The Australian Taxation Office (ATO) has announced its latest compliance focus areas, placing the property and construction industry—including tradies, builders, and contractors—under increased scrutiny.

Also under the microscope are professional service providers in engineering, design, IT, consulting, and related technical fields. The ATO says it’s continuing to identify recurring issues, whether due to honest mistakes, misunderstandings, or deliberate non-compliance. Businesses caught doing the wrong thing risk audits, penalties, and interest charges.

 What the ATO is Looking For

While most small businesses aim to meet their tax obligations, the ATO has flagged several common issues across the construction and professional services sectors:

• Incorrect R&D claims – claiming the Research & Development tax incentive for ineligible activities.
• Under-reported income – omitting business income or failing to include earnings from related entities.
• Incorrect business expense claims – including private expenses or not properly splitting personal vs business use.
• GST non-compliance – failing to register for GST when required.
• Lack of independent advice – especially in subcontracting and head contractor arrangements.

 How to Stay Compliant

ATO Assistant Commissioner Angela Allen said audits are ongoing and penalties will apply where necessary. Her message to businesses is clear: get it right, and seek help if you’re unsure.

Here’s what you can do to avoid trouble:

Report All Assessable Income

• Include all income related to your business, including cash payments and bank deposits into personal or business accounts.
• If your income mainly comes from your skills and effort, Personal Services Income (PSI) rules may apply—make sure to complete the relevant sections of your tax return.

Accurately Report Expenses and Deductions

• Claim only genuine business expenses directly related to your operations.
• If an expense relates to both private and business use (e.g. vehicle or home office), apportion it correctly.
• Keep detailed records to support every deduction.

Don’t Ignore Tax Problems

If you’re struggling to meet obligations, speak with a registered tax agent, a business adviser, or contact the ATO directly. Ignoring issues will only make things worse.

 Case Study: ATO Audit in Action

Business: Biophilix Build Pty Ltd (Construction contractor)
Issue: Failure to report subcontractor payments and under-reporting income

Liam, the director of Biophilix Build, paid $85,000 to subcontractor Maya in the 2024 income year. However, he:

• Failed to submit a Taxable Payments Annual Report (TPAR) by the 28 August deadline
• Omitted these payments from his records
• Under-reported income from contract work

The ATO identified the discrepancy through data-matching and conducted an audit. The outcome:

• A $1,650 penalty for failing to lodge the TPAR
• An amended tax assessment with a $180,000 tax shortfall
• A 50% base penalty ($90,000) for making false/misleading statements
• Interest charges

Subcontractor Maya also faced an audit and was found to have under-reported her income:

• $25,500 tax shortfall
• $12,720 penalty
• Interest charges

ATO Checklist: How to Get it Right

To stay compliant and avoid penalties:

Report all business income:

• Include cash income and bank deposits (even to private accounts)
• Consider PSI rules if income is from your personal efforts

 Correctly report expenses and deductions:

• Apportion shared expenses between business and personal use
• Claim only business-related expenses
• Keep receipts and documentation

The ATO updates its small business focus areas each quarter, offering a helpful guide to what’s under review. Staying informed—and compliant—can save you serious time, money, and stress.

Source: Australian Taxation Office (ATO)

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General Advice Warning

The material on this page and on this website has been prepared for general information purposes only and not as specific advice to any particular person. Any advice contained on this page and on this website is General Advice and does not take into account any person’s particular investment objectives, financial situation and particular needs.

Before making an investment decision based on this advice you should consider, with or without the assistance of a securities adviser, whether it is appropriate to your particular investment needs, objectives and financial circumstances. In addition, the examples provided on this page and on this website are for illustrative purposes only.

Although every effort has been made to verify the accuracy of the information contained on this page and on this website, Camden Professionals, its officers, representatives, employees, and agents disclaim all liability [except for any liability which by law cannot be excluded), for any error, inaccuracy in, or omission from the information contained in this website or any loss or damage suffered by any person directly or indirectly through relying on this information.

Small business owners often find themselves navigating the complex landscape of employing contractors versus hiring employees. With the rise of the gig economy, the allure of contracting—where businesses might avoid responsibilities like superannuation, holiday pay, and sick leave—can be tempting. However, it’s crucial to clearly define the nature of the working relationship and understand your obligations to avoid costly penalties.

Determining Employee or Contractor Status

It is essential for small businesses to ascertain whether a worker qualifies as an employee or an independent contractor. This distinction impacts tax obligations, superannuation, and other responsibilities, according to an ATO spokesperson. The ATO provides a guide to help differentiate between the two, debunking common myths that often lead to mistakes by small businesses.

