by Ariful | Sep 12, 2026 | US Updates
TITLE: US Tax Alert: New IRS Foreign Tax Credit Rules, the 15 October Deadline, and Form 5472 Penalties
Review the new foreign tax credit proposals
On 11 September 2026, the IRS and Treasury published proposed regulations under REG-117273-25, listed in the Federal Register as 91 FR 57832.
The proposals address how deductions are allocated and apportioned to:
- Foreign-source section 951A category income for foreign tax credit limitation purposes.
- Deduction eligible income (DEI).
- Foreign-derived deduction eligible income (FDDEI) used in section 250 calculations.
The proposals implement changes introduced by the One Big Beautiful Bill Act (OBBBA) to sections 250(b)(3) and 904(b)(5). They are intended to apply to tax years beginning after 31 December 2025.
Comments are due by 10 November 2026.
Who may be affected?
The proposals are primarily relevant to:
- US corporations with controlled foreign corporations (CFCs).
- Groups calculating section 951A or GILTI-related income.
- Companies claiming or reviewing the FDII deduction.
- International groups allocating interest, research, and experimental costs.
- Businesses claiming foreign tax credits against US tax liabilities.
The proposed approach generally provides special treatment for deductions connected with section 951A category income. For example, interest and certain research and experimental costs are not allocated to that category under the new section 904(b)(5) framework. Other deductions may need to be directly allocable before they can reduce the relevant foreign-source income.
These are proposed rules, not final regulations. However, companies with CFCs or FDII calculations should begin reviewing their accounting data and expense classifications now. Early preparation will make it easier to identify affected calculations before filing.
For background, review the IRS guidance on the foreign tax credit.
Prepare for the 15 October filing deadline
The 15 October 2026 deadline applies to many taxpayers that obtained an extension, including:
- Calendar-year corporations filing Form 1120.
- Individual taxpayers who filed an extension for Form 1040.
- Certain foreign-owned US disregarded entities that extended their information filing using Form 7004.
The deadline does not remove the requirement to keep accurate records. It only gives you additional time to complete and submit the required return or information forms.
Protect your US LLC from Form 5472 penalties
A foreign-owned US disregarded entity, such as a single-member LLC owned by a non-US resident, may need to file:
- A pro forma Form 1120.
- Form 5472 for each relevant reportable transaction and related party.
The IRS treats a foreign-owned US disregarded entity as a corporation for specific reporting purposes under section 6038A. This means that the entity can have a Form 5472 filing obligation even when it does not file a standard corporate income tax return.
According to the IRS Form 5472 instructions, the filing must be submitted by the due date of the pro forma Form 1120, including extensions.
Follow this filing checklist
If your US entity received an extension, complete these steps before 15 October:
- Confirm the entity classification. Check whether the US LLC is foreign-owned and disregarded for US tax purposes.
- Review reportable transactions. Include contributions, distributions, payments, loans, reimbursements, and other transactions with the foreign owner or related parties.
- Prepare a pro forma Form 1120. Write “Foreign-owned U.S. DE” across the top.
- Complete Form 5472. A separate form may be required for each relevant related party.
- Check the filing method. Foreign-owned US disregarded entities cannot e-file Form 5472.
- Mail or fax the documents correctly. Use the dedicated IRS filing address or fax number in the current instructions.
- Keep proof of submission. Retain a copy of every form, attachment, fax confirmation, or postal tracking record.
The IRS instructions identify the dedicated filing options as:
Fax: 855-887-7737
Mail:
Internal Revenue Service
1973 Rulon White Blvd
M/S 6112 Attn: PIN Unit
Ogden, UT 84201
Do not use the standard Form 1120 mailing address for this filing.
Understand the financial exposure
Failure to file a complete and timely Form 5472 can result in an initial $25,000 penalty. If the IRS issues a notice and the failure continues for more than 90 days, an additional $25,000 penalty may apply for each 30-day period, or part of a 30-day period, during which the failure continues.
