Special Topic: Payday Super changes apply from 1 July 2026, act now to be prepared!

The ATO has issued further guidance on Payday Super changes that apply from 1 July 2026.

In particular, the ATO released a ‘Payday Super checklist for Employers’ (click here), which is a good summary of the tasks that should be completed before 1 July 2026, and now is the time to act.

Understanding ‘qualifying earnings’

From 1 July 2026, employers will calculate super using ‘qualifying earnings’ (QE) instead of the current ‘ordinary time earnings’ (OTE). For many employers, the new concept of QE is broader than OTE, but it should not change the amount they need to pay for their employees.

However, it may require updates to payroll software configuration and reporting.  Employers should review and prepare to correctly map pay codes now to meet reporting obligations and ensure readiness when their updated payroll software is available.

QE include the following payments:

• OTE (ie. payments for ordinary hours of work), including certain types of paid leave, allowances, bonuses and lump sum payments. There are no changes to what payments are considered OTE under Payday Super. For a full list of payments which are included within OTE – click here.
• All commissions paid to an employee.
• Salary sacrifice amounts that would qualify as QE had they not been sacrificed to superannuation.
• Earnings paid to workers who fall under the expanded definition of employee, including payments to independent contractors paid mainly for their labour.

Some payments may fall into more than one category of QE, such as commissions, and those payments are covered only once to the extent of the overlap in categories.

The total QE for a pay period is determined by aggregating all qualifying payments made to or for an employee on the relevant day, forming the basis for calculating superannuation guarantee (SG) contributions.

Each payday, employers will need to report both year-to-date QE and superannuation liability for each employee through Single Touch Payroll (STP). Employers should confirm their updated payroll software has this reporting functionality built in.

Understanding new timing requirements for super contributions

From 1 July, employers are responsible for ensuring that super contributions reach super funds within 7 business days of the relevant payday, calculated on the QE amount.  Super funds will have 3 business days (down from 20 days) to allocate or return contributions that cannot be allocated. There is currently no obligation for the Super fund to confirm that an employee contribution has been allocated successfully, however if 3 days have elapsed we can accept that the employee contribution has been processed correctly.

A super payment only counts once it is received by the employee’s superannuation fund, not when it is submitted. Submitting on day seven may not allow enough time, and we note there is no extension for rejected payments - so employers must ensure there is enough time to correct any errors and for SG contributions to reach funds within the 7 business days.

Understanding importance of testing payroll software before 1 July 2026

Prepare now, review your payroll system readiness, engage with payroll software providers and ensure the functionality for these new changes will be supported. It has been widely suggested that new payroll software functionality is tested and everything is running smoothly before 1 July.

Note that super payments for pay cycles in July 2026 may be due before your final quarterly super payment is due on 28 July 2026 (ie. for the June 2026 quarter, being April to June).  Contributions received on or before 28 July 2026 will reduce any super owing for the June 2026 quarter first.  If there is any remainder, contributions will then be used under Payday Super.  If you pay on time for the June 2026 quarter and Payday Super you do not risk incurring penalties.

The ATO has provided an example of this issue (click here), and explains that if the employer pays the correct amount for the June 2026 quarterly payments and the first Payday Super payment (ie. for the first pay cycle in July, which could be weekly or fortnightly) is paid in full both contributions will be made on time.

Understanding cash flow pressure

Employers may have multiple super payments due during July 2026, including:

• super payments for each Payday (after 1 July 2026); plus
• the final quarterly super payment due 28 July, for June 2026 quarter (ie. April to June).

Employers should review their expected pay cycles for July 2026 to understand the impacts of paying super each payday after 1 July 2026. Employers may consider setting aside additional funds to make sure they can meet their obligations.

If cashflow permits, employers can pay the June 2026 quarter super on or before the first payday in July (ie. the first pay cycle in July, which could be weekly or fortnightly). If an employer can do this, your business will have:

• a more seamless changeover to the Payday Super system; and
• time to correct any rejected payments before the 28 July deadline.

