning.

The Four CGT Small Business Concessions Explained

1. The 15-Year Exemption (Division 152-B) — The Best Concession Available

This is the most powerful of all the small business CGT concessions. Under the 15-year exemption, the entire capital gain is tax-free — it doesn’t enter your assessable income at all. But three conditions must all be met:

• You’ve continuously owned the business asset for at least 15 years
• You’re aged 55 or over at the time of the CGT event
• You’re retiring or are permanently incapacitated

The retirement requirement is less restrictive than it sounds. It doesn’t mean formal retirement from all employment — it means retiring from a substantial involvement in the relevant business. If you’re selling the business and stepping back from an active role, you’ll typically satisfy this condition.

For shares in a company or interests in a trust, the entity must have satisfied either the small business entity test or the maximum net asset value test for periods totalling at least 15 years during your ownership period.

If you qualify for the 15-year exemption, you don’t need to apply any other concession. The entire gain — regardless of its size — is completely exempt. This is why long-term planning matters so much: if you’re 48 today and have owned your business for 10 years, you could be five years away from a completely tax-free exit. For how these concessions fit into a full exit, see our guide to selling your business in Australia.

Under 55? This exemption is unavailable to you. Consider the CGT retirement exemption instead.

2. The 50% Active Asset Reduction (Division 152-C)

The most flexible of the four concessions — no age requirement, no retirement condition, no long minimum ownership period. If the CGT event happens to an active asset and you satisfy the basic conditions, you can reduce your capital gain by 50%.

For individual taxpayers, this concession is typically applied after the general 50% CGT discount (for assets held 12 months or more). The combined effect is significant:

• $500,000 capital gain
• Less 50% general CGT discount = $250,000
• Less 50% active asset reduction = $125,000 taxable gain

That’s a 75% reduction in the taxable gain before applying any other concession. For individual business owners, the combination of the CGT discount and active asset reduction is the standard starting point for CGT planning on a business sale.

An important note for companies and trusts: The general 50% CGT discount is not available to companies. Trusts must distribute capital gains to individual beneficiaries to access it. However, the 50% active asset reduction still applies at the entity level — making it valuable even for corporate structures, albeit with a different base calculation.

3. The Retirement Exemption (Division 152-D)

The retirement exemption allows you to exclude up to $500,000 of capital gain from your assessable income over your lifetime. There’s no minimum age to apply this concession — but the rules differ depending on your age at the time:

• Under 55: The exempt amount must be contributed to a complying superannuation fund or retirement savings account at the time you make the choice
• 55 or over: No requirement to contribute to super — you can keep the exempt amount

The $500,000 limit is a lifetime limit. If you’ve used $200,000 of the retirement exemption on a previous business asset sale, only $300,000 remains available for future sales. Keep records of every election you make.

This concession is typically applied after the 50% active asset reduction, meaning the $500,000 exemption applies to an already-reduced gain. The practical effect is that a $500,000 original capital gain can often be reduced to zero after applying the general discount, the active asset reduction, and then the retirement exemption.

For business owners operating through a company or trust structure, the retirement exemption has additional complexity. Specific rules govern which individuals can access the exemption when the sale occurs at the entity level — another reason why the structure of your business matters when planning an exit.

For a full breakdown — including worked examples for under-55 and over-55 owners, the 30-day super contribution rule, and the CGT cap amount explained — see our detailed guide to the CGT retirement exemption.

4. The Small Business Rollover (Division 152-E)

The rollover concession works differently to the other three — it doesn’t eliminate CGT, it defers it. When you sell a qualifying business asset and use the proceeds to acquire a replacement active asset, you can roll the capital gain forward into the cost base of the new asset. The gain is only triggered when the replacement asset is eventually sold.

To qualify, you must acquire the replacement asset within one year before or two years after the CGT event. The gain deferred must be used to acquire a qualifying replacement asset — not simply held as cash.

The rollover is most useful when you’re selling one business and immediately reinvesting in another. It’s the least commonly used of the four concessions — but when reinvestment is the plan, it can provide valuable tax deferral during the transition period.

Watch: CGT Small Business Concessions Explained

Prefer to watch instead of read? In this BusiHealth video, Mina walks through how Australian small business owners can legally reduce or eliminate Capital Gains Tax using the small business concessions:

How to Stack the Concessions — A Worked Example

Let’s walk through a realistic scenario to see how these concessions work together in practice. This is a hypothetical example for illustration purposes — your individual circumstances will differ.

Scenario: Michael is 58 years old and sells his business for $800,000. His cost base is $100,000. He’s owned the business for 12 years (so the 15-year exemption isn’t available). The asset qualifies as an active asset. Michael satisfies the small business entity test via turnover.

• Capital gain: $800,000 − $100,000 = $700,000
• Step 1 — General 50% CGT discount (asset held 12+ months): $700,000 × 50% = $350,000
• Step 2 — 50% active asset reduction: $350,000 × 50% = $175,000
• Step 3 — Retirement exemption (Michael is 58, no super contribution required): Apply $175,000 of the $500,000 lifetime limit = $0 taxable gain

Result: Zero tax on a $700,000 capital gain — legally. Michael used three of the four concessions, leaving $325,000 of his lifetime retirement exemption available for any future business asset sales. Because he’s over 55, he keeps the proceeds without any requirement to contribute to superannuation.

This outcome isn’t exceptional — it’s achievable for many qualifying small business owners. The difference is knowing the concessions exist, understanding the conditions, and having the right structure in place before the sale occurs.

Planning Is Everything — Don’t Wait Until You’re Ready to Sell

This is where most business owners get it wrong. They come to an accountant six months before a sale and ask whether they can access the CGT concessions. Sometimes the answer is yes. But frequently, decisions made years earlier — about business structure, asset ownership, or personal wealth accumulation — have reduced their options or locked them out of the best outcomes entirely.

The 15-Year Clock Starts on Day One

By definition, you can’t access the 15-year exemption at the last minute. If you’ve been in business for 13 years, you’re two years away from a potentially completely tax-free exit — but only if you’re still operating and can satisfy the retirement condition when you sell. Knowing this changes the timing of your exit decision entirely. A two-year difference in sale timing could mean the difference between paying significant CGT and paying none at all.

The Net Asset Value Test Is Assessed at Sale

Business owners who have been highly successful and built significant personal wealth — investment properties, share portfolios, other business interests — sometimes discover they fail the $6 million net asset value test at the time of sale. This can remove one pathway to the basic conditions entirely.

Proactive strategies — such as maximising superannuation contributions over time (super balances are generally excluded from the MNAV test) or restructuring personal asset holdings — can help manage this before it becomes a problem. This is a tax planning conversation, not a last-minute one.

Structure Determines Access

Who owns the business asset — and through which entity — affects which concessions are available and how they operate. Individual business owners, shareholders in a company, and partners in a partnership all face different rules. Company shareholders selling shares can potentially access the 50% CGT discount personally, even though the company itself cannot. Trust distributions of capital gains to individual beneficiaries may unlock concessions that aren’t available at the trust level.

Getting the structure right from the beginning — or restructuring well before a sale — is one of the most valuable things a tax adviser can do for a business owner planning an exit. The ATO has specific rules about lead times for certain restructures, which means acting early is essential. The small business restructure rollover can allow eligible small businesses to change structure without triggering CGT at the time of transfer — a valuable option when you need to restructure your affairs before a planned sale.

Frequently Asked Questions

What is the maximum net asset value for CGT small business concessions?

The maximum net asset value threshold is currently $6 million. This includes the net assets of the entity disposing of the asset, plus the net assets of any connected entities and affiliates. The test is applied at the time of the CGT event — not at the start of the income year. Always confirm the current threshold on the ATO website, as thresholds can change.

Can I use the CGT concessions if I sell shares in my company?

Yes — shares in a company (or interests in a trust) can qualify as active assets, provided the active asset test is satisfied. Broadly, at least 80% of the company’s assets must be active assets. Individual shareholders can then access the concessions when they sell their shares, even though the company itself isn’t the one disposing of a business asset. The structure of the sale — selling shares versus selling business assets — has significant CGT implications, so get advice before proceeding.

Do I need to be an Australian resident to access the small business CGT concessions?

Generally yes — Australian tax residency is required. Non-residents are subject to CGT only on taxable Australian property (such as direct real property interests), and the small business CGT concessions are generally only available to Australian residents at the time of the CGT event. If your residency status has changed recently, seek specific advice before assuming you qualify.

Can a company access the 50% CGT discount?

No. The general 50% CGT discount is not available to companies. It applies to individuals and (in some circumstances) trusts that distribute capital gains to individual beneficiaries. However, a company can access the 50% active asset reduction if it satisfies the basic conditions — the reduction applies to the company’s capital gain, which then affects the amount distributed to shareholders. Individual shareholders who then sell their shares may access the 50% discount personally. This layered analysis is why professional advice is essential.

What if I only qualify for some of the concessions?

You can apply whichever concessions you qualify for, individually and in combination. There’s no requirement to use all four. Many business owners use the 50% active asset reduction and the retirement exemption together and achieve very low or zero CGT without ever needing the 15-year exemption or the rollover. Others use the 15-year exemption alone and eliminate the entire gain. The key is knowing what’s available to you well before the sale occurs.

How long before I sell should I start planning?

Ideally, years — not months. If the 15-year exemption is a goal, you’re already counting down the clock. If you need to manage the net asset value test, personal wealth strategies may need to be in place years before a sale. And if a business restructure is warranted, the ATO has specific rules about minimum holding periods after certain transactions. The practical answer: engage a tax adviser as soon as a future sale is on your horizon, even if it’s five or ten years away. The earlier you start, the more options you have.

General Advice Warning: The information provided in this article is general in nature and does not constitute personal financial, tax or legal advice. It has been prepared without taking into account your personal objectives, financial situation or needs. Before acting on this information, you should consider its appropriateness having regard to your own circumstances. Pinnacle Accounting & Advisory is not a licensed financial adviser. For advice tailored to your situation, please contact us directly.

The CGT small business concessions are among the most powerful — and most underutilised — tax tools available to Australian business owners. A business sale is often a once-in-a-generation wealth event. The difference between arriving at that sale well-prepared and arriving unprepared can be measured in hundreds of thousands of dollars. If you’re considering selling your business in the next five to ten years, the best time to start planning is now. Contact Pinnacle Accounting & Advisory to book a consultation with Mina and find out exactly where you stand.

Frequently Asked Questions

This article contains general advice only and does not take into account your specific circumstances. Please speak with a qualified accountant or tax adviser before making financial decisions.

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If you’ve just received a letter from the Australian Taxation Office with the words “Director Penalty Notice” at the top, stop what you are doing and read this. You are now personally on the hook for your company’s tax debts — and the clock is already ticking.

A Director Penalty Notice (DPN) is one of the most powerful debt-recovery tools the ATO has. It cuts straight through the corporate veil — the legal protection that normally keeps your personal assets separate from your company’s debts. Issued more aggressively since COVID-19 sent Australian business tax debt soaring, DPNs can result in the ATO chasing your personal bank accounts, property, and superannuation if you don’t act immediately.

In this guide, I’ll explain exactly what a Director Penalty Notice is, the critical difference between the two types (one gives you options, the other doesn’t), who is at risk, and what you must do within 21 days of receiving one.

What Is a Director Penalty Notice?

A Director Penalty Notice is a formal notice issued by the ATO under the Taxation Administration Act 1953. When a company fails to meet certain tax obligations, the ATO can issue a DPN to the company’s directors, making them personally liable for those debts.

This is not a threat or a warning — it is a legal instrument that shifts the company’s tax debt directly onto you as an individual. The corporate structure that normally protects your personal assets offers no shelter here. The ATO designed DPNs specifically to prevent directors from walking away from tax obligations by winding up one company and starting another.

The ATO has significantly ramped up DPN activity post-COVID. With total collectable tax debt exceeding $50 billion and small business accounting for the majority, the ATO has made director personal liability a central part of its debt recovery strategy. For the wider picture beyond DPNs, see our guide on how ATO debt collection and Director Penalty Notices are ramping up in 2026. If your company has fallen behind on lodgements or payments, a DPN may already be on its way.

Which Tax Debts Can Trigger a DPN?

Not every tax debt can trigger a Director Penalty Notice. The regime applies specifically to:

• PAYG Withholding — The amounts your company withholds from employee wages and must remit to the ATO. These funds legally belong to the ATO from the moment they are withheld — they are trust funds, not company money.
• Super Guarantee Charge (SGC) — If your company fails to pay the correct superannuation to employees on time, the ATO converts the obligation into an SGC liability, which is covered by the DPN regime (since 2012).
• GST — For certain company types, unpaid GST can also trigger a DPN (extended since 2020).

Importantly, regular company income tax is NOT covered by the Director Penalty Notice regime. If your company owes income tax and nothing else, you cannot personally be held liable under a DPN. It is the “trust-style” obligations — money your company holds on behalf of the ATO — that attract personal liability.

Struggling to meet your superannuation obligations? Our tax planning services can help you get on top of compliance before the ATO takes action.

The Two Types of DPN — This Is the Critical Distinction

There are two types of Director Penalty Notice, and the difference between them determines whether you have any way out. Getting this wrong is one of the most expensive mistakes a director can make.