That is why Form 5472 penalties should be treated as an operational compliance risk, not a document to prepare at the last minute.
Example: a UK seller with a US single-member LLC
Suppose you are a UK ecommerce seller operating through a US single-member LLC. The LLC is owned by you or your UK company, and you filed Form 7004 to extend the filing deadline.
Your action plan is straightforward:
- Prepare the pro forma Form 1120.
- Attach the required Form 5472.
- Write “Foreign-owned U.S. DE” across the top of the relevant documents.
- Mail or fax the package using the dedicated IRS instructions.
- Complete the submission by 15 October 2026.
Failing to complete these steps may expose the LLC to the $25,000 initial penalty, even if the business had little or no US taxable income.
Track the revised GloBE Information Return
Treasury also welcomed the revised GloBE Information Return published on 11 September 2026.
The revised framework is relevant to larger cross-border groups and includes a proposed side-by-side safe harbor for US-headquartered companies. The policy is intended to help qualifying US groups remain subject primarily to US global minimum tax rules rather than facing overlapping Pillar Two administration under the Income Inclusion Rule or Undertaxed Profits Rule.
This does not mean every international seller has a GloBE filing obligation. Smaller ecommerce businesses, digital agencies, SaaS companies, and growing SMEs should first establish whether they fall within the relevant group-size and multinational scope rules.
However, larger groups should monitor the revised return, reporting requirements, and implementation guidance carefully. You can review the latest information through the US Treasury international tax resources.
Build a filing-ready compliance process
Do not wait until the deadline week. Use this short review:
- Confirm every US entity’s classification and filing obligations.
- Identify which returns or information forms are still outstanding.
- Reconcile related-party transactions before preparing Form 5472.
- Diarise the 15 October 2026 deadline and the 10 November 2026 comment date.
- Store copies of all submissions and proof of filing.
by Ariful | Sep 11, 2026 | Australia Updates
TITLE: Startup CGT Concession Redesigned, ATO Debt Warning, and Offshore Software Royalties: What Businesses Need to Know
Startup CGT Concession Redesigned, ATO Debt Warning, and Offshore Software Royalties: What Businesses Need to Know
Australia’s tax landscape shifted again today. The proposed Innovative Business CGT Concession is now more generous, the ATO has warned that firmer debt collection is coming, and businesses paying offshore software providers still have time to respond to draft royalty guidance.
This update is relevant to businesses in Sydney, Melbourne, Brisbane, Perth and Adelaide, particularly technology companies, digital businesses, innovative SMEs and international groups.
1. Review the redesigned startup CGT concession before 28 September
The exposure draft removes the proposed $10 million lifetime cap
Treasurer Jim Chalmers released exposure draft legislation for the proposed Innovative Business CGT Concession (IBCC) on 11 September 2026.
The exposure draft changes several settings from the earlier proposal:
- The proposed $10 million lifetime cap on eligible gains has been removed.
- The minimum shareholding period has been reduced from five years to three years.
- The eligible company window has been extended from 10 years to 15 years across all sectors.
- The $50 million turnover threshold remains.
- The requirement to satisfy the innovation criteria also remains.
The concession is intended to protect founders, early employees and investors in qualifying innovative companies from the broader CGT reforms proposed to begin on 1 July 2027.
Under those broader reforms, the current 50% CGT discount would be replaced with cost-base indexation and a 30% minimum tax rate for relevant taxpayers. The IBCC is designed to preserve a targeted 50% discount for qualifying innovative business investments.
The legislation remains a proposal. You should not treat the exposure draft as final law.
Use this checklist to preserve your evidence
If your business or investment may qualify, take these steps now:
- Confirm the company’s age. The proposed 15-year eligibility window applies across all sectors.
- Check turnover. The company must remain below the proposed $50 million threshold.
- Document the innovation criteria. Keep evidence explaining the new or significantly improved product, service, process or method.
- Review share issue records. Confirm when shares or options were issued and who received them.
