The Australian Taxation Office (ATO) has identified a number of compliance areas that are attracting increased attention. Each quarter, the ATO will highlight key risk areas based on audit findings, data matching and intelligence gathered across Australian small businesses.
The good news is that the ATO recognises most small businesses genuinely want to meet their obligations. Its approach is to educate and support businesses first, while taking firmer action against those who deliberately avoid the tax and superannuation system.
The ATO's Compliance Approach
The ATO tailors its compliance activities depending on the level of risk it identifies. Its approach generally falls into three stages:
1. Education and Awareness
The ATO's preferred approach is to help businesses get things right from the beginning by providing education and practical support.
This includes:
Providing education and tailored support to address common mistakes.
Offering free, self-paced courses covering essential small business topics.
Promoting regular reporting and timely tax payments to improve cash flow management.
Working alongside professional and industry associations.
Intervening early when debts begin to grow or businesses fall behind.
Sending reminders and prompts to help businesses stay on track.
Delivering industry-specific guidance and updates.
Publishing practical resources, news updates, webinars and masterclasses.
2. Help and Correction
Where the ATO identifies potential errors or concerns, it will generally work with the business or its registered tax agent to correct the issue before escalating matters.
This may include:
Pre-issue checks before releasing tax refunds.
Phone calls to discuss identified concerns.
Letters or emails requesting clarification or correction.
Moving businesses from quarterly to monthly BAS reporting where additional oversight is required.
3. Firmer Action
Where businesses deliberately avoid their tax obligations or continue to ignore compliance requirements, the ATO may take stronger enforcement action.
This can include:
Reviews and audits.
Penalties of up to 75% of the tax shortfall.
Interest charges on unpaid tax.
Debt collection activity.
Administrative penalties.
Civil or criminal action in more serious cases.
Behaviours That Attract the ATO's Attention
The ATO has outlined a number of behaviours that commonly trigger closer scrutiny.
These include businesses that:
Fail to declare all income.
Over-claim business deductions or GST credits.
Deliberately fail to register, lodge or pay their tax obligations.
Have poor knowledge of their tax, GST or superannuation responsibilities.
Pay employees cash without meeting PAYG withholding or super obligations.
Use business funds or assets to pay for personal expenses without reporting the benefits correctly.
Maintain poor record keeping.
Demonstrate poor cash flow management.
Operate outside the tax and superannuation system altogether.
Why the ATO Shares This Information
The ATO has stated that it publishes these focus areas to:
Be transparent about the behaviours that attract compliance attention.
Explain the consequences of operating outside the tax system.
Encourage conversations between business owners and their tax advisers.
Promote good business practices from the beginning.
Current Small Business Focus Areas
The ATO has identified several compliance areas that will receive particular attention.
Income Reporting
Omitted business income.
Contractors failing to report income.
Businesses using cash to avoid tax obligations.
Business Deductions and Tax Concessions
Over-claiming business expenses.
Incorrect GST credit claims.
Incorrect claims for Small Business Capital Gains Tax concessions.
Incorrect claims for Small Business Boost measures.
Non-commercial business losses.
Personal Use of Business Assets
Using business money or assets for personal purposes.
Failing to correctly report Fringe Benefits Tax (FBT) on private use of work vehicles.
Industry-Specific Risks
Property and construction industry tax and superannuation obligations.
Tax risks affecting property, construction and professional service businesses.
GST registration and income reporting for taxi, limousine and ride-sourcing businesses.
Business Administration
Operating outside the tax system.
Quarterly to monthly GST reporting for higher-risk businesses.
Building stronger business record keeping and reporting habits.
Registering a business correctly from the outset.
Who Is Considered a Small Business?
For these compliance programs, the ATO generally defines a small business as a sole trader, partnership, trust or company that:
Operates a business during all or part of the financial year; and
Has an aggregated annual turnover of less than $10 million.
If You're Concerned About Your Tax Position
If you believe you've made a mistake or are unsure about your obligations, it's always better to address the issue early.
Options include:
Speaking with your registered tax adviser.
Requesting an amendment to a lodged return.
Making a voluntary disclosure before the ATO contacts you.
Seeking advice directly from the ATO.
The ATO also encourages anyone with information about tax evasion, illegal phoenix activity or shadow economy behaviour to report it confidentially.
The Bottom Line
The ATO's latest compliance program is a reminder that good record keeping, accurate reporting and proactive tax management remain essential for every small business.
While the ATO's focus is on education and helping businesses get things right, it has made it clear that businesses deliberately avoiding their obligations can expect significantly tougher compliance action.
If you're unsure whether your business is meeting its tax obligations, now is an excellent time to review your records and speak with your accountant. Taking action early is always far easier—and less costly—than responding to an ATO audit later.