Software businesses break the assumptions most small-business accounting is built on. Cash arrives a year in advance. The biggest asset is code that doesn't appear on the balance sheet. Staff are paid partly in options. Half the team may be in another country. And the most valuable tax concession available to you, the R&D tax incentive, is lost every year by companies that didn't keep the right records.
This page sets out the problems we see, the rules that matter for software companies, the numbers we report, and how we work with you.
What goes wrong in software company finances?
The same handful of problems turn up in almost every software business we take on.
- Revenue that isn't really revenue yet. A customer pays $24,000 for an annual plan in March. The books show $24,000 of income in March, the month looks fantastic, and the next eleven months look terrible. Investors and banks read that as volatility, not growth.
- R&D claims built from memory. The founders know they did genuine experimental work. But nobody recorded the hypotheses, the experiments or the hours, so the claim is either too small or too risky to lodge.
- Equity handed out on a handshake. Early staff were promised "2%" with no plan, no valuation and no paperwork. When it is finally formalised, the tax outcome can be far worse than it needed to be.
- Contractors everywhere. Developers in Vietnam, a designer in Bali, a contractor in Melbourne working full-time hours. Each one raises a different question about super, payroll tax and whether they are really contractors.
- No runway number. The founders know the bank balance. They don't know how many months it lasts at the current burn, or what the burn will be after the next three hires.
What do we do for software and SaaS businesses?
We run the finance function so you can run the product.
| Area | What we actually do |
|---|---|
| Bookkeeping | Xero updated daily, Stripe or Chargebee payouts reconciled to invoices, fees and refunds split out, multi-currency handled |
| Revenue | Annual and multi-month plans recognised over the service period, deferred revenue tracked, implementation fees treated consistently |
| R&D tax incentive | Expenditure tracked through the year against registered activities, R&D schedule and company tax return prepared, working with an R&D specialist where needed |
| Equity | Tax side of option and share plans: startup concession eligibility, valuations, ESS statements and the annual ESS report |
| Payroll | Payday Super, contractor reviews, payroll tax monitoring as headcount grows |
| Reporting | Monthly management reports with SaaS metrics, burn and runway |
| Raises | Data room financials, forecast, cap table reconciliation, loss tracking across rounds |
For the reporting side, our management report agent drafts the monthly pack from your Xero numbers and our cash flow forecast agent builds the three-way forecast. A qualified accountant reviews both and talks you through them before anything goes to your board.
Which SaaS metrics should your accountant report?
Your accounts should produce these every month, from the same numbers that go into your tax return. If the metrics in your pitch deck can't be reconciled to Xero, sophisticated investors notice.
| Metric | What it tells you | How it's worked out | Watch for |
|---|---|---|---|
| MRR / ARR | Recurring revenue run-rate | Monthly recurring subscription revenue (ARR = MRR × 12) | Including one-off setup or services fees |
| Net revenue retention | Whether existing customers grow or shrink | Revenue this period from customers you had 12 months ago ÷ their revenue then | Excluding customers who churned |
| Logo churn | Share of customers lost | Customers lost in period ÷ customers at start | Monthly churn compounds; 3% a month is about 30% of customers a year |
| Gross margin | Cost to deliver the product | (Revenue − hosting, support, payment fees, third-party licences) ÷ revenue | Hosting buried in overheads |
| CAC payback | Months to recover the cost of winning a customer | Sales and marketing cost ÷ (new MRR × gross margin) | Founders' sales time left out |
| Burn and runway | How long the cash lasts | Net cash out per month; cash ÷ average net burn | Using last month only, or ignoring the R&D refund timing |
| Burn multiple | Efficiency of growth | Net burn ÷ net new ARR | Rising multiple with flat growth |
We don't stop at producing the numbers. A rising CAC payback or a falling net revenue retention is a conversation about pricing, onboarding or who you're selling to.
Which tax rules matter most for software companies?
The R&D tax incentive
The R&D tax incentive is the single biggest lever for most Australian software companies. In summary, per business.gov.au and the ATO:
- It's available to companies, not sole traders or trusts acting alone.