- Track the three-year holding period. This is shorter than the earlier five-year proposal, but it still requires reliable ownership records.
- Separate eligible and ineligible investments. This will make future CGT calculations and reporting easier.
Treasury is accepting feedback until 28 September 2026 through the official consultation page. The exposure draft is also discussed in reporting from Startup Daily and Capital Brief.
Why this matters: removing the lifetime cap may significantly change the potential benefit for founders and early investors. However, eligibility will depend on the final legislation and the quality of your supporting records.
2. Prepare for the proposed R&D Tax Incentive changes
Align your innovation records with future claims
The same reform package includes proposed changes to the R&D Tax Incentive from 1 July 2028.
The key proposed changes are:
- The refundable support turnover threshold would increase to $50 million.
- The general 10-year access limit would remain.
- Biotech and medtech businesses would receive a proposed 15-year limit.
- The maximum expenditure threshold for the non-refundable offset would increase to $200 million.
These changes could benefit growing technology and digital businesses with substantial development programs. They may also affect how you classify R&D expenditure, document technical activities and reconcile claims to your accounting records.
Maintain a stronger R&D audit trail
Do not wait until the next claim deadline. Maintain:
- Project descriptions and technical objectives.
- Records of experiments, testing and development activities.
- Staff time records.
- Contractor invoices.
- Software and equipment costs.
- Evidence showing how expenditure relates to eligible activities.
- Clear reconciliations between your R&D claim and your general ledger.
For a fast-growing SaaS business in Melbourne, a technology manufacturer in Sydney or a digital product company in Brisbane, consistent records will reduce the risk of unsupported claims.
The proposed R&D settings are not yet final. Monitor the Treasurer’s exposure draft announcement before changing your reporting process.
3. Act now if your business carries ATO debt
Expect more active collection where debt is collectable
ATO Commissioner Rob Heferen has warned that Australia’s tax debt is expected to continue rising in the ATO’s annual report due in October.
The ATO’s total debt book was last reported at approximately $115 billion. The Commissioner said that where debt is collectable, the ATO will continue taking firmer action.
This is an important warning for businesses carrying overdue GST, PAYG withholding, income tax or superannuation-related liabilities.
Correct the September GIC rate before calculating your exposure
The official ATO rates show that the General Interest Charge for July to September 2026 is 11.43% per year, calculated daily.
The rate increases to 11.51% from 1 October 2026.
GIC compounds daily. It continues to increase while an eligible debt remains unpaid. GIC and shortfall interest incurred from 1 July 2025 are also generally no longer tax deductible.
Use the ATO’s official GIC rates and interest guidance when reviewing your account.
Complete this debt review today
- Reconcile every ATO account to your accounting records.
- Identify unpaid activity statements and tax assessments.
- Separate principal debt from GIC and penalties.
- Confirm whether any amounts are disputed.
- Contact the ATO promptly if you need a payment arrangement.
- Update your cash-flow forecast for the 1 October GIC increase.
- Prioritise PAYG withholding and superannuation obligations because these can create serious compliance consequences.
Do not treat ATO debt as ordinary business finance. Daily compounding interest and more active collection can quickly turn a manageable balance into a material cash-flow problem.
by Ariful | Sep 11, 2026 | USA Accounting
TITLE: New IRS Rules Could Reshape Foreign Tax Credits for International Seller Groups in 2026
The IRS and Treasury have proposed new rules that could change how international seller groups calculate US foreign tax credits for 2026 tax years.
The proposal affects the allocation and apportionment of deductions to foreign-source Section 951A category income, commonly associated with GILTI and now referred to as net CFC tested income. It also updates the calculation of deduction eligible income under Section 250.
The proposed regulations were published on 11 September 2026 as REG-117273-25, 91 FR 57832, document 2026-18645.
For many US corporations with foreign subsidiaries, the changes could increase the foreign tax credit limitation. However, they may also create US-source losses and affect future overall domestic loss recapture.
