Taxation

ATO’s focus areas for small businesses in 2025

The ATO has shared specific risk areas that they are focusing on in 2025 in relation to small businesses.

The areas of concern for small businesses to the ATO right now are:

• contractors omitting income

 • history of failing to comply with GST obligations, and

 • incorrect claims of the small business boost measures

The ATO believes these are the areas where small businesses are getting it wrong, being opportunistic or deliberately misreporting on an ongoing basis

Contractors omitting income

Contractors omitting income remains a major compliance focus for the ATO, with recent data matching revealing that some contractors continue to incorrectly report or omit income from contracting work. Contractors can include subcontractors, consultants and independent contractors. They may operate as sole traders(individuals), companies, partnerships or trusts.

As part of the taxable payments reporting system (TPRS), businesses must lodge a taxable payments annual report (TPAR) to report payments made to contractors that provide certain services. The ATO uses information from TPARs to data match against contractors’ income tax returns and business activity statements (BASs)to ensure they have declared all income and GST. The contractor payment reporting system was first introduced in the building and construction industry under Div 405 of Sch 1, Pt 5-30 of the Taxation Administration Act 1953 (TAA1953), and later expanded to capture payments made to contractors across a variety of industries (Subdiv 396-B of TAA 1953) including courier or road freight services, cleaning services, information technology services and security, investigation or surveillance services. Businesses that are providing these services and not reporting any contractor payments would be a red flag for the ATO.

Where the ATO suspects a contractor has omitted income from their tax return, they may contact them or their tax professional via email and/or phone call to better understand the contractor’s circumstances and potentially request amendment of their tax return. If no action is taken, the ATO may conduct a review and audit of the contractor’s business, which may result in interest and penalties along with payment of the shortfall tax.

The ATO continues its focus on data matching to ensure all contracting income is reported by taxpayers. To help contractors report their income correctly, the ATO includes information reported to it via the TPRS as part of its pre-filling service and its reported transactions service in the ATO online platform.

History of failing to comply with GST obligations

Small businesses that have a history of non-compliance such as missing payments, late or non-lodgment of BASs and reporting incorrect GST are currently a key focus of the ATO.

From 1 April2025, the ATO may move non-compliant small businesses from quarterly GST reporting to monthly reporting, in an effort to improve compliance with GST obligations and build good business habits. As per s 27-15 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), the Commissioner is obligated to move a taxpayer to monthly GST reporting if satisfied that they have a history of failing to comply with obligations.

The monthly reporting cycle will remain in place for a minimum of 12 months. A review process is also available for small businesses that do not believe they have a history of poor compliance and should be able to remain on their current GST reporting cycle.

The ATO suggests that small businesses should consider voluntarily moving their GST reporting and payment cycle to monthly under s 27-10 of the GST Act. Many businesses reporting on a monthly basis have found it easier to manage their cash flow and meet their obligations with smaller, more manageable payments that align better with small business reconciliation processes.

Incorrect claims of the small business boost measures

The ATO is also scrutinising small business claims of the skills and training boost and technology investment boost. The ATO has noticed some small businesses incorrectly claim the boost measures due to errors or misunderstandings of the law.

Skills and training boost

The small business skills and training boost gives access to a bonus deduction equal to20% of particular expenses under s 328-445 of the Income Tax (Transitional Provisions) Act 1997 (ITTPA 1997) on external training provided to employees of the business to upskill them. The bonus deduction is applicable to eligible expenditure incurred between 7:30 pm (AEDT) on 29 March 2022 and 30 June 2024.

Some common errors ATO has highlighted when businesses claim the skills and training boost include:

• claiming the boost deduction when they are not in business, or their aggregated turnover is over $50 million

 • claiming for the boost deduction where the person being trained is not an employee of the business

 • sole traders claiming the boost deduction for expenditure on training for themselves

 • claiming more than the additional 20%deduction for eligible employee training expenditure, and

 • claiming when training is not provided by a registered training provider

The ATO has urged small businesses that are planning to claim the skills and training boost to carefully check if they meet the eligibility criteria under s 328-450 of ITTPA 1997.

Technology investment boost

The small business technology investment boost gives access to a bonus deduction equal to20% of particular expenditure and asset purchases under s 328-455 of ITTPA 1997for the purposes of digital operations or digitising operations of the business. The bonus deduction is capped at $20,000 (ie $100,000 of expenditure)per income year and is applicable to eligible expenditure incurred between 7:30pm (AEDT) on 29 March 2022 and 30 June 2023.

Some common errors the ATO has highlighted when businesses claim the technology investment boost include:

• expenses not meeting the definition of eligible digital expenditure

 • exceeding the annual turnover threshold requirement

 • claims exceeding the cap on expenditure

 • claims by businesses with no reported depreciating assets, and

• incorrectly claiming over multiple years.

The ATO has urged small businesses that are planning to claim the technology investment boost to carefully check if they meet the eligibility criteria under s 328-460of ITTPA 1997.

If a business has claimed either of the boost measures and believe they do not meet the eligibility criteria or have made an error, the ATO is encouraging them to amend their tax returns. The ATO may contact the business or their tax professional in relation to incorrect claims. If no action is taken, the ATO may conduct a review and audit of the business.