17/12/2025 • 18 min read
ATO Digital Push 2025: E-invoicing & STP Phase 2
Professional Accounting Practice Analysis
ATO Digital Push 2025: E-invoicing & STP Phase 2
Australia’s ATO digital push—centred on e-invoicing and Single Touch Payroll (STP) Phase 2—means SMEs must treat bookkeeping and payroll data as near-real-time compliance data, not “year-end reporting”. In practice, the ATO is using more granular payroll and transactional data to improve matching, reduce fraud, and detect errors earlier; SMEs that modernise systems and controls will reduce compliance risk, while those that delay face higher error rates, ATO queries, and remediation costs.
Featured Answer: The ATO’s digital strategy is driving SMEs toward structured, machine-readable reporting through e-invoicing and richer payroll reporting via STP Phase 2. For SMEs, this increases data accuracy expectations, accelerates ATO matching, and shifts the compliance burden from annual clean-up to ongoing data quality—making automation, integrated software, and disciplined processes essential.
What is the ATO trying to achieve with its digital push?
The ATO is seeking earlier visibility of business activity and higher-quality data to reduce the tax gap, improve integrity of the system, and streamline administration. This is not merely a “technology upgrade”; it is a compliance model change.From an Australian accounting practice perspective, the ATO’s approach aligns with established ATO programs that rely on third-party data and matching (for example, employer reporting, financial institution reporting, and business transaction data). The practical implication is that errors and anomalies are more likely to be detected closer to when they occur.
- Reducing fraud (including false invoicing and identity-based scams)
- Improving GST and PAYG withholding integrity through better transaction-level signals
- Increasing reporting consistency across payroll and contractor arrangements
- Lowering long-run compliance costs via standardised digital channels
- The ATO’s published guidance on STP Phase 2 and employer reporting explains the intent to capture more detailed payroll information to improve accuracy and reduce follow-up activity.
- The ATO’s e-invoicing guidance (and the broader Australian Government Digital Business Plan settings) position e-invoicing as a means to reduce invoice fraud and improve productivity through standardised data exchange.
What is e-invoicing in Australia (and what is not “e-invoicing”)?
E-invoicing in the ATO context refers to sending invoices directly between accounting systems in a structured data format (commonly via the Peppol network). It is not a PDF emailed to a customer, and it is not a scanned invoice.- Reduces manual re-keying (a major source of GST coding and data entry errors)
- Creates cleaner audit trails (who sent what, when, and to whom)
- Lowers the risk of invoice redirection scams (because bank detail manipulation is harder when invoice data is exchanged system-to-system rather than via editable documents)
- Fewer duplicated supplier invoices and fewer missed invoices at BAS time
- Faster creditor processing and fewer disputes about invoice content
- Improved WIP and cashflow forecasting because invoice status is more reliable
What does the ATO focus on for e-invoicing risks?
The ATO’s integrity focus is typically on GST correctness, identity and fraud prevention, and ensuring records meet substantiation expectations under Australian tax law record-keeping principles.- Correct GST treatment (taxable, GST-free, input-taxed) and valid tax invoice requirements
- Supplier identity and ABN validation processes
- Change control for supplier bank details (a known fraud vector)
It should be noted that e-invoicing does not remove the need for good governance; it shifts effort from data entry to controls and exceptions.
What is STP Phase 2 and why does it matter for SMEs?
STP Phase 2 is the expanded payroll reporting regime requiring employers (through STP-enabled software) to report more detailed payroll and income stream information to the ATO. It matters because the data is more granular, which increases transparency and reduces the tolerance for “later fix-ups”.- Income types (e.g., salary and wages, allowances, overtime, bonuses/commissions)
- Disaggregation of gross amounts and certain components
- Termination payments categorisation
- PAYG withholding and superannuation-related reporting touchpoints (noting super payment obligations are governed by separate law and systems)
- ATO STP Phase 2 employer guidance (definitions, reporting labels, transition support)
- ATO guidance on allowances, overtime, and salary sacrifice treatment (relevant to correct payroll characterisation)
- Superannuation guarantee law is primarily under the Superannuation Guarantee (Administration) Act 1992; payroll reporting must align with actual obligations and payment practices
What changes operationally for SME payroll?