Check whether your US structure falls within the rules
The proposal is relevant if your group includes:
- A US domestic C corporation that owns or is a US shareholder of a controlled foreign corporation (CFC).
- A US corporation used by UK, EU, Canadian, or Australian founders to operate or sell into the US.
- An international ecommerce, SaaS, agency, or digital business with a US corporation and a foreign subsidiary.
- A domestic corporation claiming the Section 250 deduction for foreign-derived deduction eligible income (FDDEI).
- A US seller group reporting Section 951A income and claiming foreign tax credits.
The rules are not automatically relevant to every foreign-owned US business. For example, a foreign-owned US LLC taxed as a disregarded entity or partnership may not be the taxpayer directly affected by the Section 951A rules. The analysis depends on the entity’s US tax classification, ownership structure, CFC interests, and filing position.
Review the US entity structure first. This will help you identify whether the proposal affects your 2026 calculations.
Understand the three Section 904(b)(5) deduction categories
The One Big Beautiful Bill Act added new Section 904(b)(5). The provision creates special rules for allocating deductions to foreign-source Section 951A category income when calculating the foreign tax credit limitation.
The proposed regulations describe three broad categories.
1. Allocate Section 250 and certain state or local tax deductions
Section 904(b)(5)(A) requires the following deductions to be allocated and apportioned to foreign-source Section 951A category income:
- The Section 250(a)(1)(B) deduction relating to net CFC tested income.
- A Section 164(a)(3) deduction for state and local income taxes imposed on amounts included in Section 250(a)(1)(B).
- Related amounts attributable to the Section 951A income and associated Section 78 gross-up, where applicable.
This means the Section 250 deduction remains part of the calculation for the Section 951A foreign tax credit basket.
2. Do not allocate interest or R&E to the Section 951A basket
Section 904(b)(5)(B) provides that no interest expense or research and experimental expenditure may be allocated or apportioned to foreign-source Section 951A category income.
This is a significant change for many US corporations.
Under the proposed framework, interest expense that would previously have reduced foreign-source Section 951A income through asset-based allocation is removed from that basket. The result can be a higher amount of foreign-source income for the Section 904 limitation calculation.
The treatment of R&E requires care. Existing Section 1.861-17 rules generally do not allocate R&E expenditures to Section 951A income. Therefore, R&E is excluded from the Section 951A basket, but it is not necessarily reallocated to US-source income if it would not have been allocated to the basket under the existing rules.
Separate interest, R&E, and other operating expenses in your workpapers. Combining them could produce an incorrect foreign tax credit calculation.
3. Allocate other deductions only when directly allocable
Section 904(b)(5)(C) permits another deduction to reduce foreign-source Section 951A income only when it is directly allocable to that income.
The proposed regulations interpret “directly allocable” more narrowly than “properly allocable” under the general Section 861 rules.
A deduction is not directly allocable if it is the type of deduction that may be apportioned using:
- The relative value of assets.
- The amount of US gross income.
- Modified gross income or similar indirect allocation factors.
The proposed regulations specifically identify several deductions that are not directly allocable, including:
- Stewardship expenses.
- Legal fees and accounting fees.
- Damages awards, prejudgment interest, and settlement payments.
- Supportive expenses.
- Overhead, general and administrative, and supervisory expenses.
These costs may still be deductible. However, they may no longer reduce foreign-source Section 951A income for Section 904 limitation purposes.
The proposal identifies examples of deductions that may be directly allocable, including:
- Section 986(c) foreign currency losses on distributions of previously taxed earnings and profits (PTEP) assigned to the Section 951A category.
- Net operating loss deductions allocated and apportioned to foreign-source Section 951A category income under the proposed rules.
Trace every material deduction to its underlying activity. This creates a stronger compliance file and helps support the treatment used in the tax calculation.
Model the potential foreign tax credit benefit
The foreign tax credit limitation generally restricts credits to the US tax attributable to net foreign-source taxable income in the relevant category.
