The ATO audits around 2 million entities each year across individual returns, business activity statements, and employer obligations. While random selection plays a role, the majority of reviews are triggered by data matching — the ATO's systems cross-referencing information from banks, employers, share registries, property settlements, and third-party platforms including Airbnb, eBay, and ride-share services. Certain bookkeeping patterns create anomalies that flag immediately. Here are the seven I see most often.
1. GST Misclassification on BAS
Consistently misclassifying supplies — coding taxable sales as GST-free, or failing to apply GST to services delivered to Australian clients — creates a BAS that does not reconcile with income data the ATO receives from other sources.
The ATO receives payment data from banks, and its analytical tools compare GST-reported turnover against bank credits. A business with $800,000 in bank deposits but only $600,000 in reported taxable sales needs to be able to explain the difference. Legitimate explanations exist (owner capital injections, loan proceeds, GST-free income), but if the bookkeeping does not document them clearly, an audit is the likely next step.
Prevention: Map every revenue stream to its correct GST treatment at client onboarding. Review the classification annually when the client's business model changes.
2. Suppressed or Omitted Cash Income
The ATO's cash economy taskforce specifically targets industries with high cash transaction volumes: hospitality, construction, hair and beauty, and automotive. It cross-references reported turnover against industry benchmarks. A café reporting gross profit margins well below the industry average for its revenue range will attract attention.
Cash transactions that are not banked or recorded are not invisible. Point-of-sale systems, payment terminals, and loyalty programs all generate data that the ATO can access. Even businesses operating without any of these may be detected through lifestyle indicators — an owner reporting $60,000 taxable income while owning two investment properties and taking overseas holidays.
Prevention: Implement daily banking procedures and ensure till reconciliations are documented. All cash income, however small, must be recorded.
3. Excessive or Unsupportable Deductions
Deductions that are disproportionate to income, or that appear every year in round numbers, are statistical outliers in ATO data. Common examples: travel expenses claimed at 100% when the client's industry does not support it; home office claims that exceed plausible working hours; vehicle expenses claimed without a logbook for a car that is clearly the owner's primary personal vehicle.
The ATO's benchmark data includes typical deduction-to-revenue ratios by industry. Sitting outside those ratios does not automatically mean an audit, but it raises the probability and shifts the burden of substantiation firmly onto the taxpayer.
Prevention: Ensure every deduction has adequate substantiation before it is claimed. "I think I used it for work" is not a defence.
4. STP Data Mismatches
Single Touch Payroll has given the ATO near real-time visibility into employer payroll. It now compares STP-reported wages against amounts claimed as salary expense in the tax return, and against superannuation contributions made to funds. Discrepancies attract automated notices.
Common STP mismatch causes: year-end finalisation not submitted (leaving YTD figures unfinalised), salary sacrifice not correctly disaggregated in Phase 2 reporting, and director wages paid as drawings rather than through payroll and then incorrectly claimed as a deduction.
Prevention: Finalise STP by the 14 July deadline each year. Reconcile payroll expense in the ledger to the STP reports before lodging the tax return. Ensure all director payments are correctly classified.
5. Late or Irregular BAS Lodgement
A history of late BAS lodgement signals to the ATO that the business may have difficulty meeting obligations — or that the BAS figures are being finalised after the fact. Businesses that lodge late and then amend frequently are disproportionately selected for review.
The compounding problem: if BAS is consistently late, the ATO may apply penalties and interest that the business then disputes, creating a correspondence trail that keeps the entity on the ATO's radar.
Prevention: Calendar BAS due dates and lodge on time, even if payment is deferred. A nil BAS lodged on time is less problematic than an accurate BAS lodged six weeks late.
6. Director/Shareholder Loan Account Anomalies
Unpaid present entitlements and Division 7A issues are among the ATO's most active focus areas for private companies. If a director has been drawing money from the company that is not being treated as salary (and therefore not flowing through STP) or as a complying loan under Division 7A, the position is incorrect.
The ATO specifically targets companies with shareholder loan accounts that grow year-on-year without interest being charged or repayment occurring. This is a clear sign that company profits are being accessed tax-free.
Prevention: Review director loan accounts at year-end. If a balance exists at 30 June, assess whether a Division 7A loan agreement is required. Flag it to the supervising tax agent before the return is lodged.
7. Inconsistencies Between Related Entities
Where a client operates through multiple entities — a company, a trust, and a self-managed super fund — the ATO looks at the group as a whole. Transactions between related entities (management fees, loans, asset transfers) must be on arm's length terms and consistently reported across all entities' returns.
A management fee charged by a trust to a company that appears as an expense in the company's return but does not appear as income in the trust's return will not escape detection. The ATO has full visibility across all entities associated with a tax file number.
Prevention: Maintain a transaction register for all related-party dealings. Ensure every intercompany transaction is reflected correctly in all entities' books before any return is lodged.
The common thread across all seven of these triggers is documentation and consistency. The ATO is not looking for perfect tax planning — it is looking for patterns that cannot be explained by the facts of the business. Good bookkeeping is the first and best defence.