- Companies with aggregated turnover under $20 million get a refundable offset equal to their company tax rate plus an 18.5% premium. A loss-making startup can receive this as cash.
- Larger companies get a non-refundable offset at the company tax rate plus a premium that depends on R&D intensity.
- You must register your activities with the Department of Industry within 10 months of the end of the income year, then claim in your company tax return.
- A minimum amount of notional R&D expenditure generally applies, with exceptions such as when you use a registered research service provider.
The traps for software are specific. Routine development, bug fixing and building features with known techniques are generally not core R&D. Software developed mainly for your own internal administration is excluded. What qualifies is work where the outcome couldn't be known in advance from existing knowledge, approached through a systematic cycle of hypothesis, experiment and evaluation. That has to be evidenced by records made at the time: technical notes, tickets, commits and time records linked to each registered activity.
Key point: The R&D claim is won or lost during the year, not at tax time. We set up your Xero tracking and timesheet categories so the expenditure side is ready when the year ends.
Revenue recognition and deferred income
For your financial statements, Australian accounting standards (AASB 15) spread subscription revenue over the period you provide the service. For tax, the ATO generally accepts that money received in advance for services you haven't yet delivered isn't derived until you earn it, which usually means a similar outcome. Getting this right matters for three reasons: your monthly results become meaningful, your company tax instalments aren't inflated by cash you haven't earned, and buyers or investors doing due diligence see clean numbers.
Employee share schemes
Options and shares given to staff are taxed under the employee share scheme (ESS) rules. The startup concession can mean staff aren't taxed when they receive the interest, and growth is generally taxed later as a capital gain. Per the ATO, broadly, the company must be unlisted, every company in the group must have been incorporated for less than 10 years, aggregated turnover must not exceed $50 million, the employer must be an Australian resident company, shares can't be issued at more than a 15% discount (and options must have an exercise price at least equal to market value), and employees must generally hold for at least 3 years.
Miss one condition and staff can face an upfront tax bill on equity they can't sell. Employers must also give each participating employee an ESS statement after year end and lodge an ESS annual report with the ATO. We handle the tax side and work with your lawyer on the plan documents.
Overseas contractors and staff
Paying a developer in another country raises several questions at once: whether they are genuinely a contractor, whether Australian super applies (generally not for a non-resident working entirely overseas, but check the facts), whether their work creates a taxable presence for you or them overseas, and how the expense and GST are recorded. Australian-based contractors raise payroll tax contractor provisions in most states once you're over the threshold. Our guide to employee vs contractor covers the domestic tests.
Losses, capital raises and the new loss carry-back
Startups build tax losses. A company can carry them forward only if it passes the continuity of ownership test or the business continuity test, and successive funding rounds can break the first. Under the Tax Reform No. 2 Act 2026, which is law, companies with aggregated turnover under $1 billion can again carry back revenue losses from income years starting 1 July 2026 against tax paid in the two prior years, limited by the franking account balance. That helps an established software company that had a profitable year and then invests heavily in a new product.
What structure suits a software company?
Almost always a company, because the R&D tax incentive, ESS concessions and investor equity all assume one. The question is what sits around it.
| Stage | Common structure | Why |
|---|---|---|
| Idea and prototype, founders only | Australian company, founders holding shares personally or through their own family trust or holding company | Clean cap table, R&D eligible, easy to issue equity later |
| First hires, angel or seed raise | Same company plus an ESS plan | Startup concession for staff; investors expect a standard setup |
| Profitable product company | Trading company, founders' shares held by family trusts | Flexibility on dividends, asset protection, possible small business CGT concessions on a future sale |
| US venture capital raise | Possible US parent above the Australian company | Only when an investor requires it; plan the tax, ESS and R&D consequences first |
Founders holding shares through a family trust can matter on exit, because the small business CGT concessions and the treatment of the gain differ by owner. With the 50% CGT discount replaced by indexation for gains accruing from 1 July 2027 for individuals and trusts, the timing and structure of a sale needs fresh modelling. Our guide to the 30 June 2027 tax changes explains what's law. For the full comparison of entities, read sole trader vs company vs trust.
How do we work with software companies?