The proposed rules can increase that limitation because fewer deductions reduce the Section 951A basket.
Example: US corporation with a foreign subsidiary
Assume a US corporation is owned by international sellers based in the UK, Canada, and Australia. The US corporation owns a foreign subsidiary that generates tested income and pays foreign income tax.
The US corporation also has:
- Interest expense on a US borrowing facility.
- Central overhead and general administrative costs.
- Accounting and legal fees.
- Foreign tax credits connected with the foreign subsidiary’s income.
Under the proposed Section 904(b)(5) rules:
- Interest expense cannot be allocated to foreign-source Section 951A income.
- General administrative and overhead expenses are not directly allocable.
- Legal and accounting fees are not directly allocable.
- The Section 951A income basket is therefore not reduced by those deductions for the Section 904 limitation calculation.
- The US corporation may have a higher foreign-source Section 951A income amount and a higher limitation for claiming foreign tax credits.
The benefit depends on the complete tax profile. It is not an automatic refund or credit increase. The corporation must still calculate the relevant foreign income, foreign taxes, deductions, Section 250 amounts, losses, and limitations correctly.
Watch for US-source losses and domestic loss recapture
The proposal does more than increase the Section 951A basket.
Deductions that would have reduced foreign-source Section 951A income under the normal allocation rules, but are excluded by Section 904(b)(5), are reallocated to US-source income.
That reallocation can:
- Create or increase a US-source loss for the year.
- Reduce the US tax attributable to US-source income.
- Affect the overall foreign tax credit limitation when US-source income is reduced or turned into a loss.
- Trigger or increase an overall domestic loss (ODL) that must be recaptured in later years.
An overall domestic loss arises when a US-source loss exceeds US-source income and a portion of that loss offsets foreign-source income. The reallocated deductions may increase an ODL balance. That balance must generally be recaptured in future years, which can reduce the foreign tax credit limitation in those years.
This means the immediate benefit of a higher Section 951A basket could be offset by future recapture. Groups with existing ODL balances should model both the current-year benefit and the future recapture effect.
Track ODL balances alongside the Section 951A limitation. The two interact, and a change to one can affect the other.
Plan for the 2026 tax year now
The proposed regulations are not yet final. However, they signal the direction of travel for Section 904(b)(5) and the Section 951A foreign tax credit basket.
Practical steps for international seller groups include:
- Confirm your entity classification and CFC status. Determine whether your US corporation is a US shareholder of one or more CFCs and whether it reports Section 951A income.
- Map your deductions by category. Identify Section 250 amounts, state and local taxes, interest expense, R&E, and other deductions that may be directly or indirectly allocable.
- Isolate interest and R&E. These should not be allocated to the Section 951A basket under the proposal.
- Test “directly allocable” for each material deduction. Do not assume that general overhead, administrative, legal, or accounting costs can reduce Section 951A income.
- Model the foreign tax credit limitation. Compare the limitation under the proposed rules with the current calculation.
- Review ODL balances and recapture. Consider how reallocated deductions could create or increase US-source losses and future recapture.
- Document your position. Keep a clear workpaper trail that supports the allocation and apportionment treatment used.
Speak to your US tax adviser before filing. The rules are proposed, and the final regulations may differ. However, early modelling can help you plan for 2026 and avoid surprises.
Key takeaways
- The proposed regulations under REG-117273-25, 91 FR 57832, document 2026-18645, address the allocation and apportionment of deductions to foreign-source Section 951A category income.
- New Section 904(b)(5) creates three categories: deductions that must be allocated to the Section 951A basket, deductions that cannot be allocated (interest and R&E), and deductions that may be allocated only if directly allocable.
- The Section 250 deduction relating to net CFC tested income remains part of the Section 951A basket calculation.
- Interest expense and R&E cannot be allocated or apportioned to foreign-source Section 951A category income.
- General overhead, administrative, legal, accounting, and similar expenses are not directly allocable and may no longer reduce the Section 951A basket.