We recommend that all employers take actions as soon as possible to be best prepared for the Payday Super changes coming in from 1 July 2026. If you require assistance, please contact your Lowe Lippmann representative.

ATO is 'clearing up' some common Payday Super myths

With less than two months until Payday Super starts (on 1 July 2026), the ATO wishes to 'clear up' the following common misconceptions.

Myth: "There is nothing super fund trustees need to do before the start date."

Fact: Super funds should have already taken steps to receive more frequent contributions and meet shorter processing timeframes. System updates and testing should be underway, including implementing and testing for “SuperStream Contributions v3.0” upgrades.

Myth: "Payday Super just means super funds will receive contributions more often."

Fact: Payday Super raises expectations on speed, accuracy and responsiveness. It is not just about frequency — it is about how quickly and accurately contributions are allocated or rejected, within a tighter timeframe. Faster allocation and earlier rejection support employers to meet their obligations.

Myth: "Super fund actions do not impact employer compliance."

Fact: Super fund actions directly influence employer outcomes. They can support employer compliance by:

• rejecting incorrect employer contributions within the required timeframe;
• providing clear, timely error messaging; and
• maintaining high quality reporting for member accounts, using consistent ABNs and member account numbers, and keeping member data up to date.

ATO responds to high fuel costs

The ATO recognises that high fuel costs are affecting some businesses, and it will provide targeted support to eligible businesses that are unable to meet their payment obligations for three months, from 1 April 2026 to 30 June 2026.

In particular:

• the ATO will provide streamlined access to more flexible payment plan arrangements, including longer payment terms, no upfront payment, and access to general interest charge (GIC) remission where payment and lodgment conditions are met;
• high fuel costs will be a relevant factor in consideration of additional requests for remission of GIC and other penalties; and
• the ATO will provide support to vary pay as you go (PAYG) instalments where there has been a reduction in taxable income.

Businesses can assess their eligibility and notify the ATO of their interest in accessing a tailored payment plan and intention to vary PAYG instalments through the ATO's online services. The ATO will then contact these businesses or their representatives with more information and next steps.

ATO wants businesses to review their GST turnover

The ATO has noticed some businesses have not updated their GST reporting and accounting methods after exceeding the relevant thresholds.

If a taxpayer's business has a GST turnover of $10 million or more, they need to use full BAS reporting instead of 'simpler BAS', and account for GST on a non-cash (accruals) basis.

If their business has a GST turnover of $20 million or more, they need to report GST monthly on their BAS instead of quarterly.

The ATO is moving some businesses to the correct GST reporting and accounting methods from 1 July 2026, although taxpayers can voluntarily make the switch now in 'Online services for business' on the ATO's website (click here), or contact our office if you require assistance.

Tribunal decision regarding home office and car expenses overturned

The Full Federal Court recently allowed the ATO's appeal against an Administrative Review Tribunal decision that a taxpayer was entitled to claim deductions for home office and car expenses.

The taxpayer worked full-time for the ABC as a sports presenter and producer. During the 2021 income year, because of COVID-19 pandemic restrictions, the taxpayer undertook one of his work roles from a second bedroom in his home apartment which he was renting with his wife. He undertook most of another work role from the ABC's Southbank Studios in Melbourne.

The Tribunal had allowed the taxpayer's deductions for occupation expenses (being a proportion of the rent for his apartment) and for car expenses (incurred in driving between his home and the ABC studio to perform his two roles) in full.

However, the Full Federal Court subsequently overturned this decision, noting (in relation to the claim for the occupation expenses) that the 'essential character' of the rent paid was to secure domestic accommodation, and the prevailing conditions requiring the taxpayer to work from home did not alter this.

Also, in relation to the car expense claims, the Court considered the taxpayer's travel between his home and the ABC studio was 'to work' rather than 'on work', and was therefore not deductible.