1. Non-Lockdown DPN — You Have Options (But Only 21 Days)

A Non-Lockdown DPN applies when your company has lodged its BAS, IAS, or SGC statements on time — but hasn’t paid the amounts owing. Because the ATO knows exactly what is owed (the lodgements are in), it gives the director a set of escape routes.

If you receive a Non-Lockdown DPN, you have 21 days from the date on the notice (not the date you receive it) to take one of the following actions to escape personal liability:

1. Pay the debt in full — the most direct option
2. Appoint an administrator to the company
3. Begin a Creditors’ Voluntary Liquidation (CVL)
4. Appoint a receiver or controller over the company’s assets

If you do nothing — or miss the 21-day window — you become personally liable for the debt. The ATO can then pursue you personally for the full amount.

2. Lockdown DPN — There Is No Escape

A Lockdown DPN is significantly more serious. It applies when your company failed to lodge its BAS, IAS, or SGC statements within three months of the due date. Because the ATO doesn’t know what is owed (the lodgements were never submitted), it cannot give you the option to wind up the company and walk away.

With a Lockdown DPN, the director is automatically and permanently personally liable for the debt. Appointing an administrator or going into liquidation does not help — the personal liability stays with you regardless of what happens to the company.

Your only realistic options when facing a Lockdown DPN are:

• Pay the debt in full
• Negotiate a payment arrangement directly with the ATO
• Seek specialist insolvency advice about your personal financial position

This is why lodging your BAS on time — even when you cannot pay — is absolutely critical. A company that lodges but can’t pay faces a Non-Lockdown DPN with escape routes. A company that doesn’t lodge faces a Lockdown DPN with no way out for its directors.

Two Real-World Examples

These scenarios play out in accountants’ offices across Melbourne every week. Here’s how the two DPN types differ in practice:

Example 1 — Lockdown DPN (the worst case): A company is four months behind on its BAS lodgements. The ATO has no idea how much PAYG or GST the company owes. The ATO issues a Lockdown DPN to the director. The director is now permanently personally liable for the full PAYG and GST debt — regardless of whether the company is later wound up, sold, or restructured. There is no 21-day window to escape. The director owes the debt personally.

Example 2 — Non-Lockdown DPN (options available): A company lodges its BAS on time but can’t pay due to cash flow problems. The ATO issues a Non-Lockdown DPN. The director has 21 days to appoint an administrator. The administrator is appointed within that window, and the director successfully escapes personal liability for the company’s PAYG debt. The company enters administration — but the director’s personal assets are protected.

The difference between these two outcomes? A single lodgement.

Watch: DPN Explained by Mina Baselyous

Prefer to watch rather than read? Mina walks through exactly how Director Penalty Notices work and what directors must do to protect themselves in this BusiHealth episode:

Who Can Receive a Director Penalty Notice?

Any director of a company registered with ASIC can receive a DPN — including directors of small family businesses and single-director Pty Ltd companies. The ATO’s definition of “director” is broader than most people realise:

• Formal directors — anyone named as a director in the company’s ASIC records
• Shadow directors — people who are not formally registered as directors but whose instructions the formal directors habitually follow
• De facto directors — people who act as directors even though they’ve never been formally appointed

There are two important situations involving director changes:

Resigning directors: If you resign as a director after a DPN has already been issued — or after a DPN is reasonably in the mail — your resignation does not release you from liability. The DPN liability attaches at the time the notice is issued (or deemed to be received), not when you later resign.

New directors: If you have recently been appointed as a director of a company that already had pre-existing PAYG, SGC, or GST debts, you are potentially liable for those debts unless you resign within 30 days of your appointment. This 30-day window is critical — if you discover the company has pre-existing tax compliance problems after joining the board, you must act immediately. Keep accurate records of your appointment date.

Note: Trust beneficiaries and unit holders in a trust are NOT directors of a company — they cannot receive a DPN simply by virtue of holding trust interests. DPNs apply only to directors of companies registered under the Corporations Act.

Keeping your ASIC registrations current is also part of staying compliant — read our guide to ASIC annual review fees and business registration obligations.

What to Do If You’ve Received a Director Penalty Notice

This is an emergency. Treat it like one.

The 21-day countdown starts from the date printed on the notice — not the day you open it. If the notice was posted three days ago and you’re only reading it now, you’ve already lost three days. Move immediately.

Here is what to do the moment you identify a DPN:

1. Call your accountant and lawyer immediately — Do not attempt to resolve this without professional advice. The consequences of getting this wrong are personal financial ruin.
2. Identify which type of DPN it is — Check whether the debts relate to lodgements that were submitted on time. If the BAS/SGC were lodged, you may have a Non-Lockdown DPN with escape options. If they weren’t, it’s likely a Lockdown DPN.
3. Do not ignore the notice — Ignoring a DPN does not make it go away. After 21 days, the ATO can pursue you personally in the same way it would pursue any tax debtor.
4. Consider your options — If it’s a Non-Lockdown DPN, discuss with your advisers whether paying, appointing an administrator, or beginning a CVL is the right course. If it’s a Lockdown DPN, focus on negotiating a payment arrangement with the ATO or seeking insolvency advice.
5. Check for payment plan eligibility — Even if you cannot pay in full, the ATO may be willing to enter a payment arrangement. This is particularly relevant for Non-Lockdown DPNs where the underlying debt is known and manageable.

Need urgent help? Contact Pinnacle Accounting & Advisory today — Mina works directly with clients facing ATO compliance issues, including DPN situations, to find the best possible path forward.

How to Protect Yourself as a Company Director

The best Director Penalty Notice is the one that never arrives. Here is how to ensure you never find yourself in this situation:

Always Lodge on Time — Even When You Can’t Pay

This is the single most important rule. The difference between a Non-Lockdown DPN (which has escape routes) and a Lockdown DPN (which has none) is whether your BAS/IAS/SGC statements were lodged within three months of their due date.

If your company is struggling with cash flow, lodge the return anyway and then contact the ATO to discuss a payment plan. A company that lodges but can’t pay is in a far better position than one that doesn’t lodge at all.

Never Let PAYG Withholding Accumulate

PAYG withholding is money you collect on behalf of the ATO from your employees’ wages. The moment it is withheld, it belongs to the ATO — not your company. Treating it as working capital is both illegal and a guaranteed path to a DPN. Keep it separate and remit it on schedule without exception.

Don’t Resign in Haste

If you suspect a DPN is coming, resigning as a director will not help you — and may actually complicate matters. The liability attaches when the DPN is issued or when the conditions for a Lockdown DPN are met. Resigning after that point does nothing to remove your personal liability. If you are considering resignation, get legal advice first.

Act Early When Cash Flow Deteriorates

A DPN is rarely a surprise to an experienced accountant who is watching the numbers. If your company is consistently behind on its tax obligations, struggling to meet payroll, or accumulating ATO debt, that is the time to get specialist advice — not when the DPN arrives. Early intervention provides the most options and the lowest cost.

Our Virtual CFO service provides proactive cash flow management and ATO compliance monitoring so you never fall into DPN territory in the first place.

New Director? Act Within 30 Days if There Are Pre-Existing Debts

If you are newly appointed to a company’s board, immediately review the company’s ATO compliance position. Check whether there are outstanding PAYG, SGC, or GST obligations that predate your appointment. If you discover significant pre-existing debts, you have 30 days from your appointment to resign and avoid personal liability for those debts. After 30 days, you are as liable as any other director.

Frequently Asked Questions About Director Penalty Notices

Can I escape a Director Penalty Notice by resigning as director?

No. Resigning after a DPN has been issued — or after the conditions for a Lockdown DPN have been triggered — does not remove your personal liability. The only exception is for new directors who resign within 30 days of appointment and had no involvement in creating the pre-existing debts. If you are thinking about resigning because you’ve received a DPN or suspect one is coming, speak to a lawyer before doing anything.

Does a Director Penalty Notice affect my personal credit rating?

Not immediately — but if the ATO pursues the debt through the courts and obtains a judgment against you personally, that judgment can be registered as a default and will appear on your personal credit file. This can affect your ability to obtain a mortgage, personal loan, or business finance. Acting quickly to resolve a DPN before it escalates to court proceedings protects your credit profile.

Can I negotiate the amount on a Director Penalty Notice?

The amount on a DPN is fixed — it reflects the company’s underlying tax liability, which you cannot dispute simply by disagreeing with the figure. However, for Non-Lockdown DPNs, the ATO will sometimes consider a payment plan that allows you to meet the obligation over time rather than all at once. The ATO can also, in limited circumstances, consider a compromise or write-off — but this requires a formal application and specialist advice. Payment plans are generally not available for Lockdown DPNs where the personal liability is permanent.

What if there are multiple directors in the company?

Each director is jointly and severally liable for the full amount of the DPN. This means the ATO can pursue any one director for the full debt — not just their proportional share. If you are one of three directors and the other two cannot pay, the ATO can recover the entire debt from you alone. You may have a right to seek contribution from the other directors afterward, but that is a separate civil matter.

How much time do I have to respond to a Director Penalty Notice?

You have 21 days from the date printed on the notice — not the date you receive it, and not the date you open it. This is a strict deadline. If the notice is dated last Thursday and you’re reading it today, you need to act now. Do not wait for a second reminder — there won’t be one.

Can I go to jail for not paying a Director Penalty Notice?

The debt itself is a civil matter — the ATO pursues unpaid DPN debts through the civil courts, not criminal prosecution. However, if the underlying conduct involved fraud, intentional tax evasion, or falsified records, separate criminal penalties can apply under Australian tax law. Honest directors who simply could not pay are facing a civil debt, not criminal charges — but that civil debt can still result in bankruptcy and the loss of personal assets.

General Advice Warning: The information provided in this article is general in nature and does not constitute personal financial, tax or legal advice. It has been prepared without taking into account your personal objectives, financial situation or needs. Before acting on this information, you should consider its appropriateness having regard to your own circumstances. Pinnacle Accounting & Advisory is not a licensed financial adviser. For advice tailored to your situation, please contact us directly.

A Director Penalty Notice is not the end — but it demands immediate, expert action. Whether you’ve already received one or you’re concerned your company’s compliance position might put you at risk, the right time to act is right now. Contact Pinnacle Accounting & Advisory and speak with Mina directly about your situation.

Frequently Asked Questions

This article contains general advice only and does not take into account your specific circumstances. Please speak with a qualified accountant or tax adviser before making financial decisions.

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Paying your employees’ superannuation a single day after the due date is enough to trigger a significant tax penalty — one that, unlike regular super contributions, you cannot deduct. For Australian employers, the Super Guarantee Charge (SGC) is one of the most costly and least understood compliance traps in the tax system.

Each quarter, thousands of businesses miss the super deadline — sometimes by weeks, sometimes by just a handful of days. Many don’t even realise they’ve entered SGC territory until the ATO makes contact. By that point, the cost has already ballooned: the shortfall itself, 10% nominal interest calculated from the start of the quarter, and a $20 administrative fee per employee, all of it non-deductible.

This guide explains exactly what the Super Guarantee Charge is, when it applies, how the ATO finds out, and — most importantly — what you can do to protect your business from it.

What Is the Super Guarantee Charge?

The Super Guarantee Charge is a penalty the Australian Taxation Office imposes on employers who fail to pay the correct amount of superannuation guarantee (SG) by the required quarterly due date. It is not simply a late-payment interest charge — it is a structured penalty with three distinct components that quickly escalate the cost beyond the original missed super.

The SGC is calculated as follows:

• Shortfall amount — the difference between what you were required to pay and what you actually paid (or paid late) into the employee’s super fund
• Nominal interest — 10% per annum, calculated from the first day of the quarter in which the shortfall occurred (not from the due date)
• Administrative component — $20 per employee per quarter where a shortfall exists

The total SGC is paid to the ATO — not directly to your employee’s super fund. The ATO redirects the shortfall component (minus administration fees) to the employee’s nominated fund or the Superannuation Holding Accounts Reserve (SHAR) if a fund cannot be identified.

The single most important thing to understand: SGC is not tax deductible. Ordinary super contributions made on time are fully deductible as a business expense. The SGC is not. You lose the deduction, pay 10% interest from the start of the quarter, pay the admin fee, and still have to lodge additional paperwork with the ATO.

Super Guarantee vs Super Guarantee Charge — What Is the Difference?

These two terms are often confused, so it is worth being precise.

The Super Guarantee (SG) is the legal obligation on employers to contribute a percentage of an eligible employee’s ordinary time earnings into a complying super fund. The rate for FY 2025–26 is 11.5%, rising to 12% from 1 July 2026. If you are unclear on which workers attract this obligation — including contractors — see our guide on super obligations for contractors and subcontractors.

The Super Guarantee Charge (SGC) is the penalty that arises when you fail to meet the SG obligation — whether through non-payment, underpayment, or late payment. Even a single dollar short or one day late can trigger the full SGC regime for that quarter.

When Does the Super Guarantee Charge Apply?

The SGC applies when super is not paid in full, to the correct fund, by the quarterly due date. The due dates are:

Quarter	Period	SG Due Date
Q1	1 July – 30 September	28 October
Q2	1 October – 31 December	28 January
Q3	1 January – 31 March	28 April
Q4	1 April – 30 June	28 July

There is no grace period. If the payment has not cleared into the employee’s fund by the due date, SGC liability is triggered. Many employers process the payment on the due date through payroll software, not realising that SuperStream typically takes three to five business days to complete. The payment must reach the fund by 28 October, not merely be initiated.