- A higher Section 951A basket can increase the foreign tax credit limitation, but reallocated deductions may create US-source losses and increase overall domestic loss recapture in future years.
- International seller groups with US corporations and foreign subsidiaries should model the impact now and review their entity structure, deduction mapping, and ODL balances.
by Ariful | Sep 10, 2026 | US Updates
TITLE: Pennsylvania Local Sales Tax Moves to Destination Sourcing Under Act 21 of 2026
What is changing in Pennsylvania?
Pennsylvania is changing how local sales tax applies to taxable sales delivered to Philadelphia and Allegheny County, home of Pittsburgh.
Under Act 21 of 2026, local sales tax is moving from origin sourcing to destination sourcing. The Pennsylvania Department of Revenue will begin enforcing the new approach on 1 October 2026.
For international sellers, the practical rule is simple:
If you must collect Pennsylvania’s 6% sales tax, you must apply the correct Philadelphia or Allegheny County local tax based on the customer’s delivery address.
Pennsylvania has a 6% statewide sales tax. Only two local jurisdictions add a local sales tax:
- Philadelphia: 2% local tax, creating an 8% combined rate.
- Allegheny County: 1% local tax, creating a 7% combined rate.
- All other Pennsylvania locations: 6% state tax only.
Before Act 21, local tax was generally sourced according to the seller’s location.
That meant:
- A Philadelphia-based seller charged the 2% Philadelphia local tax on taxable Pennsylvania sales, including deliveries outside Philadelphia.
- A seller based outside Philadelphia did not generally charge Philadelphia’s 2% local tax on taxable goods delivered into Philadelphia.
- An Allegheny County seller charged the 1% local tax based on the origin rules then in place.
From 1 October 2026, local tax follows the delivery address instead.
A taxable delivery to Philadelphia is generally subject to 8%. A taxable delivery to Allegheny County is generally subject to 7%. A taxable delivery to Reading or another Pennsylvania location outside those jurisdictions remains subject to the 6% state rate alone.
The change does not alter which products or services are taxable. It changes where the local tax applies.
Effective date and enforcement date are different
Act 21 became law in July 2026. Its legal effective date is retroactive to tax years beginning after 31 December 2025, meaning the rule technically applies from 1 January 2026.
However, the Pennsylvania Department of Revenue has provided a soft landing. It will not begin enforcing the destination-sourcing rules until 1 October 2026, giving businesses time to update systems and processes.
This creates two dates you must track:
- 1 January 2026: The retroactive legal effective period begins.
- 1 October 2026: The Department of Revenue begins enforcement.
Do not treat the enforcement delay as a cancellation of the earlier legal period. Review your 2026 transactions and keep clear records of how you assessed and handled the January-to-September period. If your historic calculations appear incorrect, document the issue and obtain current instructions from the Pennsylvania Department of Revenue before correcting filings or remitting additional tax.
Who is affected by the Pennsylvania rule?
The change affects:
- Businesses located in Pennsylvania.
- Sellers in Philadelphia or Allegheny County shipping to other Pennsylvania addresses.
- Sellers elsewhere in Pennsylvania shipping into Philadelphia or Allegheny County.
- Interstate and remote sellers with Pennsylvania sales tax obligations.
- International sellers with Pennsylvania economic nexus.
- Sellers using Amazon, Shopify, eBay, Etsy, WooCommerce or other sales channels.
Pennsylvania’s economic nexus threshold is $100,000 in gross Pennsylvania sales in a calendar year. Once an out-of-state business has economic presence, it generally must register, collect and remit Pennsylvania sales tax on taxable transactions.
For a UK, US, EU, Canadian or Australian seller, the key question is not whether the business is located near Philadelphia. The key questions are:
- Do you have Pennsylvania sales tax nexus?
- Is the sale taxable?
- Where is the product or service delivered?
- Who is responsible for collecting and remitting the tax?