- Free strategy call. We look at where you are, what you've built and what's coming: a raise, an R&D claim, first hires.
- Clean-up. Most new clients need a catch-up: Stripe reconciled, deferred revenue set up, contractor payments classified, last year's R&D position reviewed.
- Monthly rhythm. Books current daily, a monthly pack with SaaS metrics, burn and runway, and a short call to talk about it.
- R&D through the year. Quarterly check-ins on registered activities and tracked spend, so the year-end claim is quick and defensible.
- Year end. Company tax return, R&D schedule, ESS reporting and financial statements.
- Raise and exit support. Data room financials, forecasts, and tax modelling for a sale.
All our work runs on Nagaris, so questions arrive by email or SMS and you answer from your phone. The AI agents draft; a qualified accountant reviews and signs off, and nothing goes to you or the ATO without a person approving it.
"It's been wonderful working with the BPAG team! They are true experts and have provided incredibly valuable business advisory and tax services, helping my business grow." Mitchell King, Google review
What does it cost?
Most early-stage software companies fit our Business Insights plan (from $249 per week + GST), which includes payroll and monthly management reports. Companies preparing for a raise or with a board usually want the Fractional CFO plan (from $499 per week + GST), which adds forecasting and a monthly strategy meeting; read more about our fractional CFO and advisory work. R&D and ESS work is quoted as a fixed fee once we know the scope. Full details are on our pricing page.
An honest note: if you're a solo developer selling a single app with modest revenue, you probably don't need the full package. Simple bookkeeping and a company return may be all you need, and we'll tell you that.
What should you send us?
- Xero access (or your current file) and Stripe or billing platform access
- Last two years' financial statements and company tax returns
- Your cap table, constitution, shareholder agreement and any option or ESS plan
- Any prior R&D registrations and the R&D adviser's working papers
- A list of staff and contractors, where they are based and how they're paid
- Term sheets or investor reporting requirements if you're raising
- A short description of the technical problems you worked on this year
If you're also deciding on structure, our company tax returns and business structures pages explain how we handle the setup and the annual compliance.
Frequently asked questions
Can a pre-revenue startup claim the R&D tax incentive?
Yes, if it's a company that meets the R&D entity rules and spends at least the minimum on eligible activities. For companies with aggregated turnover under $20 million the offset is refundable, so a loss-making startup can receive it as cash after lodging its company tax return. The catch is that the claim depends on records made during the year, not reconstructed afterwards.
Should we incorporate in Australia or set up a US parent company?
Most Australian startups should start with an Australian company and only consider a US holding structure when a specific investor requires it. A later restructure (often called a flip) has CGT, ESS and R&D consequences that need planning. We model the tax side and work with your lawyer on the share documents.
Is software development tax deductible straight away?
Not always. Software you build for use in your own business is generally treated as in-house software and depreciated, while costs that qualify as R&D follow the R&D incentive rules instead. Salaries for developers working on your product are often deductible as incurred, but the treatment depends on what the work produces. We sort this out each year so the deduction and the R&D claim don't double count.
Do we need a separate accountant for the R&D claim?
Not necessarily. Many software companies use one firm for the accounts and tax and a specialist R&D adviser for the technical registration. We prepare the financial side of the claim, the R&D schedule and the tax return, and work with an R&D specialist where your activities need a detailed technical write-up.
Do we charge GST to overseas customers?
Sales of software subscriptions to business customers outside Australia are often GST-free, but the rules depend on who the customer is and where they are when the service is supplied. Sales to Australian customers, including through app stores in some cases, carry GST. Check your billing platform's tax settings with us before you scale overseas sales.
What happens to our tax losses when we raise capital?
A company can only use prior-year losses if it passes the continuity of ownership test or, failing that, the business continuity test. Several funding rounds can shift ownership enough to fail the first test. We track ownership changes against your losses at each round so you know what you're carrying forward.
Official sources
General information only, current as at 23 October 2026. It is not personal tax, legal or financial product advice and doesn't take your circumstances into account. Talk to us before you act. Where a recommendation needs a licensed financial adviser or a solicitor, we work alongside them.