Here are the 5 triggers small business owners need to check before 30 June.
The Australian Taxation Office conducts an estimated two million reviews and audits every year. This EOFY, it has named three industries as priority targets: building and construction, cleaning, and professional services.
But the sectors are just the starting point. What matters more is what the ATO is specifically looking for inside those businesses, and increasingly, inside all small businesses.
Who’s being watched
These three industries attract attention for the same reasons year after year. High volumes of cash transactions, complex contractor arrangements, and hard-to-verify deduction claims create more opportunity for inconsistency, whether intentional or not.
The ATO is now using data matching, analytics, and artificial intelligence to identify unusual patterns in real time. Minor discrepancies that might once have gone unnoticed are now routinely flagged.
The 5 triggers
1. Under-reported or omitted income
The ATO cross-references what you declare against payments reported by other businesses, GST records, and third-party data. If a contractor paid you and reported it, and your return does not match, the system will catch it.
2. Overinflated or incorrect deductions
Claims that look out of proportion with your business size or type attract scrutiny. Work-related expenses, vehicle use, and home office deductions are all areas where errors and overreach are common.
3. Misuse of small business tax concessions
The Instant Asset Write-Off rules have changed more than once in recent years. Businesses that claimed concessions without checking current eligibility criteria are exposed.
4. Contractor income discrepancies
Payments made to contractors must be reported correctly by both parties. Mismatches between what a business pays and what a contractor declares are a known ATO focus area, particularly in construction and cleaning.
5. GST errors and omissions
Incorrect GST reporting, missed GST on income, or claiming GST credits you are not entitled to are all picked up through data matching. This is one of the most common triggers for a review in trade-based industries.
What a review actually costs
This is where small business owners are most often caught off guard.
“Many small business owners underestimate the real cost of responding to ATO compliance checks, which can add up to thousands of dollars in unexpected professional fees even before a single issue is resolved,” said Ricky Prasad, Chief Financial Officer at BizCover.
A formal audit requires your accountant to review potentially years of records, correspond with the ATO, and manage the process on your behalf. Those hours bill quickly.
“Audits can be time-consuming and costly because they require significant time and paperwork to address properly, with accountants often reviewing several years of records. Those professional fees can add up quickly,” Prasad said.
The ATO can also look back up to four years on a small business, meaning a review triggered this EOFY is not limited to the current financial year.
The goal is not to avoid your obligations. It is to make sure everything you have claimed is accurate, documented, and defensible. “The aim is not to avoid tax obligations, but to reduce the financial impact when issues arise,” Prasad said.
Review your deductions, reconcile your income records, and if you operate in a flagged industry, speak to your accountant before 30 June rather than after.
For small businesses looking to manage the financial risk of an ATO audit, BizCover offers Tax Audit insurance designed to cover the professional costs involved in responding to a compliance review. For more information visit here.
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