Most Common Red Flags That Can Trigger An ATO Tax Audit

Most Common Red Flags That Can Trigger An ATO Tax Audit

With COVID-19 right around us and work from home options readily available, the last financial year has seen a record number of tax audits with fake WFH deductions and liabilities being claimed by the taxpayers.

The ATO has increased its scrutiny on mid-sized businesses and large corporations in the $1-$3 million turnover range and extended its cross-reference declarations with data matching software.

Though the number of tax frauds has increased significantly, even honest declarations by taxpayers can be selected for audits by the tax office. The process of face to face interaction with a tax officer may seem humiliating to many.

To avoid yourself or your business from audits and penalties, here are some red flags that are often noticed by the ATO and you must need to be aware of:

  • Cash Business

Are you operating your business entirely on cash? Do you provide your product or services for cash payment only? If yes, ATO is keeping a close eye on you.

Most business owners don’t declare their income correctly, which shows their expenses as abnormally higher than the revenue generated that garners the attention of the tax office.

  • International Transactions

With a rise in the number of businesses operating offshore or overseas, ATO has shifted its interest to companies making international transactions and fund transfers.

International Transactions

It takes into account how many times and to which overseas location the transactions are made and may ask to show the appropriate documentation for operating an overseas business.

  • Information Discrepancies

In case, the Australian Taxation Office notices any discrepancies or variances in the information lodged, it will consider conducting a detailed review or audit.

The discrepancies that attract the ATO’s attention include:

  • an income tax return and an FBT return on employee benefit contributions
  • BAS and Payment Summaries on gross wages and PAYG withholding
  • income tax return and business activity statement on total sales and expenses


  • Exceeding Benchmarks

Whatsoever business you might be operating, if you have suddenly started exceeding the industry benchmarks, ATO will surely be having an eye on you.

It has a vast record of business activities and has formulated benchmarks that depict income and expense ratios.

In case, a business is inconsistent with its industry peers, it indicates the presence of tax issues, such as unreported income, transfer pricing and others.

  • Other Triggers

There are other triggers like:

  • History of late lodgements
  • Failing to lodge FBT returns
  • Reporting consistent operating losses
  • Unusual fluctuations in trading performance

So, these were some red flags that may trigger an ATO audit. It’s better to hire an expert tax accountant to prepare your tax files and lodge your taxes to avoid the risks of tax audits.

Consulting with KPG Taxation

Focus On Growing Your Business, Leave The Accounting On Us!

  • Income Tax : File your taxes & get the best claims & returns.
  • Accountancy : Hire expert accountants to manage your transactions.
  • Bookkeeping : Let us handle your record books and expense reports.
  • Business Advisory : From company set-up to payroll, we handle it all.