A key consideration in this classification involves assessing the level of control a business exerts over the worker. This includes determining who directs how, when, and where the work is performed. The totality of the relationship—beyond just the contract terms—needs to be examined, especially in light of recent amendments to the Fair Work Act 2009 aimed at closing loopholes.

Contracts alone do not dictate the nature of the relationship or the employer’s obligations. Practical scenarios might reveal that a worker performing tasks typically associated with an employee could indeed be classified as such.

Eight Key Questions to Classify Workers Correctly

Proper classification of workers is vital for your business model. For instance, Uber relies on independent contractors to operate. Here are eight questions to help determine if a worker should be classified as an employee or contractor:

1. Is the Work Integral to Your Business? If the role is crucial to your operations, the worker is more likely to be classified as an employee.
2. Impact on Profits If the worker’s role significantly affects your company’s profits, they are likely an employee.
3. Investment Comparison Independent contractors typically work on specific projects and may not impact your company’s long-term future like an employee would.
4. Specialized Skill Set If the worker offers specialized or unique skills, they may be an independent contractor. Conversely, if their skills are easily replaceable, they may be an employee.
5. Degree of Control A worker who sets their own hours, chooses their work location, and determines the specifics of their job is more likely an independent contractor.
6. Progress Reporting Independent contractors usually provide regular updates and invoices, whereas employees may not.
7. Self-Employment Deductions Independent contractors handle their own self-employment taxes, unlike employees.
8. Multiple Clients Independent contractors typically work with multiple clients, whereas employees usually work for just one company.

If you’re unsure about your classification, consulting with a lawyer, accountant, or your tax office for further clarification is advisable.

Assessing Your Business Needs

While many business owners aim to minimize costs by hiring contractors, some situations necessitate having employees. Assessing your specific needs will help determine the best approach.

Verifying Contractor Compliance

Before hiring a contractor or subcontractor, ensure they are compliant with employment regulations, including payment of worker’s compensation, payroll tax, insurance, and licenses. Adhering to minimum pay rates and National Employment Standards can help mitigate risks.

Businesses in certain industries, such as building and construction, cleaning, courier services, IT, security, and surveillance, may need to report payments to the ATO via the Taxable Payments Annual Report (TPAR), due by August 28 each year.

Contractors, whether operating as sole traders or through a company, partnership, or trust, must have an ABN and possibly other business tax registrations like GST. Typically, they handle their own tax and superannuation responsibilities, as well as sick leave and holiday pay.

Payroll Tax and Superannuation

Payroll tax laws vary by state and territory but generally apply to payments made to contractors under specific contracts. Similarly, while many SMEs believe they do not owe superannuation for contractors, this assumption may be incorrect. The ATO indicates that superannuation might be required for contractors classified as employees for superannuation purposes.

Understanding and correctly applying these rules is crucial to avoid potential legal and financial repercussions.

—————BOOK YOUR EXCLUSIVE 15 MINUTE ZOOM CONSULTATION————-

We offer a 15-minute no obligation consultation to existing property investors, first home buyers and small business owners who are looking at property investments, business and asset protection. To Book an Appointment simply click here and pick a time and date.

BOOK YOUR ZOOM APPOINTMENT HERE

How can we help?

If you have any questions or would like further information, please feel free to give our office on 08 9221 5522 or via email – info@camdenprofessionals.com.au  or arrange a time for a meeting so we can discuss your requirements in more detail.

How can we help?

If you have any questions or would like further information, please feel free to give our office on 08 9221 5522 or via email – info@camdenprofessionals.com.au  or arrange a time for a meeting so we can discuss your requirements in more detail.

---

General Advice Warning

The material on this page and on this website has been prepared for general information purposes only and not as specific advice to any particular person. Any advice contained on this page and on this website is General Advice and does not take into account any person’s particular investment objectives, financial situation and particular needs.

Before making an investment decision based on this advice you should consider, with or without the assistance of a securities adviser, whether it is appropriate to your particular investment needs, objectives and financial circumstances. In addition, the examples provided on this page and on this website are for illustrative purposes only.

Although every effort has been made to verify the accuracy of the information contained on this page and on this website, Camden Professionals, its officers, representatives, employees, and agents disclaim all liability [except for any liability which by law cannot be excluded), for any error, inaccuracy in, or omission from the information contained in this website or any loss or damage suffered by any person directly or indirectly through relying on this information.