SME Cash Flow at Risk: How to Prepare for Upcoming Payroll and Tax Changes
Small and medium-sized enterprises (SMEs) in Australia are facing a series of upcoming payroll compliance and tax legislation changes that may impact their cash flow significantly. These changes, effective from 1 July 2025 and 1 July 2026, will require SMEs to adjust their financial and administrative practices to remain compliant and manage cash flow.
Changes impacting SME cash flow from 1 July 2025
Super Guarantee increases to 12%
The Superannuation Guarantee (SG) rate will rise from 11.5% to 12%, requiring businesses to allocate more funds to employee super contributions. While this benefits employees’ retirement savings, it potentially increases payroll expenses for employers.
Businesses should review their employee contracts to see how superannuation is included in their pay.
If a contract states that an employee’s total pay includes superannuation, it might be possible for the SG increase to come out of the existing salary. However, it’s important to note that employees could become disgruntled if they’re expected to absorb the increase in SG.
If a contract states that super is paid on top of the wage, the business will need to increase payments to meet the new 12% minimum.
Cash flow impact: Businesses with tight margins may struggle to absorb the higher SG payments, particularly if they already experience delayed customer payments. It's crucial for businesses to ensure that superannuation payments are made on time, as late payments attract the Superannuation Guarantee Charge (SGC) which is not tax-deductible, further straining cash flow.
ATO interest charges no longer tax deductible
From 1 July 2025, the Australian government plans to amend tax laws to deny tax deductions for General Interest Charge (GIC) and Shortfall Interest Charge (SIC). Currently, businesses can claim these interest charges as tax deductions, but the proposed change aims to remove this benefit, making overdue tax liabilities more costly for SMEs in an attempt to further discourage late tax liability payments.
Cash flow impact: Businesses relying on tax deductions to partially offset late payment costs may notice additional cash flow strain.
Changes impacting SME cash flow from 1 July 2026
Payday super introduced – Super payments due with every pay cycle
Employers will need to pay superannuation contributions at the same time as employee wages, rather than quarterly. Payments must be received by the employee’s super fund within seven days of payday to avoid penalties.
Cash flow impact: Businesses that previously relied on quarterly super payments for cash flow flexibility will now need funds available for super every pay run. Late superannuation payments are not eligible for a tax deduction, compounding cash flow pressure.
ATO’s free clearing house to close
The ATO’s Small Business Superannuation Clearing House (SBSCH) will be discontinued, meaning SMEs will have to find alternative platforms such as Xero or MYOB to process super payments.
Cash flow impact: While new software can improve payroll efficiency, it adds another ongoing expense, along with potential administrative burdens for small business owners — especially given superannuation will need to be processed alongside each pay run.
Preparing for the changes
Preparing for the changes requires SMEs to assess the potential impact on their operations and cash flow. It’s important to review budgets, consider how the increased SG rate and changes to tax deductions for ATO interest charges might affect finances, and ensure payroll systems are set up to process super contributions with each pay cycle. Any Businesses using the SBSCH should also explore suitable superannuation payment platforms ahead of the free clearing house closure to ensure a smooth transition.
For businesses concerned about maintaining steady cash flow throughout these changes, invoice finance might be a valuable solution. By unlocking funds tied up in unpaid invoices, invoice finance provides access to working capital, helping businesses cover expenses such as payroll, superannuation contributions, and other operational costs without waiting for customers to pay.
For more information, please get in touch with Earlypay to explore how invoice finance can support cash flow and keep businesses running smoothly through this transition.