SGC can be triggered by any of the following:

• A complete failure to pay super for the quarter
• Underpayment — even if just $1 short of the required amount
• Late payment — even by one day
• Payment to the wrong super fund
• Payment to an employer-sponsored fund that does not accept contributions for that employee

Paying to the wrong fund is treated the same as not paying at all. If an employee has nominated a specific fund and you pay into a different one, SGC applies — even if the amount was correct and on time.

How Does the ATO Find Out About Late or Missing Super?

Many employers underestimate the ATO’s visibility here. The ATO has multiple data streams to detect SG shortfalls, and its matching capability has improved substantially since the introduction of Single Touch Payroll.

Single Touch Payroll Data Matching

Every time you run payroll via STP-enabled software, the ATO receives real-time data on wages and super entitlements. This is cross-matched against SuperStream clearing house records showing when super is actually received by funds. A gap between STP-declared wages and fund-received super is an automatic flag in the ATO’s systems.

Employee Complaints

Employees can check their super balance in near real-time via myGov. If an employee sees that super has not been paid on time, they can report it directly to the ATO through online services. These reports trigger a formal employer review.

ATO Audits and Employer Reviews

The ATO conducts both random and targeted employer reviews, particularly in industries with high non-compliance rates: hospitality, construction, retail, and cleaning. The ATO’s SGC guidance makes clear that it actively pursues shortfalls identified through data matching.

Income Tax Return Cross-Matching

The ATO cross-checks super deductions claimed in company or trust tax returns against fund receipt records. Claiming a super deduction for a late or misdirected payment surfaces during standard tax return processing.

The takeaway: if you have an underpayment, there is a meaningful chance the ATO will find it. The question is whether they find it before or after you disclose it voluntarily — and that distinction has major implications for the penalties you will face.

Consequences of the Super Guarantee Charge

The consequences of SGC go well beyond the charge itself. Here is what employers face once a shortfall is identified.

Lodging an SGC Statement

If you have an SG shortfall for any quarter, you are legally required to lodge an SGC statement with the ATO. This is separate from your BAS and is how the ATO calculates the charge owed. The penalty for not lodging is up to 200% of the SGC amount — meaning the ATO can effectively triple the cost if you fail to report the shortfall.

General Interest Charge

If the SGC remains unpaid after lodgement, the General Interest Charge (GIC) continues to accrue on the outstanding balance. The GIC rate is published quarterly by the ATO and generally sits in the 10–12% per annum range, compounding daily.

Director Penalty Notices

For companies, the ATO can pursue directors personally for unpaid SGC via a Director Penalty Notice (DPN). A DPN makes directors personally liable for the company’s SGC debt, bypassing the usual corporate liability protection. Personal assets — including your family home — can be at risk if the company fails to pay. The ATO can issue DPNs for SGC that has been reported but not paid, and for SGC that has not been reported at all, with different rules applying to each scenario.

Criminal Penalties

In serious cases of repeated or deliberate non-compliance, the ATO can refer matters for criminal prosecution. Wilful non-payment of super is treated significantly more harshly than inadvertent errors. A pattern of late payments that suggests deliberate avoidance is the ATO’s primary escalation trigger.

How to Avoid the Super Guarantee Charge

Allow for SuperStream Processing Time

The most common cause of accidental SGC liability is initiating super on or close to the due date without accounting for clearing house processing time. SuperStream takes three to five business days. If you initiate on 25 October, it may not clear until 30 October — four days past the Q1 deadline.

Rule of thumb: initiate super payments at least five business days before the quarterly due date.

Use the ATO’s Small Business Superannuation Clearing House

The Small Business Superannuation Clearing House (SBSCH) is a free ATO service for businesses with 19 or fewer employees, or aggregated annual turnover under $10 million. It allows a single payment distributed to multiple funds. Note: the payment must be received by the SBSCH by the due date — not just initiated.

Automate Super Through Your Payroll Software

Modern payroll software can automate super calculations and initiate payments on a fixed schedule. Setting super to pay automatically on, say, the 20th of the month following each quarter-end builds in a buffer and removes the risk of human error or simple forgetfulness.

Verify Employee Fund Details Before Processing

Payment to the wrong fund is a surprisingly common SGC trigger. Verify each new employee’s super fund details through SuperStream’s fund lookup or your clearing house. If an employee updates their fund mid-year, update your payroll records immediately.

Reconcile Super Each Quarter

Before the due date each quarter, reconcile your super calculations against payroll records. Confirm the SG percentage applies to ordinary time earnings (not total earnings, which may include overtime). A 30-minute quarterly reconciliation can save thousands in SGC costs. For broader compliance obligations, see our guide on ASIC annual review fees and business registrations.

What If You Have Already Missed a Super Payment?

Lodge an SGC Statement Voluntarily and Immediately

Do not wait for the ATO to contact you. Voluntary disclosure made before the ATO initiates contact typically results in significantly reduced penalties — in many cases the 200% lodgement penalty can be remitted entirely. The SGC statement can be lodged through the ATO Business Portal or via your registered tax agent.

Pay the SGC as Quickly as Possible

The longer the SGC remains unpaid after lodgement, the more GIC accrues. Pay the calculated amount as soon as possible. If you cannot pay in full, contact the ATO to discuss a payment plan.

Check for ATO Amnesty Programs

The ATO has run SGC amnesty programs in the past — most recently in 2019–2020 — where employers could disclose historical shortfalls without the usual 200% penalty. At the time of writing no active amnesty exists, but speak with your accountant about current penalty relief provisions that may apply.

Review Your Systems to Prevent Recurrence

A one-off miss is understandable. A pattern of late payments attracts much harsher ATO treatment. After resolving the current shortfall, implement payroll automation and set calendar reminders well in advance of due dates. The Pinnacle Accounting & Advisory team regularly assists employers in establishing payroll systems that make late super payments structurally unlikely.

Frequently Asked Questions

What is the Super Guarantee Charge rate?

The SGC is not a flat rate — it combines three components: the shortfall amount, plus nominal interest at 10% per annum calculated from the first day of the quarter, plus a $20 administrative component per employee per quarter. This is separate from the General Interest Charge that applies if the SGC itself goes unpaid after lodgement.

Is the Super Guarantee Charge tax deductible?

No. This is the most financially significant distinction between regular super and SGC. Ordinary SG contributions made on time are fully deductible as a business expense. The SGC — including the shortfall, nominal interest, and administrative component — is not deductible. This makes SGC considerably more expensive in after-tax terms than simply paying super on time.

How long do I have before SGC applies?

Super must be received by the employee’s fund by the quarterly due date: 28 October, 28 January, 28 April, and 28 July. There is no grace period. One day late is sufficient to trigger SGC for that quarter. Because SuperStream takes three to five business days, initiate payments no later than five business days before each due date.

What if I paid super to the wrong fund?

Payment to the wrong fund is treated as a failure to pay for SGC purposes — even if the amount was correct and on time. Super must reach the employee’s nominated complying super fund. If you discover this error, lodge an SGC statement for the quarter and arrange for the misdirected funds to be returned or transferred. Correct the fund details in your payroll records immediately.

Can I negotiate with the ATO if I owe SGC?

Yes. The ATO will generally consider payment arrangements for businesses that cannot pay the SGC in a lump sum. GIC continues to accrue during any arrangement, so paying sooner is always better. Voluntary disclosure before ATO contact also provides stronger grounds for seeking penalty remission.

What happens if I ignore the SGC?

Ignoring the SGC is one of the most financially damaging decisions a business owner can make. The consequences escalate: a 200% penalty for not lodging, GIC accruing daily, potential Director Penalty Notices exposing directors to personal liability, and in serious cases criminal prosecution. The ATO’s real-time STP data matching means most shortfalls are eventually detected. If you are aware of a shortfall, doing nothing is the worst response.

General Advice Warning: The information provided in this article is general in nature and does not constitute personal financial, tax or legal advice. It has been prepared without taking into account your personal objectives, financial situation or needs. Before acting on this information, you should consider its appropriateness having regard to your own circumstances. Pinnacle Accounting & Advisory is not a licensed financial adviser. For advice tailored to your situation, please contact us directly.

Super compliance is not glamorous, but the cost of getting it wrong is real and escalating. If you are unsure whether your super is being paid correctly and on time — or if you suspect there may be a shortfall from a previous quarter — the best time to act is before the ATO does. Contact Pinnacle Accounting & Advisory for a confidential review of your super compliance position. Explore our full range of tax and business advisory services to see how we can help your business stay ahead of its obligations.

Frequently Asked Questions

This article contains general advice only and does not take into account your specific circumstances. Please speak with a qualified accountant or tax adviser before making financial decisions.

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ASIC Annual Review Fee: What Happens If You Don’t Pay (And Other Business Registrations You Can’t Miss)

Most business owners know the ASIC annual review fee exists. A lot of them treat it like a minor admin task â something to deal with when the letter arrives, or maybe when they get around to it. What very few of them know is what actually happens when they don’t pay it, and the answer is far more serious than a late fee. We’re talking about your company ceasing to exist as a legal entity. Contracts becoming void. Your assets vesting in ASIC. Directors personally exposed.

But the ASIC annual review fee is just one of several compliance obligations that Australian business owners quietly let slip â each with its own set of consequences that range from costly to catastrophic. Business name renewals, ABN maintenance, GST registration, BAS lodgement, TPAR, and Single Touch Payroll all carry real penalties and real legal risk. This article covers all of them: what they are, what it costs to ignore them, and what you need to do to stay on top of them.

One of the ways Pinnacle adds value is by tracking these deadlines for our clients. You won’t receive an unexpected ASIC deregistration notice or a letter about a cancelled ABN while we’re your advisors â because we’re across these obligations before they become a problem. This is proactive advisory in practice. If you’re not currently working with an advisor who tracks this for you, read this carefully â and then get in touch.

Section 1: ASIC Annual Review Fee â The Obligation Every Company Has

Every registered company in Australia receives an annual statement from ASIC, usually shortly after the anniversary of its registration. That anniversary date is called the review date. Along with the annual statement comes the obligation to pay the ASIC annual review fee.

How Much Is the ASIC Annual Review Fee?

The current ASIC annual review fee (as at 2026) is:

Company Type	Annual Review Fee
Small proprietary company	$342
Public company	$1,591
Special purpose company (proprietary)	$70
Special purpose company (public)	$65

Source: ASIC â Company annual review

The fee is due within 2 months of the review date. The due date is clearly stated on the annual statement ASIC sends you.

What If You Pay Late?

Late payment attracts an additional fee â on top of the original review fee:

• $102 if payment is up to 1 month late
• $428 if payment is more than 1 month late

So a $342 annual review fee that is missed by six weeks becomes a $770 bill. Miss it by longer and ASIC will escalate.

What Happens If the Fee Is Never Paid?

ASIC will issue late fee notices, then a final letter of non-compliance to each director’s residential address. If fees remain unpaid, ASIC applies to deregister the company. This is where the real damage occurs.

Consequences of company deregistration:

• The company legally ceases to exist
• All company contracts become void and unenforceable
• Company assets vest in ASIC â not the shareholders
• Directors lose the protection of limited liability
• The company cannot trade, enter contracts, sue, or be sued
• Reinstating a deregistered company is significantly more expensive and time-consuming than paying the original fee

The $342 annual review fee suddenly looks very different when you weigh it against those consequences.

Practical tip: Set a calendar reminder on your company’s registration anniversary each year. Better yet, work with an advisor through Pinnacle’s Virtual CFO service who tracks this for you â it is one of the first things we add to every client’s compliance calendar.

Section 2: Business Name Registration â The Brand Theft Risk Nobody Talks About

If you trade under a name that is different from your company’s registered legal name, you must register that business name with ASIC. Business name registration is separate from company registration â it is the legal protection for the name your customers actually know you by.

Business Name Renewal Fees (2026)

Business name registrations must be renewed to remain active. The current fees are:

Renewal Period	Fee
1 year	$47
3 years	$108

Source: ASIC â Register a business name

ASIC will send a renewal notice at least 30 days before the registration expires, usually by email. But if your contact details are out of date, that notice will never reach you.

What Happens If You Don’t Renew?

If your business name is not renewed, ASIC may cancel the registration. Once cancelled, that name becomes available for anyone to register â including your competitors.

• A competitor or opportunist can register your trading name
• Brand confusion follows â customers may be directed to someone else
• Legal action to recover a business name is expensive and uncertain
• You may ultimately need to rebrand entirely

$47 per year. That is the cost of protecting the trading name your business has spent years building. The cost of losing it and fighting to get it back is orders of magnitude higher.

Practical advice: Register for 3 years if you plan to continue operating under that name â $108 for three years of protection is a straightforward decision. Add the renewal date to your compliance calendar, and set a reminder 60 days out. Note: if your company operates solely under its ACN or its registered company name, a separate business name registration may not be required â but if your trading name differs from your legal name at all, registration is mandatory.

Section 3: ABN Maintenance â The 47% Withholding Trap

Your Australian Business Number (ABN) is not simply a tax identifier â it is a signal to every customer and supplier you deal with that your business is legitimate and registered. When your ABN is cancelled or inactive, that signal disappears, and the consequences are immediate.

