The word “audit” can cause stress for any small business owner, but with the right preparation, a tax audit doesn’t have to be a nightmare. As the ATO ramps up its focus on accurate reporting and compliance in 2025, businesses across Penrith and Western Sydney are being urged to keep their records in top shape.
This guide will help you understand the tax audit process, what the ATO looks for, and how to prepare your business to confidently handle a review.
What Is a Tax Audit?
A tax audit is when the Australian Taxation Office (ATO) reviews your financial records to ensure your business has correctly reported income, deductions, and GST obligations.
There are two main types:
Random audits: part of ATO’s routine checks
Targeted audits: triggered by discrepancies or red flags in your returns
Why Your Business Might Be Audited
Even if you’ve done everything right, you could still be selected. But audits are often triggered by:
Common audit triggers include:
Unusual fluctuations in income or expenses
Claims that differ greatly from industry benchmarks
High work-related deductions
Not lodging BAS or tax returns on time
ATO receiving tip-offs or matching data from third parties (banks, payroll systems)
💡 Your accountant in Penrith can help flag anything that might attract ATO attention before it becomes an issue.
Key Areas the ATO Focuses On in 2025
As of this year, the ATO has highlighted several focus points:
Work-from-home claims and accurate record-keeping
Cash-based businesses
Superannuation contributions for staff
Rental property deductions
Crypto transactions and capital gains
What the ATO Will Ask For During an Audit
If selected for an audit, you may need to provide:
Profit and loss statements
Tax invoices, receipts, and bank statements
BAS and PAYG reports
Super payment records
Copies of employee contracts and payroll data
Evidence to support any large deductions or write-offs
💡 Keeping your records organised and digital reduces audit time and stress.
Steps to Prepare for a Tax Audit
1. Keep Accurate, Up-to-Date Records
Use accounting software like Xero or MYOB
Log receipts and expenses immediately
Keep digital backups of all documents
2. Separate Personal and Business Finances
Avoid mixing personal expenses with business accounts
Keep a dedicated business bank account and card
3. Reconcile Regularly
Match transactions monthly
Fix errors or unexplained gaps early
Reconcile super, PAYG, and GST obligations
4. Lodge On Time
Late lodgements can be a red flag
Use a tax agent to meet all lodgement deadlines
5. Have an Audit Response Plan
Know who to call if you receive an ATO notice
Appoint your Penrith accountant as your audit representative
Don’t panic—many audits are resolved with a quick clarification
Tips to Reduce Audit Risk
While you can’t guarantee you won’t be audited, you can reduce your chances:
Avoid inflated deductions
Don’t “guesstimate” expenses
Keep home office and vehicle logbooks current
Regularly review your figures against industry benchmarks
💡 Your accountant can compare your financials with ATO data to ensure your business stays within a safe range.
What Happens If the ATO Finds an Issue?
If the ATO finds discrepancies:
You may be asked to repay underpaid tax
Penalties and interest may apply
Serious or repeated errors can result in fines or prosecution
However, being honest and cooperative often results in lighter penalties.
Conclusion
A tax audit doesn’t need to derail your business. The key is organisation, transparency, and professional support. Regular reviews, solid bookkeeping, and advice from a qualified accountant will go a long way in keeping your business audit-ready.
If you need help getting your records in order or want a pre-audit check-up, speak to Carmody Accounting – your trusted accountant in Penrith.