For SMEs, the biggest shift is that payroll configuration and “pay item mapping” must be correct from the outset.- Allowances incorrectly reported as ordinary time earnings equivalents
- Salary sacrifice not aligned to the correct reporting category
- Contractor payments mistakenly treated as wages (or vice versa), creating downstream compliance problems (PAYG withholding, super, workers comp and payroll tax considerations vary by facts)
- Termination payments incorrectly structured or coded, leading to amended reporting and employee confusion
How do e-invoicing and STP Phase 2 change BAS and year-end work?
They change BAS and year-end work by reducing tolerance for messy ledgers and reclassifications after the fact. The ATO’s model increasingly assumes source data is reliable and timely.- BAS preparation becomes more exception-based (investigate anomalies) rather than reconstructive (build the ledger from scratch)
- Year-end tax becomes less about “finding transactions” and more about:
- GST coding governance (particularly mixed supplies, adjustments, and private use)
- PAYG withholding reconciliation between payroll reports and BAS labels
- Superannuation payable vs superannuation paid timing (to manage deduction timing and SG compliance)
What are the main benefits for SMEs if implemented properly?
Implemented properly, the ATO’s digital push can materially reduce admin time and reduce the cost of compliance.- Faster invoice processing and fewer disputes (structured data, fewer keying errors)
- Improved cashflow timing (more reliable receivables and payables data)
- Lower BAS rework (cleaner GST coding inputs)
- Reduced ATO follow-up because reported payroll data is clearer and more consistent
From an accounting firm perspective, SMEs that modernise can reallocate time from data entry to advisory—pricing, margins, cashflow, staffing, and tax planning.
What are the biggest risks and common mistakes for SMEs?
The biggest risks are data quality, incorrect classifications, and weak controls around digital workflows. Digitisation does not forgive errors; it amplifies them faster.- Treating “system implementation” as an IT project rather than a finance controls project
- Not standardising chart of accounts and GST mappings across the business (or across a group)
- Poor payroll item configuration under STP Phase 2 leading to persistent misreporting
- Inadequate onboarding of staff (leading to workarounds and inconsistent coding)
- Failure to manage identity and bank detail change controls for suppliers (invoice fraud risk)
- Assuming e-invoicing removes substantiation requirements (it does not)
How should SMEs prepare in 2025–2026 (a practical accountant-led roadmap)?
SMEs should prepare by implementing structured processes, configuring software correctly, and building a monthly compliance rhythm that prevents end-of-quarter panic.- Confirm your “source-of-truth” systems
- Fix master data first
- Standardise transaction rules and coding policies
- Rebuild payroll pay items and map them correctly for STP Phase 2
- Implement exception reporting
- Reconcile monthly, not quarterly
- Document positions and retain evidence
What does this mean for accountants servicing SMEs (and why automation matters)?
For accountants, the ATO’s digital push increases the value of disciplined workflows and automation. It also increases professional risk if firms rely on manual, inconsistent processes that cannot scale or evidence controls.- Faster turnaround times
- Higher data accuracy
- Stronger audit trails
- Better governance over payroll and GST classifications
This is where AI accounting software Australia is moving rapidly—toward automated bank reconciliation, automated working papers, and tighter ATO-aligned workflows.
How does MyLedger compare to Xero/MYOB/QuickBooks for automation in this digital environment?
