Common ATO Audit Triggers for Businesses

The ATO uses data matching, industry benchmarks and other risk indicators to identify businesses that may require closer review. Information reported in tax returns and Business Activity Statements can also be compared with information received from banks, government agencies and other third parties.

While an audit or review can happen to any business, certain reporting patterns may increase the likelihood of ATO attention.

Common triggers include:

  • Income or expenses outside industry benchmarks without a reasonable explanation.
  • GST and BAS inconsistencies, particularly where BAS figures do not align with income tax returns or reported business activity.
  • Unusually high deductions, such as motor vehicle, travel, entertainment or other expenses that may include a private component.
  • Lifestyle and income mismatches, where property, vehicles or other financial activity appear inconsistent with reported income.
  • Repeated losses or significant changes in income, particularly where there is no clear commercial explanation.
  • Related-party transactions, including payments to family members, shareholder or director loans, trust distributions and transactions between associated entities.
  • Poor record keeping or late lodgements, particularly where income or deductions cannot be properly substantiated.
  • Cash transactions that do not match reported income, especially in industries where cash payments are common.
  • Incorrect treatment of employees and contractors, including PAYG withholding and superannuation obligations.

Being outside an industry benchmark or having an unusual transaction doesn’t automatically mean something is wrong. Every business is different, the important thing is being able to explain the difference and have appropriate records to support the figures reported.

If the ATO does make an enquiry, having organised records can make the process considerably easier. Invoices, receipts, bank records, logbooks, contracts and supporting calculations should be retained where relevant.

Good record keeping, accurate and consistent reporting, timely lodgements and correctly separating business and private expenses can all help reduce compliance issues.

Regularly reviewing your accounts can also help identify errors or inconsistencies before returns and activity statements are lodged.

 

Author

Naomi Aspromourgos