Why this matters to international ecommerce sellers
A UK-based seller shipping from an overseas warehouse into Philadelphia has no Pennsylvania origin location to use for local sourcing. Once the seller has Pennsylvania collection obligations, the customer’s delivery address becomes the essential tax data point.
This is particularly important for sellers that:
- Operate a Shopify or WooCommerce store.
- Sell through Amazon, eBay or Etsy.
- Use third-party fulfilment.
- Ship from the UK, Europe, Canada or Australia.
- Sell through a US entity while managing accounting from the UK.
- Combine marketplace sales with direct-to-consumer sales.
Do not assume that a marketplace facilitator solves every Pennsylvania obligation. Platforms may collect tax on facilitated transactions, but you must still understand:
- Which transactions the marketplace collected.
- Whether the correct local rate was applied.
- How marketplace sales are treated in your Pennsylvania nexus calculation.
- Whether your direct website sales are being calculated correctly.
- Whether your reports support your Pennsylvania filings.
Direct-to-consumer sales through your own Shopify or WooCommerce website remain your operational responsibility unless another approved collection arrangement applies.
This is where structured Shopify accounting UK, Amazon FBA accounting UK and ecommerce bookkeeping UK processes can help. Your accounting workflow should connect order data, delivery addresses, marketplace reports, tax collected and filing records.
Worked example: Philadelphia, Pittsburgh and Reading
Assume your business sells a taxable product for $100 and is required to collect Pennsylvania sales tax.
| Delivery address |
State tax |
Local tax |
Total tax |
Customer total |
| Philadelphia |
6% = $6 |
2% = $2 |
$8 |
$108 |
| Pittsburgh, Allegheny County |
6% = $6 |
1% = $1 |
$7 |
$107 |
| Reading |
6% = $6 |
None |
$6 |
$106 |
The seller’s location does not determine the local rate under the new rule. The delivery address does.
For a Shopify store, the tax engine should identify whether the delivery address is in Philadelphia, Allegheny County or another part of Pennsylvania. The same logic should apply when your order data is exported for reconciliation and filing.
Complete this compliance checklist before 1 October
Use the following checklist to prepare your business.
1. Confirm your Pennsylvania nexus position
Review your Pennsylvania gross sales for the current and prior calendar year. Include sales from relevant channels and confirm whether you have crossed the $100,000 economic nexus threshold.
If you have nexus, confirm that your registration and collection process is active. Doing this early helps you update tax logic, run test orders and verify that the correct Philadelphia or Allegheny County rate is being applied before enforcement begins.
by Ariful | Sep 10, 2026 | Australia Updates
TITLE: Australian Tax and Payroll Checklist: Key Actions for Businesses After 1 July 2026
Australian Tax and Payroll Checklist: Key Actions After 1 July 2026
Australia’s tax and payroll environment has changed significantly since 1 July 2026. Cross-border software payments, Payday Super, Single Touch Payroll, GST reporting and trust tax rules all require attention.
Use this checklist to identify the actions your business should take today.
1. Review offshore software payments before 2 October
The ATO finalised Taxation Ruling TR 2026/2 on 4 September 2026. It explains when payments under software distribution and intermediation arrangements may be treated as royalties for Australian tax purposes.
If a payment is a royalty, Australian royalty withholding tax may apply when you pay an offshore provider. This can affect:
- SaaS businesses paying overseas software owners.
- Digital agencies using international platforms.
- Software resellers and distributors.
- App developers and marketplace operators.
- E-commerce businesses paying offshore technology or platform providers.
- Businesses making payments for software licences, embedded intellectual property or know-how.
The ATO’s view focuses on the substance of the arrangement. A contract calling a party a “distributor” or describing payments as “royalty-free” will not necessarily determine the tax treatment.
You should examine whether your payments relate to:
- The right to use copyright or other intellectual property.
- The use of software rights.
- Access to know-how.
- Software embedded in physical products.
- Ancillary support connected to intellectual property rights.