Why the ATO Cancels ABNs

The ATO can cancel your ABN if:

• Your business appears to be no longer active
• Tax returns or activity statements have not been lodged
• Your registered contact details are outdated or incorrect
• The ABN no longer reflects your actual business activities

What Happens When an ABN Is Cancelled

Any customer or supplier who looks up your business on the Australian Business Register (ABR) will see your ABN as cancelled or inactive. At that point, they are legally required to withhold 47% of any payments made to you â the top marginal tax rate plus Medicare levy â regardless of your GST registration status.

That is not a choice they make. It is a legal obligation imposed on them. The practical effect is immediate:

• Cash flow disruption from the moment a client notices the cancelled ABN
• Awkward explanations to suppliers and customers
• The ATO holds the withheld amount, creating a refund process rather than direct payment
• An application to the ATO is required to reinstate the ABN

How to keep your ABN active: Lodge your tax returns on time, keep your registered contact details current on the ABR, and ensure your ABN correctly reflects your current business activities. If your business structure or activities change â for example, you add a new service line â update your ABR registration accordingly.

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Section 4: GST Registration â When Cancellation Creates Liability

GST registration is mandatory once your annual turnover reaches $75,000 (or $150,000 for non-profits). But registration is not a one-time event â it requires ongoing maintenance, and the ATO can cancel it.

When the ATO Cancels GST Registration

The ATO may cancel your GST registration if:

• You persistently fail to lodge your Business Activity Statement (BAS)
• Your turnover falls below the $75,000 threshold and you notify the ATO to cancel
• The ATO determines the business is no longer operating

Consequences of GST Cancellation

• You cannot legally charge GST on your invoices
• You cannot claim input tax credits on your business purchases
• Clients who check the ABR may see you are not GST-registered, which raises questions about your business status
• If your turnover is above the threshold and GST is cancelled, you remain legally liable â but cannot collect GST from customers to remit it. This creates a personal liability.

BAS lodgement â quarterly (or monthly, if you elect that frequency) â is a legal obligation. Missed BAS creates Failure to Lodge penalties and may trigger GST cancellation. Pinnacle’s BAS Agent Melbourne service ensures your activity statements are prepared and lodged correctly, every quarter.

Section 5: Tax Return and BAS Lodgement â The Penalties That Compound

Late lodgement of tax returns and activity statements attracts the ATO’s Failure to Lodge (FTL) on time penalty. As of 1 July 2026, the penalty unit increased to $364.

The FTL penalty is calculated at one penalty unit ($364) for every 28 days (or part thereof) the document is overdue, up to a maximum of 5 penalty units.

Entity Type	FTL Penalty Per 28 Days	Maximum FTL Penalty (5 units)
Individuals and small entities	$364	$1,820
Medium withholders (Ã2)	$728	$3,640
Large withholders (Ã5)	$1,820	$9,100

Source: ATO â Failure to lodge on time penalty

Company tax returns are generally due 31 October for self-preparers. Business owners who lodge through a registered tax agent receive an extended lodgement program â one of the practical benefits of working with Pinnacle’s tax planning and advisory team.

What Persistent Non-Lodgement Leads To

FTL penalties are the starting point, not the end. Persistent non-lodgement escalates:

• The ATO can issue default assessments â it estimates your tax liability, often unfavourably, and that becomes the debt you owe until proven otherwise
• Director Penalty Notices (DPNs): directors become personally liable for unpaid PAYG withholding and superannuation guarantee charge if these obligations are not met
• The ATO can commence legal recovery action, including court proceedings and garnishee orders
• Unpaid tax debts can be referred to credit reporting agencies, damaging your business credit rating
• As already noted: persistent non-lodgement can lead to ABN cancellation

If you are behind on lodgements, the right move is to get in front of the ATO, not to wait. Our team has helped many clients navigate voluntary disclosure and ATO catch-up arrangements â the outcomes are consistently better when you engage proactively.

Section 6: TPAR â The Taxable Payments Annual Report

The Taxable Payments Annual Report (TPAR) is a legal reporting obligation for businesses that pay contractors in specific industries. If you engage contractors and operate in any of the following industries, TPAR almost certainly applies to you:

• Building and construction
• Cleaning services
• IT services
• Courier and road freight
• Security, investigation, or surveillance
• Government entities paying grants to individuals

TPAR is due 28 August each year. It reports the total payments made to each contractor during the year â ABN, name, and amounts paid. The ATO cross-references TPAR reports with contractor tax returns to identify unreported income.

If you fail to lodge TPAR, the FTL penalty applies. Your contractors may also face ATO scrutiny if their reported income does not match what you have reported in your TPAR. This is an obligation that catches a lot of business owners by surprise, particularly those in construction and cleaning.

Section 7: Single Touch Payroll â Mandatory for Every Employer

If you employ anyone â even one person â you are required to report payroll information to the ATO through Single Touch Payroll (STP)-enabled software. STP has been mandatory for all employers since 2019-20, and STP Phase 2 expanded the reporting requirements further to include disaggregated income types and additional tax information.

Every time you run payroll, an STP report must be submitted to the ATO electronically through your payroll software. Missing STP events constitutes a Failure to Lodge, with FTL penalties applying per event.

• Check that your payroll software is STP Phase 2 compliant
• Ensure your software is submitting reports each pay run â not just at the end of the year
• Finalise your STP report for each employee at year-end (the “finalisation declaration”) so their income statement is marked as “tax ready” in myGov

If you are unsure whether your current payroll setup is STP Phase 2 compliant, talk to us. This is exactly the kind of technical payroll and compliance question we handle for clients through our Virtual CFO and advisory engagements.

The Pinnacle Approach: Proactive Compliance, Not Reactive Damage Control

Every obligation covered in this article has a clear pattern: the cost of staying compliant is modest. The cost of failing to comply is exponentially higher â in fees, in legal exposure, in business disruption, and in time.

The businesses that avoid these problems are not the ones with perfect memories. They are the ones who work with advisors who manage compliance calendars as part of the engagement. At Pinnacle, that is what proactive advisory means in practice â tracking these obligations, flagging upcoming deadlines, and making sure nothing slips through the gaps.

Here is a quick reference of the key compliance deadlines covered in this article:

Obligation	Due / Frequency	Key Risk If Missed
ASIC annual review fee	2 months after review date	Company deregistration, loss of limited liability
Business name renewal	1 or 3 years from registration	Name cancelled, available for competitors to register
BAS lodgement	Quarterly (or monthly)	FTL penalties, GST cancellation
Company tax return	31 October (self-preparers)	FTL penalties up to $1,820, default assessments
TPAR	28 August annually	FTL penalties, contractor ATO scrutiny
STP reporting	Each pay run	FTL penalties per event
ABN maintenance	Ongoing â keep details current	ABN cancellation, 47% withholding by clients

If you are reading this and realising there are obligations on this list you have not stayed on top of, the right move is to deal with them now â not later. Book a Consultation and we will work through your compliance position with you.

Frequently Asked Questions

What is the ASIC annual review fee for a small company?

For a small proprietary company, the current ASIC annual review fee is $342. It is due within 2 months of the company’s review date (the anniversary of its registration). Late payment adds a further $102 (up to 1 month late) or $428 (more than 1 month late). Source: ASIC.

What happens if I don’t pay the ASIC annual review fee?

ASIC will issue notices, add late fees, and ultimately apply to deregister the company. Once deregistered, the company ceases to exist as a legal entity: contracts become void, assets vest in ASIC (not the shareholders), directors lose limited liability protection, and the company cannot trade or enter contracts. Reinstating a deregistered company is a complex, costly process that far exceeds the original fee.

Can someone register my business name if I don’t renew it?

Yes. If your business name registration lapses, ASIC can cancel it and the name becomes available for any other person or entity to register â including a competitor. Recovering a trading name once it has been registered by another party typically requires legal action, which is expensive, slow, and far from guaranteed. Register for 3 years ($108) if you intend to keep using the name.

Can the ATO cancel my ABN?

Yes. The ATO can cancel your ABN if the business appears to be no longer active, if you have not lodged returns, or if your contact details are out of date. A cancelled ABN triggers a legal obligation on your clients to withhold 47% of any payments they make to you. Getting your ABN reinstated requires an application to the ATO. Keep your ABR details current and lodge on time to avoid this.

What is the penalty for not lodging a tax return in Australia?

The ATO’s Failure to Lodge (FTL) penalty is $364 per 28-day period (or part thereof) the document is overdue, up to a maximum of 5 penalty units. For small entities, the maximum FTL penalty is $1,820. Medium withholders face double that, and large withholders face five times the base rate. Persistent non-lodgement can also result in ATO default assessments, Director Penalty Notices, credit reporting, and ABN cancellation. Source: ATO.

Frequently Asked Questions

This article contains general advice only and does not take into account your specific circumstances. Please speak with a qualified accountant or tax adviser before making financial decisions.

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Here is a question I get from business owners regularly: “I’ve hired someone as a contractor — I don’t need to pay their super, right?” It’s one of the most common assumptions in Australian business, and it’s often wrong. The ATO does not care what label you put on the arrangement. What matters is the substance of how the person actually works — and if you get that wrong, you are facing the Superannuation Guarantee Charge, which is non-deductible, includes interest, and can land personally on your directors.

This guide walks you through exactly when super for contractors in Australia applies, how the ATO tests whether someone is genuinely a contractor, the specific rules for construction and labour hire, and what the penalties look like if you get it wrong. If you engage contractors or subcontractors in your business, read this before your next quarterly super due date.

The Myth: “They Have an ABN, So I Don’t Owe Them Super”

Having an ABN does not make someone a contractor for superannuation purposes. This surprises a lot of business owners, but the ATO is very clear: the label on the arrangement is irrelevant. What matters is the substance of how the work is actually done.

The Superannuation Guarantee (Administration) Act 1992 defines who is an “employee” for SG purposes more broadly than ordinary employment law. Under the extended definition, a worker can be treated as an employee — and therefore entitled to super contributions — even if they have their own ABN, invoice you as a business, and operate under a contractor agreement.

The ATO has prosecuted business owners who relied on ABNs and contractor agreements while the actual working arrangement looked nothing like a genuine contractor relationship. Do not rely on paperwork alone.

https://www.youtube.com/watch?v=OlNy81ixqJY

The ATO’s Three-Part Results Test

The ATO uses a “results test” to assess whether someone is genuinely a contractor. To pass the test, all three of the following conditions must be met:

• Paid for a specific result. The contractor is engaged to deliver a defined outcome — not simply to show up and work. If you are paying someone by the hour or day without a defined deliverable, this is a strong indicator of employment.
• Supplies their own tools and equipment. The contractor uses their own equipment to perform the work. If your business provides the tools, the vehicle, the machinery, or the software, this weighs against genuine contractor status.
• Bears financial risk for defective work. If the contractor has to fix substandard work at their own cost and time, they bear financial risk. If you simply correct the work or absorb the cost, they do not bear risk — and this factor fails.

All three conditions must be satisfied for the results test to pass. If even one fails, the ATO may determine that the person is a worker for SG purposes, regardless of the contractor agreement.

You can use the ATO’s employee or contractor decision tool to assess your specific arrangements — but run every active contractor through it, not just the ones you are uncertain about.

When SG Applies Even to Contractors

Even if a worker passes the results test and is genuinely a contractor in a commercial sense, there are circumstances where the Superannuation Guarantee still applies. Under the extended definition of “employee” in the SG legislation, you must pay super if:

• The contractor’s contract is wholly or principally for their labour — meaning they are primarily providing their own work and skills, not a commercial product or result
• They earn 90% or more of their income from you in a financial year, making you their principal engager
• They use your tools and equipment rather than supplying their own
• They do not bear financial risk for defective work

If these characteristics are present, the ATO will treat the worker as an employee for SG purposes — even if they invoice through their own ABN. I have seen this catch business owners in trades, cleaning, consulting, IT services, and professional services. The structure of the contract does not protect you if the substance of the arrangement says otherwise.

This is exactly the kind of structural risk that our Virtual CFO service identifies proactively — reviewing contractor arrangements before the ATO does, not after.

Building and Construction: PAYG and SG Can Both Apply

If you operate in the building and construction industry, there is an additional layer of compliance you need to understand. The PAYG withholding regime for contractors applies in this industry, meaning you may be required to withhold tax from payments to contractors — in addition to paying super.

Under the Taxable Payments Reporting System (TPRS), all businesses in the building and construction industry must report contractor payments to the ATO annually. This reporting includes the contractor’s ABN, name, total gross payments, and tax withheld. The ATO cross-references this data against tax returns and super fund records.

The key point: if the ATO determines your contractor is actually a worker for SG purposes, both the superannuation obligation and the PAYG withholding obligation can apply simultaneously. Failing on both fronts doubles your exposure. If you are in construction and engaging subcontractors, review your arrangements against both regimes — the ATO’s TPRS guidance is the starting point.

Labour Hire Arrangements: Who Is Responsible?

If you engage workers through a labour hire firm, the SG obligation generally rests with the labour hire firm — not you. The firm is the employer of record and must pay super contributions on the workers’ earnings.

However, this only protects you if the arrangement is correctly structured. If the labour hire arrangement is misclassified — for example, if the labour hire firm is simply an intermediary that passes workers through without actually employing them — you may be treated as the employer and the SG obligation shifts to you. Get this confirmed in writing in your agreement with the labour hire firm, and ensure they are actually paying super into the workers’ nominated funds.

