If you think ATO audits are random, think again.
The ATO uses sophisticated data matching, analytics, and risk profiling to identify businesses worth investigating. They’re not pulling names out of a hat — they’re tracking patterns, anomalies, and red flags.
Every year, the ATO publishes compliance priorities. But beneath those headlines are predictable triggers that put businesses on their radar.
The question isn’t whether the ATO is watching. It’s whether your business is sending up red flags.
Here are the 5 key triggers currently under the microscope.
The 5 Key ATO Audit Triggers
Red Flag #1: Inconsistent Profit Margins
Your profit margins are significantly lower than industry benchmarks.
Example: A café reports $500K revenue but only $15K profit — while similar cafés average 8-12% margins.
Fix: Understand benchmarks, keep detailed records, document unusual circumstances.
Red Flag #2: High Personal Expenses Through Business
Excessive claims for travel, vehicles, entertainment, or home office.
Example: Consultant earning $120K claims $40K travel and $25K luxury SUV with minimal business use.
Fix: Keep logbooks, document business purposes, separate personal expenses.
Red Flag #3: Cash Business with Low Declared Income
Operating in cash-intensive industries but reporting low income while living beyond declared means.
Example: Tradie reports $60K income but buys $800K property and drives $70K ute.
Fix: Declare all income, keep sales records, use business banking, match lifestyle to income.
Red Flag #4: Suspicious Trust Distributions
Distributions to beneficiaries who don’t pay tax or are involved in circular arrangements.
Example: Trust distributes $100K to adult children who “loan” it back to parents.
Fix: Ensure genuine distributions, beneficiaries pay tax, document reasoning, avoid circular loans.
Red Flag #5: Excessive Work-Related Deductions
Unusually high deductions compared to income and occupation.
Example: Office worker earning $80K claims $15K in gym, clothing, and home office.
Fix: Keep receipts, only claim genuine expenses, use correct methods, understand what’s deductible.
What Happens During an Audit?
- Document requests
- Questions about income and lifestyle
- Data cross-checking
- Adjustments and penalties
Consequences: Back-taxes, penalties up to 75%, interest, potential prosecution.
The ATO’s Data Powers
They track: bank accounts, property, shares, crypto, payment processors, payroll, foreign income.
They cross-check everything.
How to Protect Yourself
✅ Keep detailed records
✅ Declare all income
✅ Only claim legitimate deductions
✅ Structure business properly
✅ Stay within industry benchmarks
✅ Get professional advice
✅ Review returns before lodging
Already Made Mistakes?
- Voluntary disclosure reduces penalties
- Amend returns immediately
- Get professional help if contacted
Don’t Wait for an Audit
Book a consultation with Saby + Partners.
Led by Nitin Saby — former ATO Tax Director.
📞 Book your audit protection review here