No one wants to get a call (or letter) from the Australian Taxation Office (ATO) saying they’re under review. While most small businesses do the right thing, the ATO uses advanced data-matching and analytics to identify tax returns that don’t quite add up. Here are the top 5 red flags that can trigger an audit—and how to avoid them.
1. Unusually High Work-Related Deductions
Claiming significantly more deductions than others in your occupation or income bracket will raise eyebrows. The ATO compares your claims to industry benchmarks, and if yours are well above average, you may need to explain them.
Tip: Only claim deductions that are directly related to your income—and keep receipts or records to back them up.
2. Discrepancies in Income Reporting
The ATO matches income reported on your tax return with data from banks, employers, government agencies, and platforms like Uber, Airbnb, and eBay. If you underreport income—or forget to include some entirely—it’s a red flag.
Tip: Double-check all sources of income, especially if you have multiple jobs or side hustles.
3. Large or Repeated Rental Property Losses
If you’re claiming large losses from rental properties year after year, the ATO may look closer. They want to ensure the property is genuinely available for rent and that the expenses claimed are legitimate.
Tip: Make sure the property is genuinely listed for rent and at a market rate. Document everything and separate personal and rental use clearly.
4. Incorrect Business Activity Statements (BAS)
If your BAS doesn’t align with your tax return—for example, if your GST turnover is much higher than your reported income—it could lead to a review. Common issues include incorrect GST claims or misreporting PAYG withholding.
Tip: Reconcile your BAS and annual return regularly, and use accounting software to reduce errors.
5. Cash-Only or High-Cash Businesses
The ATO pays close attention to businesses that deal mostly in cash (like cafes, salons, or trades), as they’re considered high-risk for underreporting income. The ATO uses benchmarks and lifestyle indicators to identify inconsistencies.
Tip: Be transparent. Report all income, and don’t rely on cash “off the books.”
Final Thought
The best defence against an audit is accuracy and transparency. Keep clear records, lodge on time, and when in doubt—get professional advice.