If you are unsure whether your labour hire arrangement is structured correctly, this is a conversation to have with your tax adviser before the ATO raises it. The ATO is actively scrutinising labour hire arrangements, particularly in industries that rely heavily on contract workforces.

The Superannuation Guarantee Charge: The Real Cost of Getting It Wrong

If you have a super shortfall — whether because you failed to identify that SG applied, paid the wrong amount, or missed a deadline — the ATO replaces the standard super contribution with the Superannuation Guarantee Charge (SGC). The SGC is more expensive than simply paying the super you owed.

The SGC is calculated as follows:

• Shortfall amount — the super contributions that should have been paid, calculated on a broader base that can include payments not normally counted as “ordinary time earnings”
• Nominal interest — 10% per annum on the shortfall, accruing from the start of the quarter the payment was missed
• Administration component — $20 per employee per quarter with a shortfall

The SGC is non-deductible. Regular superannuation contributions you pay on time are deductible business expenses. The SGC is not. This means you bear the full cost in after-tax dollars — making the effective cost significantly higher than the original super obligation.

On top of the SGC itself, the ATO can impose additional penalties of up to 200% of the SGC amount where the failure was deliberate or reckless. Directors can be personally liable through Director Penalty Notices (DPNs), which allow the ATO to pursue company directors personally for unpaid SGC liabilities — including penalties and interest. The director’s personal assets are at risk.

Related reading: Payday Super Starts 1 July 2026: What Melbourne Employers Must Do Right Now — understand the new super payment regime coming into effect and how it changes quarterly obligations for all employers.

The Current SG Rate and Payment Deadlines

From 1 July 2025, the Superannuation Guarantee rate is 12% of ordinary time earnings. This applies to all employees and workers covered by the extended SG definition — including qualifying contractors. You can verify the current rate at any time on ato.gov.au.

Super contributions must be paid into the worker’s chosen superannuation fund (or a default MySuper fund) by the following quarterly deadlines:

Quarter	Period	Due Date
Q1	1 July – 30 September	28 October
Q2	1 October – 31 December	28 January
Q3	1 January – 31 March	28 April
Q4	1 April – 30 June	28 July

Missing a deadline triggers the SGC automatically — even if you pay the super shortly after the due date. There is no grace period. If you pay on 29 October instead of 28 October, you are in SGC territory. Pay early, not late.

SuperStream: How Super Payments Must Be Made

All super contributions must be made electronically through the SuperStream system. You cannot write a cheque to a super fund or transfer money directly from your bank account into a fund outside of this framework.

SuperStream requires you to send both the payment and the associated employee/contribution data through an approved SuperStream channel. Options include:

• Your payroll software (Xero, MYOB, Employment Hero, and others are SuperStream-compliant)
• A SuperStream clearing house — the ATO’s Small Business Superannuation Clearing House (SBSCH) is available at no cost to eligible small businesses through the ATO Business Portal
• A commercial clearing house through your bank or payroll provider

Note that the ATO’s SBSCH counts your contribution as paid on the date you submit it to the clearing house — provided the clearing house processes it before the fund’s deadline. Always allow a few business days between your submission and the quarterly due date.

How to Protect Your Business

The risk here is real, but it is also manageable if you take the right steps proactively. Here is what I recommend to every business owner who engages contractors:

• Run every contractor through the ATO decision tool. Do not assume. Use the ATO’s employee or contractor decision tool for each arrangement, and document the outcome. If the circumstances change (different tools, different income proportions), run it again.
• Review labour hire agreements. Confirm in writing that the labour hire firm is paying SG on your workers. Request evidence — a super fund remittance confirmation is the gold standard.
• Pay quarterly, on time, every time. Late payment is one of the most avoidable mistakes. Set a calendar reminder for 20 October, 20 January, 20 April, and 20 July — one week before each due date — so you have time to process payments without rushing.
• Keep records. Maintain documentation of each contractor engagement, the results test assessment, invoices, and super payments made. If the ATO comes knocking, your records are your defence.
• Get proactive advice. This is exactly the kind of structural compliance risk that a proactive adviser reviews before the ATO does — not after. A good adviser reviews your contractor arrangements as part of normal engagement, flags risks early, and ensures your super obligations are met without you having to think about it every quarter.

At Pinnacle, our Virtual CFO service includes a regular review of your workforce arrangements — payroll, contractors, and super obligations — so compliance gaps get caught before they become ATO notices. If you want that level of oversight in your business, book a no-obligation consultation and we can talk through what that looks like for your situation.

Frequently Asked Questions

Do I have to pay super for a contractor with an ABN?

Not always — but possibly yes. Having an ABN does not automatically exempt a worker from superannuation entitlements. The ATO assesses the substance of the working arrangement, not the label. If the worker provides labour predominantly, uses your tools, derives most of their income from you, and does not bear financial risk for defective work, you will likely owe them super regardless of their ABN. Use the ATO’s employee or contractor decision tool to assess each arrangement.

What is the Superannuation Guarantee Charge?

The Superannuation Guarantee Charge (SGC) is the penalty the ATO imposes when a business fails to pay the correct super by the quarterly deadline. The SGC equals the shortfall amount plus 10% per annum nominal interest plus a $20 per employee per quarter administration fee. Critically, the SGC is non-deductible — unlike regular super contributions, which are a deductible business expense. The ATO can also impose penalties of up to 200% of the SGC for deliberate non-compliance, and directors can be personally liable through Director Penalty Notices.

What is the current super rate for contractors in Australia?

From 1 July 2025, the Superannuation Guarantee rate is 12% of ordinary time earnings. This rate applies in the 2025–26 financial year for all employees and qualifying contractors. The SG rate has been increasing incrementally and is now at its legislated ceiling of 12%. Always verify the current rate at ato.gov.au as rates can change with future legislation.

How do I know if someone is a contractor or employee for super purposes?

The ATO applies a results test with three criteria: the worker must be paid for a specific result, supply their own tools and equipment, and bear financial risk if they need to fix defective work. If all three are met, the worker is likely a genuine contractor. If one or more fails — particularly if the worker provides labour predominantly, earns 90%+ of their income from you, and uses your tools — the SG obligation applies even with a contractor agreement in place. Use the ATO’s online decision tool and document your assessment.

Can a director be personally liable for unpaid contractor super?

Yes. If a company has unpaid SGC liabilities, the ATO can issue Director Penalty Notices to company directors personally. This means your personal assets — not just the company’s — are at risk if super obligations are not met. The director penalty regime applies to SGC, PAYG withholding, and GST obligations. This is one of the strongest reasons to ensure super obligations are identified and paid correctly, not after the fact.

Frequently Asked Questions

This article contains general advice only and does not take into account your specific circumstances. Please speak with a qualified accountant or tax adviser before making financial decisions.

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Motor vehicle tax deductions are one of the most misunderstood areas of Australian tax. Business owners regularly overclaim, underclaim, or make assumptions based on myths rather than actual ATO rules. This post works through the 10 questions we hear most often, with straight answers based on current ATO rules for 2025–26. If you want a detailed guide on how to claim vehicle expenses, see our article on claiming motor vehicle expenses for tax.

For the current figure, see our dedicated guide to the ATO cents per km rate for 2026-27 and how much you can claim.

The figures in this article reflect the 2025–26 income year: cents per kilometre rate of 88 cents, car limit of $69,674, instant asset write-off threshold of $20,000 for businesses with annual turnover under $10 million, and a maximum GST credit of $6,334 on passenger vehicles. Source: ATO — Car expenses.

These answers address common scenarios but are general in nature. If you are unsure which method or structure applies to you, book a no-obligation consultation with our team.

Q1: If my car has business signage, can I claim 100% of expenses?

No — and this is one of the most persistent myths in small business tax.

Business signage on a vehicle does not change how the ATO assesses your claim. You can only deduct the proportion of vehicle expenses that corresponds to actual business use. If you drive a signwritten ute 70% for business and 30% for private purposes, you can claim 70% of expenses — full stop.

The confusion comes from the assumption that making a vehicle look like a work vehicle somehow makes it one for tax purposes. It does not. What matters is how the vehicle is actually used, documented through a logbook or supported by records under the cents per kilometre method. The only situation where 100% deductions are available is where private use is genuinely nil — which is rare for business owners who drive their work vehicle home each day.

Q2: Can I claim car expenses to commute to and from my regular office?

No. Home-to-work travel is private travel under ATO rules.

The ATO’s position has been consistent for decades: ordinary commuting is not deductible. The reasoning is that the choice to live at a distance from your workplace is a private decision.

There are three exceptions worth knowing:

• Travel between workplaces: If you travel directly from one workplace to another in the same day, that travel is deductible.
• Bulky equipment: If your work requires you to transport bulky tools or equipment that cannot be stored at work, and there is genuinely no secure storage available at your workplace, home-to-work travel may be deductible.
• Home as principal place of business: If your home is your genuine principal place of business — you have a dedicated home office and conduct the majority of your income-earning activities there — travel from home to see clients or visit other locations may be deductible. This does not apply simply because you occasionally work from home.

Q3: What is the best method — logbook or cents per kilometre?

It depends on your kilometres and vehicle costs. Here is how to think about it.

There are two methods available for individuals claiming car expenses:

• Cents per kilometre: 88 cents per km for 2025–26, capped at 5,000 km. Maximum claim: $4,400. No logbook required — you need to be able to explain how you calculated your business kilometres.
• Logbook method: You claim the actual business-use percentage of all vehicle running costs, including fuel, insurance, registration, servicing, and depreciation. Requires a logbook covering at least 12 continuous weeks. Once prepared, the logbook is valid for five years if your usage pattern is consistent.

The logbook method wins when you drive more than 5,000 business kilometres per year (since the cents per km method is capped), your vehicle has high running costs, or your business use percentage is above 70–80%. The cents per km method is better when you drive fewer kilometres for business or want a straightforward approach with minimal recordkeeping. Note: companies and trusts cannot use the cents per kilometre method — they must use actual costs.

Q4: I bought a work vehicle for $85,000. Can I deduct the full purchase price?

Not if it is a passenger vehicle — the car limit caps your deduction.

For 2025–26, the car limit is $69,674. This is the maximum cost base that can be used for depreciation on a passenger vehicle, regardless of what you actually paid. If you paid $85,000 for a luxury SUV, your depreciation and GST credits are calculated as if the vehicle cost $69,674.

The instant asset write-off ($20,000 for businesses with turnover under $10 million) does not override the car limit for passenger vehicles. If you claim instant asset write-off on an $85,000 car, the maximum write-off in year one is $69,674, adjusted further for any private use percentage.

The car limit does not apply to vehicles that are not “cars” under the tax rules — for example, motorcycles, or commercial vehicles designed to carry more than one tonne (like a ute with a payload over 1,000 kg). This is one reason work utes are popular among tradies — they may fall outside the car limit entirely. Source: ATO — Car limit.

Q5: Can I claim car expenses through my company or trust?

Yes, but fringe benefits tax (FBT) is likely to apply — and this changes the maths significantly.

When a company or trust owns a vehicle and an employee, director, or associate uses it for private purposes, a car fringe benefit arises. The entity can claim a full deduction for vehicle running costs, but must report and pay FBT on the value of the private benefit provided.

The FBT rate is 47%, applied to the taxable value of the car fringe benefit under either the statutory formula method or operating cost method. Keeping a logbook can significantly reduce the taxable value under the operating cost method. Some vehicles used wholly for business — never garaged at home, with no private use — may be exempt from FBT altogether, but this requires strict records and the ATO scrutinises these claims carefully.

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Q6: Do I need to keep a logbook every year?

No — but your logbook must remain representative of your actual use.

A logbook is valid for five income years from the year it was prepared, provided your travel pattern has not changed significantly. You must still record your vehicle’s odometer reading at the start and end of each income year throughout that period.

You need a new logbook if: you change vehicles; your business activities change materially; or your private use increases significantly. If you are audited and your logbook period is unrepresentative of how you actually use the vehicle, the ATO may disallow part or all of your claim.

Q7: My spouse and I share a vehicle for business — how do we claim?

Each person can claim their own business use, provided the claims do not overlap or double-count. If the vehicle is registered to one of them but paid for by the other, see can you claim motor vehicle expenses if the registration is not in your name.

If you and your spouse both use the same vehicle for separate business activities, each of you can claim the proportion of expenses that relates to your own business use. The combined business use percentage cannot exceed 100% of the vehicle’s total use.

For example: you use the car 50% for your business and your spouse uses it 25% for theirs. The remaining 25% is private. You can each claim 50% and 25% of vehicle expenses respectively, on your separate tax returns. Both parties should keep separate logbook entries or kilometre records clearly identifying their trips.

Q8: Can I claim car expenses if I receive a car allowance from my employer?

Yes — but the allowance is taxable income, and your deduction is for actual expenses.

A car allowance paid by your employer must be included in your assessable income. It is not a tax-free reimbursement. You then claim your actual work-related car expenses as a deduction using the cents per kilometre method or logbook method.

If your deductible car expenses exceed the allowance you received, you have a net deduction. If your expenses are less than the allowance, you have a net taxable amount. Employees who receive a car allowance sometimes assume no further action is needed at tax time — this is incorrect. Track your business kilometres throughout the year.

Q9: What GST credit can I claim on a business vehicle purchase?

Up to $6,334 on a passenger vehicle — capped by the car limit, then adjusted for business use.

