5 ways business owners can accidentally trigger a tax audit

ways you can accidentally trigger a tax audit

It all starts with a notice from the ATO

You are busy running your business, juggling the day-to-day and keeping busy with customers, employees and back-end work.

Out of the blue, you receive a letter from the ATO telling you that an audit of your company and business operations has been completed. At the end of the letter, you find a full-course tax bill outlining a shortfall, with interest and penalties. “How could this happen?” you think. You’ve worked hard and endured sleepless nights in pursuit of growing your business, but it feels like most of the payoff for your hard work is about to end up with the ATO.

You think back to some of the things that have happened while you have been busy growing your business.

Your receipts are stacked in a box and faded because you had them stowed away in your office. You meant to get the receipts to your accountant, but between meetings with new clients and delivering the work they engaged you for, you just didn’t have the time.

You needed to use the business credit card to pay for some necessities. You haven’t paid yourself for all the hard work you’ve done, after all. You needed to withdraw some cash from your business account to manage a few personal bills. You were planning on paying this all back, one day soon.

And that loan you made to yourself from your operating company? It seems ridiculous to have to document an agreement with yourself. You’re the sole director of the company, after all. Why would you pay yourself interest?

You remember receiving some letters from the ATO on the topic of tax and something about a review. You thought your accountant was going to deal with those. You are too busy. Did they!? Panic begins to set in. You can’t believe this is happening. How are you going to afford to keep running the business alongside these mounting ATO liabilities? You don’t know where to begin to explain it, or even fight it.

Don’t let stress get in the way of dealing with tax issues head-on. Give us a call at 1300 654 590 or email us for urgent assistance.

A cautionary tale

This ‘fictional’ scenario is a nightmare that business owners find themselves in more often than you would imagine. Keeping up with the compliance workload is no small feat.

In this scenario, the review may have been triggered by:

The business’ expenses falling beyond average industry expenditure;
A large, unexplained payment from the company to the business owner;
The company’s bank account showing frequent cash withdrawals in small amounts;
The nature of transactions shown on the company’s bank account statement; and
Failure to lodge timely returns.

The ATO takes these as indicators that a business owner may have been using business funds to pay for personal expenses. Ever heard of the phrase ‘Division 7A’? This division of the tax law sets out an anti-avoidance regime which creates strict rules for how business owners can use company funds.

What starts as a review can quickly morph into a tax audit and then into a hefty tax bill.

Triggering a tax audit can be scarily easy

Tax audits can be triggered by the everyday things you don’t always think about. You don’t need to have any ill-intent to end up within the ATO’s sights. Something as commonplace as using your business credit card to buy a few groceries or making frequent small cash withdrawals to get you through the week can alert the ATO. Once the review of your affairs has started, every mistake will compound and may result in a full-scale audit.

In addition to the above, some of the more common everyday activities that tend to catch the ATO’s attention are:

High volumes of journal adjustments at year-end;
Paying family members in cash and off-book;
Large unexplained cash deposits;
Disproportionately large purchases that are inconsistent with earnings in the books; and
Company loans to shareholders made outside required interest and repayment terms (in breach of the dreaded Division 7A).

Business owners must ensure that their accounts are being managed appropriately. Make the time to periodically review your financials and accounts with your accountant, and run periodic ‘in-house’ audits. If any inconsistencies are identified, deal with them now while you can.

Call us at 1300 654 590 or email us and we can work out how we can help you.

We can help

We understand how hard it can be to grow a business and keep on top of all regulations. Having helped many clients facing an unexpected review or notice from the ATO, we know firsthand that the stress can be crippling.

If you have received any unexpected notices from the ATO (and especially a Director Penalty Notice or unexpected tax bill), urgently seek advice. The sooner you start dealing with the issue, the more likely a better outcome can be negotiated.

No matter the case, we’ll fiercely take your side and help you work towards resolving the issue.

If you are interested to hear more about the different ways that tax disputes arise, you can read more in this article.

If you are ready to take the first step and want advice or assistance with a tax issue you are facing, call us on 1300 654 590 or email us.

The information contained in this post is current at the date of editing – 12 June 2026.

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