Why ATO compliance is about to feel very different for business owners

This is not about fear-mongering or suggesting everyone is about to be audited. It is about understanding how the environment has changed, and why approaches that may have worked five or ten years ago are becoming far riskier today.

The ATO’s visibility has fundamentally improved

One of the biggest changes, and the one that underpins almost everything else, is the sheer amount of data now available to the ATO.

Most business owners already know that information is shared between banks, employers, super funds and government agencies. What is less appreciated is how integrated that information has become, and how quickly it can be compared, reconciled and analysed.

In practical terms, the ATO no longer needs to actively go looking for issues in many cases. Irregular patterns, mismatches and anomalies are often identified automatically. Once flagged, it becomes much easier for the ATO to justify starting a review or audit process.

From my perspective, this is why compliance feels different now. It is not that the rules have suddenly changed. It is that inconsistencies are far easier to detect than they used to be.

Tax governance is no longer a 'large business' concept

Another shift I am seeing is the growing emphasis on tax governance, even for privately owned businesses.

Historically, governance frameworks were discussed mostly in the context of listed companies or very large groups. Today, expectations are filtering down into the private business space.

In simple terms, the ATO wants to see that businesses understand their tax obligations, have processes around decision-making, and can explain how and why certain positions have been taken. Where governance appears weak or ad hoc, it increases the likelihood of further scrutiny.

In my opinion, this is an area many business owners underestimate. They assume good intentions are enough. Unfortunately, intention is difficult to evidence after the fact. Documentation, consistency and clear processes matter far more than they used to.

Trusts continue to attract attention

Trust structures remain widely used, particularly in family and privately owned businesses. They are also an area where technical rules, administrative discipline and real-world behaviour do not always align.

What I am seeing is ongoing attention on how trusts are actually operated. That includes whether trustee resolutions are prepared on time, whether distributions are consistent with those resolutions, and whether income is genuinely paid or applied as required.

Trusts are not inherently problematic, but they do require care. In practice, many issues arise not from aggressive tax planning, but from poor administration or assumptions carried over from previous years without proper review.

Division 7A remains a common trap

If there is one area that continues to cause issues for private companies, it is Division 7A.

Loans, drawings and payments to shareholders or associates are often treated informally, particularly in closely held businesses. Where documentation is incomplete or repayments are not made in accordance with the rules, the consequences can be significant.

What has changed is not the legislation, but the ease with which these arrangements can be identified. With improved data and cross-checking, Division 7A issues are often picked up earlier and with less effort from the ATO than in the past.

From my perspective, this is one of the clearest examples of why cutting corners on compliance is becoming increasingly risky.

Capital gains events are being reviewed more closely

Another area where I expect continued attention is capital gains tax, particularly around the timing and reporting of asset disposals.

Business sales, property transactions, and internal restructures often involve complex CGT considerations. Errors frequently arise around the year of disposal, the calculation of the cost base, or eligibility for concessions.

In my opinion, the increased focus here reflects both the material amounts involved and the fact that many of these transactions are visible through external reporting. Once again, mismatches are easier to identify than they once were.

For business owners planning exits or restructures, early and careful planning matters more than ever.

GST reporting is an early warning system

GST is one of the clearest indicators of compliance behaviour. BAS lodgements, payment patterns and reported liabilities provide a consistent data set that can be analysed over time.

Late lodgements, growing balances or inconsistent reporting patterns are often interpreted as warning signs. In many cases, they lead to earlier engagement from the ATO than business owners expect.

I have seen firsthand how costly this can become. In one recent case, a business came to us after an audit conducted under their previous adviser, having incurred penalties in excess of $50,000. The ATO’s characterisation of the behaviour was “reckless”.

That outcome arose for several reasons, including poor advice, inconsistent reporting and a failure to address issues early.

Lifestyle and asset checks have not gone away

Despite all the technological changes, some fundamentals remain the same. The ATO continues to compare reported income against asset acquisitions and lifestyle indicators.

What has changed is the accuracy of the information available. Asset purchases, financing arrangements and ownership structures are far more transparent than they were in the past.

In my view, this makes these checks both easier to perform and harder to argue against if discrepancies arise.

Why I expect audit activity to keep increasing

There is a common assumption that limited resources mean less audit activity.

While human resources at the ATO may be constrained, automation has reduced the cost of identifying potential issues. Data-driven risk models mean fewer hours are required to decide where to focus attention.

As a result, I expect audit and review activity to continue increasing, even without a corresponding increase in resources. The process has simply become more efficient.

This is why I believe the next few years will feel more challenging for businesses that rely on informal practices or reactive compliance.

My advice to business owners right now

If there is one message I am consistently giving clients, it is this. Cutting corners, particularly around compliance, is unlikely to get you anywhere.

The ATO has more data, better tools and a lower threshold for engagement than it did five, ten or fifteen years ago. Issues that may once have gone unnoticed are now far easier to detect and far easier to act on.

That does not mean businesses should operate in fear. It does mean they should take compliance seriously, invest in good systems, and address issues early rather than hoping they resolve themselves.

In my opinion, the businesses that will navigate this environment best are not the ones chasing aggressive outcomes. They are the ones that focus on clarity, consistency and getting the fundamentals right.

That approach has always been sensible. It is now essential.