If you are GST-registered and purchase a vehicle for business use, you can claim an input tax credit of 1/11th of the purchase price. For passenger vehicles, this is capped at 1/11th of the car limit: $6,334 for 2025–26.

If the vehicle is used for a mix of business and private purposes, the GST credit is further reduced proportionally. For example: vehicle purchased for $85,000 (GST-inclusive); car limit applies capping the credit at $6,334; business use is 70%; actual GST credit claimable: $6,334 x 70% = $4,434. Source: ATO — Cars and GST.

Q10: Can I claim private trips that happen to coincide with a business trip?

No — only the business component is deductible, and mixed-purpose travel must be apportioned.

Where a trip has both business and private purposes, only the business component is deductible. The fact that a trip started or ended at a business meeting does not make the entire journey deductible.

For example: you drive from home to a client meeting (30 km each way) and on the way back divert to pick up groceries (5 km additional). The 60 km round trip to the client is potentially deductible. The 10 km grocery diversion is not. This is why a logbook requires you to record start and end points and the business purpose of each trip — vague entries are a red flag in ATO audits. It is also one of the claims highlighted in the current ATO crackdown on personal versus business deductions. Mixed-purpose travel is one of the most common areas of adjustment when the ATO audits sole traders and small businesses.

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Getting Your Vehicle Claims Right

For a complete view of how vehicle claims fit into your tax position, see our tax planning services. Motor vehicle deductions are legitimate and valuable — but only when they reflect genuine business use and are supported by proper records. The two most common mistakes are overclaiming (treating private use as business) and underclaiming (not knowing which method gives the best result). Our detailed guide on motor vehicle tax deductions covers both methods with worked examples. If you want to review your vehicle claims with a registered tax agent before your next return, get in touch.

One question this guide does not cover is what happens when you sell. If your vehicle cost more than the car limit, read selling a car above the car limit before you sign a contract, because the GST and income tax outcomes surprise most owners.

Frequently Asked Questions

This article contains general advice only and does not take into account your specific circumstances. Please speak with a qualified accountant or tax adviser before making financial decisions.

For vehicle and other business claims done right, work with a proactive tax accountant in Melbourne who reviews your whole position.

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What Is an SMSF Bare Trust?

If you have a self-managed super fund (SMSF) and want to borrow money to purchase an investment asset — particularly commercial or residential property — you will encounter a legal structure called a bare trust. Also referred to as a holding trust or custodian trust, the bare trust is not optional. It is a mandatory requirement under Australian superannuation law whenever an SMSF enters a Limited Recourse Borrowing Arrangement (LRBA).

This guide is written for business owners and professionals who already have an SMSF — or are considering setting one up — and want to understand exactly how the bare trust and LRBA structure works before taking the next step. We cover the legal mechanics, the practical setup process, costs, and the rules you absolutely cannot afford to break.

At Pinnacle Accounting & Advisory, we work with Melbourne business owners who use this structure to purchase their commercial premises inside their SMSF — one of the most powerful and legitimate wealth-building strategies available in Australia. But it only works when it is set up correctly. If you run a trading business, the same holding trust structure is central to buying your business premises through your SMSF.

Why You Can’t Just Buy Property Directly in Your SMSF with Borrowed Money

The Superannuation Industry (Supervision) Act 1993 (SIS Act) contains a strict prohibition: SMSFs generally cannot borrow money. The rationale is simple — superannuation savings are protected retirement assets, and the government wants to prevent SMSFs from taking on debt that could erode members’ retirement balances.

However, Parliament recognised a narrow exception. Under section 67A of the SIS Act, SMSFs are permitted to enter a Limited Recourse Borrowing Arrangement. An LRBA allows the fund to borrow money from a lender (a bank or, in some cases, a related party such as a family member or associated entity) to purchase a single acquirable asset.

The critical condition — and the reason the bare trust exists — is this: the asset purchased with borrowed money cannot be held directly by the SMSF until the loan is fully repaid. The SMSF holds only the beneficial interest in the asset. Legal title must be held by a separate bare trustee. The bare trust is the legal vehicle that makes this possible. Without it, there is no LRBA, and therefore no legal mechanism for an SMSF to borrow at all.

How the Bare Trust Structure Works

Understanding the bare trust requires understanding the full flow of money and legal interests in an LRBA. Here is how it works from start to finish.

Step 1: The Loan

The SMSF borrows money from a lender. This can be a bank (most common for commercial and residential property) or a related party (such as a family member, family trust, or company associated with the SMSF members). Related-party loans must strictly comply with the ATO’s safe harbour terms under PCG 2016/5 — more on this in the compliance section below.

Step 2: The Bare Trustee Purchases the Asset

The loan proceeds flow to the bare trustee — a separate legal entity (almost always a corporate trustee — that is, a company set up specifically for this purpose) that purchases the asset on behalf of the SMSF. The contract of purchase is signed in the name of the bare trustee, not the SMSF trustee. The bare trustee holds legal title to the asset.

Step 3: The SMSF Holds Beneficial Interest

Although the bare trustee holds legal title, the SMSF is the beneficial owner of the asset. All economic benefits — rental income, capital growth — flow to the SMSF. The bare trustee has no active duties and no discretion; it simply holds the asset as directed by the SMSF trustee. The bare trust deed documents this relationship in full.

Step 4: The SMSF Repays the Loan

The SMSF (not the bare trustee) makes all loan repayments using money from its own resources — rental income, member contributions, or other fund assets. The lender’s recourse is limited to the asset held in the bare trust. If the SMSF defaults, the lender can seize and sell the asset in the bare trust, but they cannot touch other SMSF assets (a member’s other investments, cash, listed shares). This is the “limited recourse” in Limited Recourse Borrowing Arrangement.

Step 5: Loan Repaid — Asset Transferred to the SMSF

Once the loan is fully repaid, the asset is transferred from the bare trustee to the SMSF trustee. This is a significant legal step — it requires stamp duty in most states, legal documentation, and notification to the SMSF’s auditor. Some states have concessional stamp duty rates for SMSF property transfers, but this varies and must be confirmed with your solicitor.

Worked Example: Business Owner Buys the Business Premises

David runs a manufacturing business in Melbourne and currently rents a commercial premises for $80,000 per year. His SMSF has $350,000 in cash. He wants his SMSF to purchase the premises (valued at $1.2 million) rather than continuing to pay rent to a third party.

His solicitor and SMSF accountant structure it as follows: David’s SMSF borrows $850,000 from a bank (LRBA). A new company — “Property Holdings Pty Ltd as trustee for the XYZ Bare Trust” — is incorporated as the bare trustee. The bare trustee purchases the commercial property, with legal title in the bare trustee’s name. David’s business then pays $80,000 per year in market rent directly to the SMSF. The SMSF uses this rental income (plus David’s super contributions) to make loan repayments. Once the $850,000 loan is repaid, the property transfers into David’s SMSF outright — now a tax-sheltered asset in a fund that may be in pension phase (zero tax) by the time the loan is cleared.

Setting Up a Bare Trust: Step by Step

Setting up an LRBA and bare trust involves multiple professionals and several sequential steps. Here is the process in full.

• Step 1: Confirm the asset qualifies. The asset must be a “single acquirable asset” as defined by the SIS Act. A commercial property on a single title qualifies. Multiple lots or mixed-use assets can be more complicated — your solicitor must confirm the asset meets the single acquirable asset test before proceeding.
• Step 2: Obtain legal advice and commission the bare trust deed. The bare trust deed must be professionally drafted by a solicitor experienced in SMSF law. It formally documents the relationship between the bare trustee and the SMSF, and must be in place before any asset is purchased. Do not use generic online templates for this — SMSF bare trust deeds have specific requirements.
• Step 3: Incorporate the corporate bare trustee. A new company must be incorporated specifically to act as bare trustee. This company must be separate from the SMSF trustee company — it cannot be the same entity. ASIC charges a registration fee for the new company and indexes its fees each 1 July, so check the current amount on the ASIC fees page before you budget. Professional fees for the set-up sit on top.
• Step 4: Obtain an ABN and TFN for the bare trust if required. The bare trust may need its own ABN for GST purposes, particularly for commercial property. Your accountant will advise whether registration is required based on the asset type and rental income.
• Step 5: Arrange the LRBA. The SMSF trustee applies for the loan from the lender. The LRBA agreement must clearly document: the loan terms, the security (the asset held in bare trust), and the limited recourse nature of the loan. For related-party LRBAs, the terms must match ATO safe harbour rates under PCG 2016/5.
• Step 6: The bare trustee signs the purchase contract. The contract of sale is executed in the name of the bare trustee — for example, “ABC Holdings Pty Ltd ATF the XYZ Bare Trust.” The SMSF trustee’s name must not appear as the purchaser.
• Step 7: Open a separate bank account for the bare trust. The ATO expects that the bare trust’s financial transactions (particularly rental income and loan repayments) are clearly documented. A dedicated bank account assists with this.
• Step 8: Notify the SMSF auditor. The bare trust and LRBA must be disclosed in the SMSF’s annual audit. Your auditor will need copies of the bare trust deed, LRBA agreement, and supporting financials. Failure to disclose is a compliance breach.
• Step 9: Manage the transfer when the loan is repaid. Once the loan is fully repaid, engage your solicitor to transfer legal title from the bare trustee to the SMSF trustee. This involves stamp duty, discharge of mortgage, and update of title documents.

The Business Premises Strategy

The most common and financially compelling use of the SMSF bare trust structure for Pinnacle’s clients is purchasing the business owner’s commercial premises through the SMSF. This strategy is legal, widely used, and — when structured correctly — delivers significant long-term wealth and tax benefits.

How it works: The SMSF (via the LRBA/bare trust) purchases the commercial property. The business (owned separately by the SMSF member or their entity) leases the property back from the SMSF at market rent. This arrangement is permitted under the SIS Act because commercial property can be acquired from, and leased to, related parties — provided the lease is at arm’s length, market-rate terms.

The tax advantage is significant. Rental income received by the SMSF is taxed at 15% (or 0% if the fund is in pension phase). Compare this to rental income received personally, which would be taxed at marginal rates up to 47%. The business also gets a full tax deduction for the rent it pays. The business premises — often a significant asset — is accumulating inside a concessionally taxed environment.

Capital gains on eventual sale are also concessionally taxed. If the property is sold while the SMSF is in accumulation phase, the CGT discount after 12 months brings the effective rate to 10%. In pension phase, the gain may be entirely tax-free. High-income earners should also be aware that Division 293 tax may affect contributions going into the fund to service the LRBA, and those with large super balances approaching $3 million should factor in Division 296 tax, which became law on 13 March 2026 and applies to earnings from 1 July 2026.

One important rule: the rental arrangement must be at market rates and documented properly. The ATO actively reviews related-party leases in SMSF structures. A below-market rent arrangement will put the SMSF’s compliance status at risk.

Critical Rules You Must Not Break

The LRBA and bare trust structure has significant compliance obligations. The ATO actively reviews these arrangements. Breaching the rules can result in the SMSF being made non-complying — meaning the fund loses its concessional tax status and is taxed at the top marginal rate on its entire assets. The following rules are non-negotiable.

No improvements while the loan is outstanding

This is the rule that catches the most people off guard. While the loan is outstanding, the asset in the bare trust can be repaired and maintained, but it cannot be improved. Under the SIS Act, an improvement is anything that changes the character of the asset or makes it a fundamentally different asset. Replacing a roof (maintenance) is fine. Adding a new floor or subdividing the block (improvement/development) is not. If you breach this rule, the LRBA is invalid, and the fund may be treated as non-complying.

Related-party LRBAs must use ATO safe harbour terms

If your SMSF is borrowing from a related party — a family member, family trust, company, or another entity associated with fund members — the loan must comply with the ATO’s safe harbour requirements under PCG 2016/5. This sets out the interest rates, loan terms, and documentation requirements. Safe harbour rates change annually and are indexed to movements in the RBA cash rate. Falling outside safe harbour means the ATO will treat the arrangement as a non-arm’s length transaction, potentially applying non-arm’s length income (NALI) rules, which tax the income at the top marginal rate.

Cannot acquire assets from related parties (with limited exceptions)

An SMSF generally cannot acquire an asset from a related party of the fund. The exception: commercial property can be acquired from a related party, as can listed securities. Residential property cannot be acquired from a related party under any circumstances — not even via an LRBA. Attempting to do so puts the fund in breach of the in-house asset rules and the related-party acquisition prohibition.

Single acquirable asset rule

Each LRBA and bare trust covers a single acquirable asset only. If you want to purchase two properties, you need two separate LRBAs and two separate bare trusts — each with its own deed, trustee company, and bank account. You cannot bundle multiple assets into one arrangement.

Annual SMSF audit must cover the LRBA

Every year, the SMSF’s registered SMSF auditor must audit and verify compliance of the LRBA. This includes reviewing the bare trust deed, confirming the loan terms comply with the SIS Act, verifying loan repayments, and checking that no improvements have been made to the asset. Inadequate audit documentation or disclosure of the LRBA is a reportable breach.

What It Costs to Set Up a Bare Trust

The costs of establishing an SMSF bare trust and LRBA are not trivial — but they need to be weighed against the long-term tax and wealth benefits of the structure. Here is a general cost guide. Government fees are indexed and professional fees vary, so treat these as indicative.