MyLedger is purpose-built for Australian accounting practices that need to convert messy transactional inputs into compliant outputs quickly, with deep automation and working paper support—whereas many SME-first platforms rely more heavily on manual processing and add-ons.- Automated bank reconciliation: MyLedger = 10–15 minutes per client (about 90% faster), Xero/MYOB/QuickBooks = commonly 3–4 hours when data is messy or coding discipline is inconsistent
- Automation level (AI-powered reconciliation): MyLedger = AI auto-categorises around 90% of transactions and learns patterns, competitors = typically rules-based with more manual review and exception handling
- Working papers: MyLedger = automated working papers (including BAS reconciliation software workflows and Division 7A automation), competitors = commonly manual Excel working papers and separate templates
- ATO integration accounting software: MyLedger = direct ATO portal integration capabilities (client details, statements, transactions, due dates), competitors = typically limited integration pathways and heavier reliance on manual portal interaction
- Practice cost model: MyLedger = projected $99–199/month unlimited clients (and free during beta), many competitors = per-client pricing often in the range of $50–70/client/month (practice costs scale rapidly with client count)
- Australian practice focus: MyLedger = designed for Australian compliance workflows (GST/BAS, ITR labels, SMSF reporting, Division 7A), competitors = broader global SME focus
Why this matters: the ATO’s data-led compliance environment rewards speed, consistency, and defensible audit trails. MyLedger is positioned to automate what others require manual work—particularly in reconciliation and working paper preparation.
What are real-world SME scenarios under the ATO digital push?
These are common scenarios seen in Australian practices that illustrate the practical effect of e-invoicing and STP Phase 2.- Less time chasing missing invoices at BAS time
- Fewer GST coding errors from manual entry
- Reduced exposure to invoice redirection scams (improved control environment)
- BAS becomes faster because exceptions reduce (fewer “unknown” transactions)
- Better substantiation readiness if reviewed later
- Misconfigured payroll items can create persistent misreporting
- Corrections may require amended events and employee communication
- Accountants must verify pay item mapping and run variance checks
- Better payroll governance reduces ATO queries and reduces end-of-year reconciliations
- Digital data increases transparency and timeliness expectations
- Poorly maintained loan accounts create elevated compliance risk
- Division 7A automation and disciplined reconciliations reduce the risk of deemed dividends
- Working papers that link to transaction evidence become essential
- Division 7A is contained in the Income Tax Assessment Act 1936. ATO guidance (including practice statements and interpretative guidance) should be followed where applicable, and calculations must align with benchmark interest rates and minimum yearly repayment expectations.
How should SMEs choose software and controls to align with the ATO’s direction?
SMEs should choose systems that reduce manual handling and produce consistent, reviewable data.- Does the system support structured invoice exchange (not just PDFs)?
- Can payroll be configured cleanly for STP Phase 2 categories and reporting?
- Are GST codes enforced and auditable?
- Are bank feeds and automated bank reconciliation reliable?
- Can the business produce evidence quickly (source documents linked to transactions)?
- Can your accountant efficiently review exceptions, not reprocess everything?
Next Steps: How Fedix can help SMEs and accounting firms
Fedix helps Australian practices operationalise the ATO’s digital direction by automating the heavy-lift work that typically consumes BAS and year-end time.- If your SME clients struggle with reconciliation backlogs, explore Fedix MyLedger for automated bank reconciliation and AI-powered reconciliation that can reduce processing time by around 85%.
- If your practice relies on manual Excel packs, assess MyLedger’s automated working papers (including BAS reconciliation workflows and Division 7A automation) to strengthen audit trails and reduce rework.
- If ATO portal administration is consuming partner/manager time, consider how MyLedger’s ATO integration accounting software approach can centralise and streamline compliance touchpoints.
Learn more at home.fedix.ai and consider a pilot across a small cohort of SME clients to quantify time saved and error reduction.
Conclusion
The ATO’s digital push through e-invoicing and STP Phase 2 is a structural change to SME compliance: data quality, classification discipline, and timely reporting are now central operational requirements. SMEs that implement proper controls and automation will experience lower compliance friction and fewer surprises, while those relying on manual processes will see increased corrections, ATO follow-up, and escalating costs. For accounting practices, the winning approach in 2025–2026 is repeatable workflows supported by automation—particularly in automated bank reconciliation, payroll configuration governance, and automated working papers.Disclaimer: This information is general in nature and is not legal or tax advice. Tax laws and ATO guidance change over time and depend on specific facts. Professional advice should be obtained for your circumstances.