ATO’s Key Focus Areas for Small Businesses in 2025

The Australian Taxation Office (ATO) has identified key risk areas it will be monitoring for small businesses in 2025. The primary concerns include:

• Contractors omitting income

• Businesses with a history of failing to comply with GST obligations

• Incorrect claims related to small business boost measures

The ATO believes these areas present a high risk of errors, opportunistic behaviour, or deliberate misreporting.

Contractors Omitting Income

Contractors, whether operating as sole traders, companies, partnerships, or trusts, are under increased scrutiny. Recent data matching has revealed that some contractors continue to underreport or omit income from contracting work.

Under the taxable payments reporting system (TPRS), businesses must lodge a taxable payments annual report (TPAR) to report payments made to contractors providing certain services. The ATO cross-checks this information against contractors’ income tax returns and business activity statements (BAS) to ensure all income and GST obligations are met.

Industries required to lodge TPARs include:

• Building and construction

• Courier and road freight services

• Cleaning services

• Information technology services

• Security, investigation, and surveillance services

  
  

Businesses providing these services but failing to report contractor payments will likely attract ATO attention.

History of Failing to Comply with GST Obligations

The ATO is focusing on small businesses with a history of GST non-compliance, including:

• Missing payments

• Late or non-lodgment of BAS

• Incorrect GST reporting

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From 1 April 2025, the ATO may shift non-compliant businesses from quarterly to monthly GST reporting to improve compliance and encourage better financial habits. According to s 27-15 of the GST Act 1999, the Commissioner has the authority to mandate monthly reporting for businesses with a history of non-compliance. Once implemented, the monthly reporting cycle will be required for at least 12 months.

Small businesses that believe they have been wrongly classified as non-compliant can request a review. The ATO also suggests that businesses voluntarily switch to monthly reporting under s 27-10 of the GST Act, as many businesses find this approach helps with cash flow and financial management.

Incorrect Claims of Small Business Boost Measures

The ATO is closely monitoring claims related to:

• Skills and Training Boost (s 328-450 of ITTPA 1997)

• Technology Investment Boost (s 328-455 of ITTPA 1997)

  
  

Skills and Training Boost

Common errors identified by the ATO include:

• Claiming the deduction without being in business or exceeding the $50 million turnover threshold

• Claiming training costs for individuals who are not employees

• Sole traders incorrectly claiming training expenses for themselves

• Claiming more than the additional 20% deduction for eligible employee training

• Claiming for training not provided by a registered training provider

  
  

The ATO urges businesses to ensure they meet eligibility criteria before claiming this deduction.

Technology Investment Boost

This incentive provides an additional 20% deduction for eligible digital expenditure and asset purchases aimed at digitising operations. The deduction is capped at $20,000 per year for expenses incurred between 29 March 2022 and 30 June 2023.

Common mistakes include:

• Claiming expenses that do not qualify as eligible digital expenditure

• Exceeding the annual turnover threshold

• Exceeding the cap on expenditure

• Claiming despite having no reported depreciating assets

• Spreading claims across multiple years incorrectly

  
  

Businesses that have incorrectly claimed either boost measure should consider amending their tax returns. The ATO may contact businesses or their tax professionals regarding errors, and failure to address discrepancies may lead to audits or compliance reviews.

Looking Ahead

Each quarter, the ATO will identify new risk areas. Key areas of continued focus include:

• Non-commercial business losses

• Small business CGT concessions

• Use of business income for personal expenses

• GST registration and income reporting for taxi, limousine, and ride-sourcing services

  
  

The ATO will share insights on common errors and compliance risks in these areas in the coming months.