Item	Approximate Cost
Bare trust deed preparation	$1,500 – $3,000
Corporate bare trustee incorporation	ASIC registration fee plus professional fees
ASIC annual review fee (trustee company)	Set by ASIC, indexed each 1 July
LRBA agreement	$1,000 – $2,500
Stamp duty on asset purchase	Varies by state and asset value
Stamp duty on transfer (loan repaid)	Varies — some states have SMSF concessions
SMSF annual accounting + audit (with LRBA)	$3,500 – $6,000+ per year

The most significant variable cost is stamp duty, which is state-specific and asset-value-dependent. Some Australian states provide stamp duty concessions for the transfer of assets from a bare trustee to an SMSF when the loan is repaid — confirm this with your solicitor before proceeding.

Total establishment costs for a typical commercial property LRBA (excluding stamp duty) typically fall in the range of $5,000 – $8,000 in professional fees. For a $1 million commercial property held in an SMSF for 15-20 years, this is a modest one-time cost relative to the compounding tax benefits. To model the tax impact on your overall income position, try our tax calculators.

Talk to Mina About Your SMSF

If you are considering using your SMSF to purchase a property — particularly your business’s commercial premises — Pinnacle Accounting & Advisory can help you understand whether the structure is right for you and what the next steps involve.

We work with clients across Melbourne and Australia on SMSF compliance, LRBA structuring, and long-term tax planning. Book a Consultation to discuss your situation.

How Pinnacle Helps — and What Requires Other Professionals

Setting up an SMSF bare trust and LRBA requires a team of professionals, not just one. Here is how the roles divide.

What Pinnacle handles

• SMSF establishment and trustee structure advice (as your registered tax agent and SMSF accountant)
• Annual SMSF accounting, tax return, and compliance reporting
• LRBA compliance review — ensuring the loan terms meet ATO requirements
• Related-party LRBA review against PCG 2016/5 safe harbour
• Co-ordinating with your solicitor and auditor throughout the process
• Ongoing tax planning — including how the LRBA fits within your broader business and personal tax strategy

What requires a solicitor

• Drafting the bare trust deed
• Drafting the LRBA agreement
• Incorporating the corporate bare trustee
• Managing conveyancing (property purchase and transfer)
• Stamp duty advice and assessment

What requires a licensed financial adviser

• Advice on whether an LRBA is the right investment strategy for your SMSF
• Advice on whether the specific property or asset is a suitable SMSF investment
• Advice on contribution strategies and drawdown planning

Pinnacle is a registered tax agent. We are not licensed to provide financial product advice or legal services. We work alongside your financial adviser and solicitor to ensure the SMSF structure is compliant and tax-efficient.

Frequently Asked Questions

This article contains general advice only and does not take into account your specific circumstances. Please speak with a qualified accountant or tax adviser before making financial decisions.

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Thinking about setting up a self-managed super fund? This step-by-step guide covers everything you need to know — from choosing your trustee structure to registering with the ATO, opening a bank account, and meeting your ongoing compliance obligations.

This guide is written for Australian business owners and professionals who are actively researching whether an SMSF is right for them and want to understand exactly what the setup process involves. We have written it to be practical, not theoretical — because knowing the steps is one thing, but knowing the real-world considerations at each step is what makes the difference.

Before You Start: Is an SMSF Right for You?

Before setting up an SMSF, it is important to be honest about whether it actually suits your circumstances. An SMSF is a powerful structure — but it requires active trustee involvement, carries significant legal obligations, and makes financial sense only above a certain balance threshold.

The following is general information only. The decision of whether to establish an SMSF requires personalised financial advice from a licensed SMSF financial adviser. Pinnacle Accounting & Advisory handles the tax and compliance side of SMSFs — we do not provide financial product advice or recommend whether you should establish a fund.

The balance question

Most industry guidance suggests an SMSF becomes cost-effective when the fund holds approximately $500,000 or more in assets. Below this level, the fixed annual costs of accounting, audit, and legal compliance represent a meaningful percentage of fund assets — potentially outweighing the benefits compared to a well-run industry or retail super fund. That said, specific strategies (such as holding business real property) may justify an SMSF at lower balances in some circumstances. A common reason owners set up a fund is buying their business premises through their SMSF under the business real property rules.

The involvement question

As an SMSF trustee, you are legally responsible for the fund’s compliance — regardless of how much you delegate to professionals. This means you need to actively engage with the fund, understand your legal obligations, review the investment strategy, and keep up with regulatory changes. If you want a “hands off” super experience, an industry or retail fund will serve you better.

Step-by-Step: How to Set Up an SMSF in Australia

Step 1: Choose your trustee structure — individual vs corporate trustee

Every SMSF must have a trustee — either individual trustees or a corporate trustee (a company that acts as trustee). This is one of the most important decisions you will make when establishing the fund.

Individual trustees: Each member of the fund is also a trustee. For a two-member fund, this means two individuals are trustees. There is no separate company to establish or maintain. However, if the membership of the fund changes (e.g. a member dies or leaves), the trustee arrangements must be updated — which can be complex and costly. Individual trustees must hold all fund assets in all trustees’ names, which can create administrative complications when membership changes.

Corporate trustee: A company is established specifically to act as trustee of the SMSF. The members of the fund are the directors (and often shareholders) of the trustee company. Assets are held in the company’s name, making membership changes simpler. Estate planning is also cleaner — when a member dies, their executor steps in as director without needing to retitle assets.

Our recommendation: We almost always recommend a corporate trustee structure, despite the higher setup cost. The long-term administrative and estate planning benefits consistently outweigh the initial cost difference. Setup cost for a corporate trustee: approximately $800–$1,500 including ASIC registration. Ongoing ASIC annual fee: approximately $320.

Step 2: Establish the SMSF trust deed

The trust deed is the legal document that establishes the SMSF and sets out the rules under which it operates — including what types of investments are permitted, how pensions can be paid, and how decisions are made. The trust deed must be prepared by a qualified solicitor.

You should not use a generic or outdated trust deed. The deed needs to be current with Australian super law, and it needs to actually permit the investment strategies you intend to use (for example, if you plan to hold direct property such as residential investment property or limited recourse borrowing arrangements (LRBAs), the deed must explicitly allow this).

Typical cost for trust deed preparation: $1,000–$2,000 through a specialist SMSF legal service.

Step 3: Register the SMSF with the ATO

Once the trust deed is executed, the SMSF must be registered with the Australian Taxation Office to obtain an ABN (Australian Business Number) and TFN (Tax File Number). You will also need to elect for the fund to be regulated — this is what makes it a “complying” SMSF that receives the concessional tax rates.

Registration is completed through the ATO’s online services or with the assistance of a registered tax agent (such as Pinnacle). You must register the fund within 60 days of establishing the trust. Delays can cause problems with rollovers and contributions.

Step 4: Open a dedicated SMSF bank account

The SMSF must have its own bank account — completely separate from personal or business accounts of the trustees or members. All fund income, expenses, contributions, and pension payments must flow through this account. Mixing SMSF and personal funds is a serious compliance breach that can have severe consequences, including the fund losing its complying status.

Choose a bank that clearly identifies the account as belonging to the trustee “as trustee for” the SMSF. Most major Australian banks have dedicated SMSF account products.

Step 5: Roll over existing super (if applicable)

If you have existing super in an industry or retail fund, you may want to roll some or all of it into your SMSF. Before rolling over, consider:

• Whether your existing fund has insurance attached — rolling over may cancel group life or TPD insurance, which you will then need to arrange separately (at individual premiums, which can be significantly higher)
• Exit fees and any exit conditions from the existing fund
• Whether the timing of the rollover aligns with the SMSF’s investment strategy

Rollovers are processed electronically through SuperStream. Your new SMSF must be registered and have an active ABN/TFN before a rollover can be received.

Step 6: Document your investment strategy

The ATO requires every SMSF to have a written investment strategy from day one. The strategy must consider the fund’s investment objectives, the risk profile appropriate for the fund’s members, and the likely return required to meet member retirement needs. It must also specifically address the fund’s approach to holding cash and liquidity.

The investment strategy is not a set-and-forget document — it must be reviewed at least annually. It must also be genuine and specific to your fund, not a copy-paste generic document. A licensed SMSF financial adviser can prepare and maintain your investment strategy.

Step 7: Appoint an accountant for annual compliance

Your SMSF needs a qualified accountant to handle the annual tax and compliance work — preparing the financial statements, the SMSF annual return, and member account reporting. Choose an accountant with specific SMSF experience, not a general practice that treats SMSFs as an afterthought.

At Pinnacle, we specialise in SMSF tax and compliance for business owners and professionals with complex funds. Mina Baselyous holds dual CPA and CTA (Chartered Tax Adviser) qualifications — bringing both accounting and specialist tax expertise to SMSF clients. Book a consultation to discuss your SMSF needs.

Step 8: Appoint an SMSF auditor

Every SMSF must be audited annually by a registered, approved SMSF auditor who is completely independent of the fund’s accountant and trustees. The auditor cannot be your accountant — this is a legal requirement, not just best practice. The auditor reviews both the financial statements and the fund’s compliance with super law, and reports to the ATO.

Frequently Asked Questions

Pinnacle coordinates with independent SMSF auditors on behalf of our clients, providing all required documentation and managing the audit process so trustees do not need to deal with it directly. Typical audit cost: $500–$1,500 depending on fund complexity.

Ongoing Annual Obligations

Setting up an SMSF is just the beginning. Every year, the following must be completed:

• Annual independent audit — must be completed by a registered, approved auditor before the annual return can be lodged
• Annual SMSF tax return and regulatory return — due by 31 October in most cases (or later if lodged through a registered tax agent)
• Member statements — each member must receive an annual statement showing their account balance and transactions
• Investment strategy review — the written investment strategy must be reviewed and the review documented
• Contribution cap compliance — ensuring total contributions (concessional and non-concessional) remain within ATO caps
• Record-keeping — maintaining records of all transactions, trustee decisions, and financial statements for at least 5 years

What Does It Cost to Set Up and Run an SMSF?

Here is a realistic cost guide for setting up and running an SMSF in Australia:

Setup costs (one-time)

• Corporate trustee establishment (company registration + ASIC): $800–$1,500
• Trust deed preparation: $1,000–$2,000
• Professional advice and setup assistance: varies
• Total typical setup cost: $2,000–$4,000+

Annual ongoing costs

• SMSF accounting and tax return preparation: varies significantly by adviser and fund complexity — commonly $2,000–$5,000+
• Independent SMSF audit: $500–$1,500
• ASIC corporate trustee annual review fee: approximately $320
• Licensed SMSF financial adviser fees: varies
• ATO supervisory levy: $259 (2026-27)
• Total typical annual cost: $3,000–$8,000+

At these cost levels, an SMSF generally makes financial sense when the fund holds $500,000 or more in assets. Below this level, costs represent a disproportionate drag on returns in most circumstances.

Common Mistakes to Avoid When Setting Up an SMSF

• Using a generic or outdated trust deed — a trust deed that does not permit your intended investment strategies will prevent you from implementing those strategies without a costly deed amendment
• Mixing personal and fund assets — keeping SMSF assets completely separate from personal funds is a fundamental compliance requirement. Breaches can result in the fund losing its complying status
• Not having a genuine investment strategy — the ATO audits investment strategies and expects them to be specific to the fund’s circumstances, not a generic template
• Missing the annual return lodgement deadline — late lodgement attracts ATO penalties and can trigger an audit
• Investing in prohibited assets — SMSFs cannot invest in certain related-party assets (other than business real property purchased at arm’s length). Understanding what is and is not permitted before investing is critical
• Cancelling insurance without replacement cover — rolling over from an existing fund without first arranging alternative insurance can leave you uninsured
• Ignoring contribution caps — excess contributions attract significant additional tax. Keeping track of contributions across all funds throughout the year is essential

How Pinnacle Helps with SMSF Setup and Compliance

Pinnacle Accounting & Advisory works with SMSF trustees at every stage — from the initial setup through to ongoing annual compliance and strategic tax planning. Here is how we help:

• Setup assistance — working with you and your legal adviser to get the structure right from day one, including trustee structure advice and ATO registration
• Annual SMSF tax return and financial statements — accurate, on-time lodgement each year
• Member reporting — member statements and account reporting
• Audit coordination — working with your independent auditor and providing all documentation required
• Tax planning — contribution strategies, pension phase timing, CGT planning within the fund, and Division 296 planning for high-balance members
• Division 296 guidance — if your SMSF balance is approaching $3 million, we model your exposure and help you develop a proactive tax response. Read our Division 296 explained guide for more detail
• Division 293 guidance — if you are a high-income earner, you may be paying an additional 15% tax on super contributions. Read our Division 293 tax guide to understand how to manage this cost
• Superannuation contribution strategies — from concessional contribution limits and personal deductible contributions to catch-up contributions and spouse super strategies. See our guide to superannuation strategies for business owners

We work alongside your licensed SMSF financial adviser, not instead of them. Our role is the tax and accounting side; their role is the investment strategy and financial advice. Together, we give you a comprehensive SMSF advisory team.

Ready to get started? Book a consultation with Mina to discuss your SMSF. You can also visit our SMSF accountant Melbourne page for a full overview of the services Pinnacle provides.

Frequently Asked Questions — Setting Up an SMSF

How long does it take to set up an SMSF?