Tribunal rejects claims for self-education expenditure

The Administrative Review Tribunal recently rejected an employee's claims for self-education expenses, as they did not have a sufficient nexus with his current job and income-earning activities.

The taxpayer worked as an employee for a large company. He claimed that his role evolved to include marketing and sales responsibilities during the 2022 income year, and that he was required to take courses in sales and marketing to help him perform his role.

The taxpayer sought to amend his tax return for the 2022 income year by claiming additional deductions for expenditure on online educational and training courses, related computer software and hardware, and membership fees.

The ATO disallowed these deductions, and the Tribunal affirmed the ATO's decision. The Tribunal noted that there was nothing in writing from the taxpayer's employer requiring him to undertake sales and marketing activities, let alone take self-education courses in those areas.

The expenditure incurred by the taxpayer related to online content creation, affiliate marketing, and entrepreneurship, whereas the taxpayer's work related to providing technical IT and computer services. Therefore, the expenditure did not bear a sufficient nexus with the taxpayer's income-earning activities for it to be deductible.

ATO launches new app feature to stop scam calls

Taxpayers can now instantly confirm whether a call claiming to be from the ATO is genuine, with the launch of a new in-app security feature designed to shut down scammers.

The new verify call feature allows users to confirm, in real time, that they are speaking with the real ATO, not a fraudster.

Taxpayers are encouraged to download the ATO app and register their device. Then, when they receive a call from someone claiming to be from the ATO, they can simply open the ATO app, login and select the verify call option.

Within 30 seconds, a notification should confirm it is an ATO call. If it does not appear, users should treat it as a scam call and hang up.

$1,000 instant deduction for 2026-27, draft guidance explained

The Government has released an exposure draft Bill proposing a new $1,000 standard deduction for work-related expenses, to apply from the 2026-27 income year onwards. The measure is aimed at Australian tax residents who earn assessable labour income (ie. employees) and is intended to simplify compliance.  The draft Bill also includes consequential changes to various rules.

Under the proposal, eligible individuals can claim a standard deduction of up to $1,000 for work-related expenses, however this amount cannot exceed total assessable labour income that is less than $1,000. The deduction is reduced by any work-related expense deductions claimed (ie. car, travel, repairs, depreciation) to ensure taxpayers do not receive a double benefit.

Where total eligible deductions exceed $1,000, the standard deduction will not apply, and taxpayers will instead claim their actual expenses. For the 2022–23 year, the average Australian’s work-related expense claimed was $2,739, and the median amount was $1,338 per taxpayer. This means most Australian taxpayers were already claiming more than this new proposed $1,000 instant deduction threshold.

Certain deductions remain outside the scope of the standard deduction and can still be claimed separately, including:

• charitable donations;
• investment expenses;
• union and professional association membership fees; and
• income protection insurance premiums.

The new standard deduction will replace the existing $300 threshold (which does not require keeping substantiation of invoices and receipts) and the $150 laundry concession.

Capital allowances (ie. depreciation)

From 1 July 2026, depreciating assets primarily used to generate assessable labour income will no longer be eligible for low-value pooling (LVP), which includes work-related items costing between $300 and $1,000 can be depreciated in the LVP.  Currently the LVP can include multiple assets valued under $1,000 purchased at different times.

However, where a balancing adjustment event occurs and the taxpayer has claimed the standard deduction during the asset’s effective life, the balancing adjustment amount may be reduced by 50%.

FBT work-related exempt items

For fringe benefit tax (FBT) purposes, where an expense payment fringe benefit falls within the scope of the standard deduction and is provided via a salary packaging arrangement, the otherwise deductible rule will not apply. As a result, employers will be liable for FBT on the full taxable value.

In addition, the exemption for eligible work-related items under section 58X will be limited to non-salary packaged benefits, and the restriction on substantially identical items within the same FBT year will be removed.

We note that these proposed changes are still in the consultation stage and still must pass through parliament to become law. If these proposed changes do pass, they would not come into force until 1 July 2026 for the 2026–27 tax year.