The relevant point for withholding tax is generally the date you make the payment. This means you should review current payment processes, not only new contracts.
Assess your risk under PCG 2026/D4
The ATO also released draft Practical Compliance Guideline PCG 2026/D4. It proposes a risk-based framework for software-related royalty payments to non-residents.
Public consultation remains open until 2 October 2026. The draft guideline includes lower-risk zones and indicators of higher-risk arrangements. It also seeks feedback on the risk criteria, residual risk calculations and practical examples.
Action checklist:
- List all payments made to offshore software and platform providers.
- Separate ordinary access fees from payments that provide rights to use intellectual property.
- Review contracts, invoices and payment descriptions.
- Check whether a tax treaty changes the withholding outcome.
- Keep evidence supporting your treatment.
- Escalate uncertain arrangements before making further payments.
Read the ATO’s software royalties ruling and draft guidance and note the consultation deadline.
2. Treat missed June quarter super payments as overdue
The final quarterly Superannuation Guarantee payment for the June 2026 quarter was due to reach employees’ funds by 28 July 2026.
Where an employer missed that date, the shortfall is overdue. Any required Superannuation Guarantee Charge statement and payment were generally due by 28 August 2026.
Do not assume that making a late contribution removes the problem. The late payment offset is no longer available. Employers must address the shortfall and any applicable SGC obligations under the rules applying to the June quarter.
Payday Super myths to avoid
Payday Super applies to paydays from 1 July 2026. Contributions must reach the employee’s fund within 7 business days of payday, unless a specific exception applies.
The ATO has highlighted several common misunderstandings:
-
Myth: Seven days means calendar days.
The standard period is seven business days. Weekends and national public holidays are excluded.
-
Myth: Sending the payment is enough.
The contribution must reach the fund with sufficient information for allocation. The date you initiate the payment is not always the date the fund receives it.
-
Myth: The old quarterly system still applies to new paydays.
Paydays from 1 July 2026 are subject to the Payday Super framework.
-
Myth: The Small Business Superannuation Clearing House is still available.
The Small Business Superannuation Clearing House closed from 1 July 2026. You need another SuperStream-compliant payment solution.
-
Myth: The ATO will immediately penalise every transition error.
The ATO has stated that it is prioritising support during the first transition year. That does not remove the obligation to calculate, report and pay super correctly.
Check your payroll software, payment provider and fund data now. A failed payment can create a timing problem even when the original instruction was submitted on time.
The ATO’s Payday Super guidance provides the current employer requirements.
3. Complete STP finalisation for closely held payees by 30 September
Small employers with 19 or fewer employees may have different STP finalisation dates depending on their workforce.
For the 2025–26 income year:
- Arm’s-length employees generally required finalisation by 14 July 2026.
- Closely held payees generally require finalisation by 30 September 2026 where the business has a mix of arm’s-length and closely held payees.
- Small employers with only closely held payees may have a different deadline linked to the payee’s tax return due date.
If your business has both regular employees and closely held payees, review the 30 September deadline now. Closely held payees may include directors, owners or family members paid by a private company.
From 1 July 2026, Payday Super also expands the information required through STP. Each pay run must report qualifying earnings and superannuation liability amounts, alongside wages and PAYG withholding.
Complete these checks:
- Confirm every pay event has been lodged.
- Review employee and closely held payee classifications.
- Reconcile year-to-date wages and PAYG withholding.
- Confirm qualifying earnings are mapped correctly.
- Check year-to-date super liability amounts.
- Finalise closely held payees by the correct deadline.
The ATO explains the requirements for STP end-of-year finalisation and STP reporting under Payday Super.
4. Keep defensible valuations for Division 296
Division 296 commenced on 1 July 2026 for individuals with total super balances above the $3 million threshold.
The ATO has identified market valuations and audit evidence as key risk areas. This is particularly important for SMSF trustees holding:
- Unlisted company shares.
- Units in private trusts.
