The Australian Taxation Office (ATO) has announced its latest compliance focus areas, placing the property and construction industry—including tradies, builders, and contractors—under increased scrutiny.
Also under the microscope are professional service providers in engineering, design, IT, consulting, and related technical fields. The ATO says it’s continuing to identify recurring issues, whether due to honest mistakes, misunderstandings, or deliberate non-compliance. Businesses caught doing the wrong thing risk audits, penalties, and interest charges.
What the ATO is Looking For
While most small businesses aim to meet their tax obligations, the ATO has flagged several common issues across the construction and professional services sectors:
- Incorrect R&D claims – claiming the Research & Development tax incentive for ineligible activities.
- Under-reported income – omitting business income or failing to include earnings from related entities.
- Incorrect business expense claims – including private expenses or not properly splitting personal vs business use.
- GST non-compliance – failing to register for GST when required.
- Lack of independent advice – especially in subcontracting and head contractor arrangements.
How to Stay Compliant
ATO Assistant Commissioner Angela Allen said audits are ongoing and penalties will apply where necessary. Her message to businesses is clear: get it right, and seek help if you’re unsure.
Here’s what you can do to avoid trouble:
Report All Assessable Income
- Include all income related to your business, including cash payments and bank deposits into personal or business accounts.
- If your income mainly comes from your skills and effort, Personal Services Income (PSI) rules may apply—make sure to complete the relevant sections of your tax return.
Accurately Report Expenses and Deductions
- Claim only genuine business expenses directly related to your operations.
- If an expense relates to both private and business use (e.g. vehicle or home office), apportion it correctly.
- Keep detailed records to support every deduction.
Don’t Ignore Tax Problems
If you’re struggling to meet obligations, speak with a registered tax agent, a business adviser, or contact the ATO directly. Ignoring issues will only make things worse.
Case Study: ATO Audit in Action
Business: Biophilix Build Pty Ltd (Construction contractor)
Issue: Failure to report subcontractor payments and under-reporting income
Liam, the director of Biophilix Build, paid $85,000 to subcontractor Maya in the 2024 income year. However, he:
- Failed to submit a Taxable Payments Annual Report (TPAR) by the 28 August deadline
- Omitted these payments from his records
- Under-reported income from contract work
The ATO identified the discrepancy through data-matching and conducted an audit. The outcome:
- A $1,650 penalty for failing to lodge the TPAR
- An amended tax assessment with a $180,000 tax shortfall
- A 50% base penalty ($90,000) for making false/misleading statements
- Interest charges
Subcontractor Maya also faced an audit and was found to have under-reported her income:
- $25,500 tax shortfall
- $12,720 penalty
- Interest charges
ATO Checklist: How to Get it Right
To stay compliant and avoid penalties:
Report all business income:
- Include cash income and bank deposits (even to private accounts)
- Consider PSI rules if income is from your personal efforts
Correctly report expenses and deductions:
- Apportion shared expenses between business and personal use
- Claim only business-related expenses
- Keep receipts and documentation
The ATO updates its small business focus areas each quarter, offering a helpful guide to what’s under review. Staying informed—and compliant—can save you serious time, money, and stress.
Source: Australian Taxation Office (ATO)
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