The typical timeline from decision to operational SMSF is 2 to 6 weeks, depending on the complexity of the structure and how quickly you can complete the required steps. Establishing the corporate trustee, executing the trust deed, and registering with the ATO are the most time-sensitive steps. Rolling over from existing super funds typically adds additional time — usually 1 to 3 weeks after the fund is registered.

Do I need a corporate trustee or can I use individual trustees?

Both are legally permissible. Pinnacle generally recommends a corporate trustee structure for its flexibility, easier asset retitling when membership changes, and cleaner estate planning outcomes. The additional upfront cost ($800–$1,500 for company setup) is typically well worth the long-term administrative benefit, particularly for funds that are likely to be held for 20+ years.

Can I set up an SMSF on my own without professional help?

Technically, yes — the ATO allows trustees to manage some aspects themselves. However, establishing and maintaining a legally compliant SMSF involves complex legal documentation, ongoing ATO reporting, and annual audit requirements. Most SMSF trustees work with a combination of a registered tax agent (accountant), licensed SMSF financial adviser, independent auditor, and solicitor. Attempting to manage all of this without professional support is a common source of compliance breaches that can have severe financial and regulatory consequences.

What is the difference between an SMSF and an industry super fund?

An SMSF gives you direct control over the fund’s investments and structure — you choose what the fund invests in (within ATO rules), and you manage the compliance. An industry super fund is managed by professional trustees; you choose from a menu of investment options but have no direct control. SMSFs typically have higher fixed costs but offer greater flexibility and control. Whether the flexibility justifies the cost depends on your balance, investment strategy, and engagement level.

What happens to my SMSF when I retire?

When you reach preservation age and meet a condition of release, you can commence drawing a pension from your SMSF. In pension phase, earnings from assets supporting the pension are generally tax-free. You must pay yourself at least the minimum annual pension amount prescribed by the ATO based on your age and account balance. The fund continues to need annual accounting, audit, and reporting — the compliance obligations do not end at retirement. Estate planning for the fund — how benefits will be paid to beneficiaries — also becomes an important consideration.

Can I have just one member in an SMSF?

Yes. Single-member SMSFs are permitted under Australian law. However, a single-member SMSF requires either two individual trustees (the member plus one other person who is not employed by the member) or a corporate trustee with the member as the sole director. Most single-member SMSFs use a corporate trustee to avoid the complication of finding a second individual trustee.

This article contains general advice only and does not take into account your specific circumstances. Please speak with a qualified accountant or tax adviser before making financial decisions.

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From 1 July 2026, a new tax applies to Australians with superannuation balances above $3 million. Division 296 tax is now law — and if your total super balance is approaching that threshold, you need to understand what it means and start planning now.

Want a quick estimate first? Try our Division 296 tax calculator to see the additional tax on the earnings of your super balance above $3 million.

This guide explains exactly how Division 296 works, who it affects, how the tax is calculated, and what SMSF members with large balances should be doing right now to manage their exposure. For a deeper, action-focused walkthrough, see our guide on Division 296 for business owners and SMSF trustees.

What Is Division 296 Tax?

Division 296 is a measure introduced by the Australian Government to reduce the tax concessions available to individuals with very large superannuation balances. The name refers to the division of the Income Tax Assessment Act 1997 that contains the new rules.

In simple terms: if your total superannuation balance (TSB) exceeds $3 million at the end of a financial year, you will pay an additional 15% tax on the super earnings attributed to the portion of your balance above that threshold. Combined with the existing 15% earnings tax that super funds already pay in accumulation phase, the effective tax rate on those earnings rises to 30%.

For members with balances above $10 million (the Very Large Super Balance Threshold, or VLSBT), an additional 10% Division 296 tax applies on top — bringing the effective total tax rate on earnings from that portion to 40%.

Division 296: The Legislative Journey — Now Confirmed Law

Division 296 had a long and contested legislative history. The measure was first proposed in the 2023-24 Federal Budget as the “Treasury Laws Amendment (Better Targeted Superannuation) Bill.” In its original form, the Bill attracted significant controversy because it proposed to tax unrealised capital gains — meaning SMSF members could face a tax liability on paper gains from assets they had not yet sold, including illiquid assets such as commercial property or unlisted shares.

The original Bill failed to pass the Senate. A revised version — the Treasury Laws Amendment (Building a Stronger and Fairer Super System) Bill 2026 — was reintroduced in early 2026 with a significant and important change: unrealised capital gains were removed from the earnings definition.

This revised Bill passed the House of Representatives on 5 March 2026 and the Senate on 10 March 2026. The Building a Stronger and Fairer Super System Act 2026 received Royal Assent on 13 March 2026 and is now law. Division 296 tax applies from 1 July 2026.

How Division 296 Tax Works

The thresholds

For the 2026-27 financial year:

• Large Super Balance Threshold (LSBT): $3,000,000
• Very Large Super Balance Threshold (VLSBT): $10,000,000

Both thresholds apply to your total superannuation balance (TSB) — the sum of all your super interests across all funds (not just your SMSF), measured at 30 June each year. If your TSB exceeds the LSBT, Division 296 applies to the portion above it.

What earnings are taxed?

Under the final law — crucially different from the original proposal — Division 296 applies to realised earnings only. This includes:

• Dividends received
• Interest income
• Rental income
• Realised capital gains (assets that have been sold)

Unrealised capital gains — increases in the paper value of assets you still hold — are not included. This was the most contentious element of the original proposal, and its removal was a significant concession in the revised legislation.

How the tax is calculated — the proportion method

Division 296 tax is not applied to all of your SMSF’s earnings. Only the proportion of earnings attributable to the balance above the $3 million threshold is subject to the additional tax. The calculation works as follows:

• Calculate the proportion of your TSB that exceeds the LSBT: (TSB – LSBT) ÷ TSB
• Apply that proportion to your realised earnings for the year
• Apply 15% Division 296 tax to that amount

Worked example: $4.5 million TSB

Assume: TSB at 30 June 2027 = $4,500,000. Realised earnings for the year = $180,000 (comprising dividends, interest, rent, and realised capital gains on shares sold during the year).

• Amount above LSBT = $4,500,000 – $3,000,000 = $1,500,000
• Proportion = $1,500,000 ÷ $4,500,000 = 33.33%
• Earnings subject to Division 296 = 33.33% x $180,000 = $60,000
• Division 296 tax = 15% x $60,000 = $9,000

The ATO calculates and issues the Division 296 tax assessment to the individual (not the fund). Members can choose to pay the tax personally or elect to release funds from their super to meet the liability.

Who Is Actually Affected?

Division 296 applies to any individual whose total superannuation balance at 30 June exceeds $3 million — across all super funds, not just SMSFs. Estimates suggest this currently affects approximately 80,000 to 100,000 Australians, representing around 0.5% of super fund members.

The group most commonly affected includes:

• Business owners who have accumulated significant SMSF balances, often through commercial property held in super
• High-income professionals (doctors, lawyers, engineers, executives) who have maximised super contributions over a long career
• Retirees who built substantial super balances before the introduction of transfer balance caps
• Farmers and property owners whose SMSF holds real property with significant unrealised (but now also realised) gains

The inflation indexing problem — more Australians will be caught over time

One of the most significant policy concerns with Division 296 is that the $3 million threshold is not indexed to inflation. Over time, as super balances grow through both investment returns and ongoing contributions, more Australians will be caught by this threshold. The government has stated it will consider indexation in future, but at present there is no legislative commitment to index the LSBT.

For younger high-income earners who are diligently maximising their super contributions, a $3 million balance by retirement is an increasingly realistic prospect — particularly over a 30 to 40 year working career. If you earn above $250,000 and are maximising your super contributions, you may also face Division 293 tax on top of your usual super contributions tax. Division 296 planning should therefore not be seen as exclusively a problem for those who are already above the threshold. If you are on track to approach $3 million, understanding the implications now gives you far more options.

Key Issues for SMSF Members to Consider

Liquidity planning for illiquid assets

SMSF members whose funds hold illiquid assets — commercial property, unlisted shares, or private business interests — face a particular challenge. Even though Division 296 (in its final form) does not tax unrealised gains, rental income from commercial property is still a realised earning that will be subject to the tax if the member’s TSB exceeds $3 million.

If the SMSF is generating rental income from a commercial property worth $3 million, and the total TSB is above the LSBT, the Division 296 tax assessment will need to be paid — either from personal funds or by releasing cash from super. If the fund does not have sufficient liquid assets to fund the release, this can create cash flow pressure. Planning for this liquidity requirement well in advance is essential.

Contribution strategy review

For members approaching (but not yet above) the $3 million threshold, it may be worth reviewing contribution strategies. Continuing to maximise contributions into a fund that will soon be subject to Division 296 tax may be less tax-efficient than alternative wealth-building approaches. A licensed SMSF financial adviser, in consultation with your tax adviser, can model the after-tax outcomes of different contribution scenarios.

Pension phase and the tax-free earnings benefit

Members who have commenced a pension from their SMSF may have some assets in pension phase where earnings are currently tax-free. However, Division 296 applies based on the total superannuation balance, not just the accumulation phase balance. Members in pension phase who have a TSB above $3 million will still be assessed for Division 296 tax. The interplay between pension phase and Division 296 is an area requiring specific advice.

What Should You Do Now?

If your total superannuation balance is above, or approaching, $3 million, here are the key actions to consider:

• Review your SMSF’s investment mix — understand what realised earnings your fund is likely to generate each year and model the potential Division 296 liability
• Assess liquidity — ensure the fund holds sufficient liquid assets to fund Division 296 tax payments without forced asset sales
• Review your contribution strategy — consider whether it remains optimal to maximise contributions into super, or whether alternative structures may deliver better after-tax outcomes
• Consider your pension structure — the transfer balance cap still applies, and pension phase planning remains important alongside Division 296 considerations
• Get specialist tax and financial advice — Division 296 planning requires both tax expertise (Pinnacle can assist with this) and financial advice from a licensed SMSF financial adviser

How Pinnacle Helps SMSF Members Navigate Division 296

At Pinnacle Accounting & Advisory, Mina Baselyous (CPA + CTA) works directly with SMSF clients who are affected by — or approaching — the Division 296 threshold. Our work includes:

• Modelling Division 296 tax exposure for your specific TSB and investment mix
• Reviewing your SMSF’s liquidity position and planning for tax payment obligations
• Contribution strategy review in light of Division 296 and other super caps
• Coordination with your licensed SMSF financial adviser and auditor as part of your wider advisory team
• Annual SMSF tax return preparation and compliance
• SMSF establishment — if you are considering setting up an SMSF for the first time, we ensure the structure is optimised for Division 296 from day one
• LRBA compliance — if your SMSF holds or is considering property via a Limited Recourse Borrowing Arrangement and bare trust, we review the structure for compliance and tax efficiency

We work alongside your licensed SMSF financial adviser — not instead of them. For questions about investment strategy and whether to remain in super, you will need financial advice. For the tax planning and compliance side, Pinnacle is here to help.

Book a consultation to discuss how Division 296 affects your SMSF and what planning steps make sense for your situation. You may also find our SMSF services page useful for understanding the full scope of what Pinnacle provides.

Frequently Asked Questions — Division 296

Has Division 296 actually passed? Is it definitely law?

Yes. The Building a Stronger and Fairer Super System Act 2026 received Royal Assent on 13 March 2026 and is now Australian law. Division 296 tax applies from 1 July 2026. There is no further legislative uncertainty — this is no longer a proposal.

Does Division 296 tax unrealised capital gains?

No — and this is a critical difference from the original proposal. The final law taxes realised earnings only: dividends, interest, rent, and realised capital gains on assets that have been sold. Unrealised capital gains — the increase in value of assets you still hold — are not included in the Division 296 earnings calculation. This was the most controversial element of the original Bill and was removed from the final legislation.

Who pays the Division 296 tax — the SMSF or me personally?

The ATO calculates Division 296 tax and issues an assessment to the individual member, not the fund. You can pay the tax from your personal funds, or you can elect to release money from your super to pay it. If you elect to use super funds, the ATO will instruct the trustee to release the amount. This is an important distinction — it means the SMSF’s assets are not automatically reduced; the liability lands with you personally first.

Will the $3 million threshold increase with inflation?

Not at present. The $3 million Large Super Balance Threshold is not indexed to inflation under the current law. Future governments may choose to index it, but there is no current legislative commitment to do so. This means more Australians will be caught by Division 296 over time as super balances grow.

I am in pension phase. Does Division 296 still apply to me?

Yes. Division 296 applies based on your total superannuation balance, which includes both your accumulation interests and the value of your pension interests. Being in pension phase does not exempt you from Division 296 if your TSB exceeds $3 million. The specific tax treatment of earnings in pension phase and the interaction with Division 296 is complex — speak with a qualified tax adviser for advice specific to your situation.

Can I just withdraw my super to get below $3 million?

This is a question many affected members are asking. The short answer is: it depends on your circumstances. If you are past preservation age and meet a condition of release, you can withdraw from super. However, withdrawals may have their own tax implications, and money withdrawn from super loses access to the concessional tax environment permanently. Whether this makes sense for you depends on your overall wealth, your age, and your expected earnings both inside and outside super. This requires specific financial and tax advice — not a decision to be made without modelling the full after-tax outcomes.

Frequently Asked Questions

This article contains general advice only and does not take into account your specific circumstances. Please speak with a qualified accountant or tax adviser before making financial decisions.

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