Heightened tax enforcement: what small businesses need to know in 2025

Why is the ATO stepping up enforcement now?

The government's goal is to strengthen the fairness and integrity of the tax system while boosting revenue. Over the next four years, the ATO will use the nearly $1 billion in new funding to expand several compliance programs. These efforts are expected to recover an estimated $3.2 billion in additional tax revenue over five years. In short, the ATO invests in enforcement because it believes there's a lot of unpaid tax out there and intends to collect it. For honest small business owners, this is about levelling the playing field; for those cutting corners, it's a clear warning.

Key drivers of this crackdown include a desire to close the tax gap (the difference between tax owed and tax paid), to deter the "shadow economy" of off-the-books cash dealings, and to ensure everyone – from individuals to big businesses – pays their fair share. The ATO has public support and now the funding to pursue these goals aggressively under the banner of "tax integrity." It's not just manual audits; the ATO is also deploying advanced data-matching, AI analytics, and cross-checking tools to flag real-time discrepancies. In other words, if something doesn't add up in your returns or records, there's a higher chance the ATO's systems will catch it quickly, even before a human auditor gets involved.

Major tax compliance initiatives in 2025

The Federal Budget detailed several key programs that will drive this enforcement blitz. Here are the major initiatives and what they target:

• Tax avoidance taskforce – $717.8 million: A significant portion of the funding is going to extend and expand the ATO's Tax Avoidance Taskforce. This task force primarily scrutinises multinationals and large companies to prevent profit shifting and aggressive tax schemes. While it's aimed at big players, it signals a general stance that no one is above compliance. High-wealth individuals and complex business structures will also face continued ATO attention under this program.
• Shadow economy compliance program – $155.5 million: The "shadow economy" refers to off-the-record cash transactions and undeclared income. This program's expansion is directly relevant to small businesses, especially in industries where cash-in-hand work is common (e.g. hospitality, construction, trades). The funding will be used to stamp out practices like under-reporting of sales, paying workers cash without proper records, illicit tobacco trading, and other activities that let non-compliant businesses undercut honest competitors. In practice, expect more ATO visits and data-matching to uncover cash transactions that haven't been declared.
• Personal income tax compliance program – $75.7 million: This initiative isn't just about big companies – individual taxpayers (including sole traders and micro-business owners) are under the microscope too. The ATO is investing in catching "common errors" on individual tax returns. That means they will be looking closely at things like over-claimed work-related expenses, questionable rental property deductions, or forgotten bits of income (even a little bank interest you forgot to declare). Small business owners often have intertwined personal and business finances, so be mindful that your personal tax return can face extra scrutiny if something looks off. This program involves a mix of proactive reminders, smarter data checks, and corrective audits to nudge individuals into full compliance.
• Tax integrity program – $50 million: This might sound generic, but it has a specific focus: ensuring businesses actually pay their tax and superannuation obligations on time. Essentially, it's about more audits, reviews, and debt recovery efforts targeting those who haven't paid what they owe. While medium and large businesses and wealthy groups are the named focus, small businesses are not off the hook – in fact, many small businesses that fall behind on BAS, income tax, or employee super payments have already felt increased pressure from the ATO. With this funding, the ATO will likely step up follow-up on outstanding debts and use stronger tactics to collect overdue tax and super. (Remember, unpaid superannuation for your staff is a big no-no – the ATO has been ramping up enforcement in this area, and small businesses often bear the brunt of these crackdowns.)

All of the above measures add up to one thing: a heightened enforcement environment. The ATO has more resources to conduct audits and is casting a wide net. From the cash economy to individual tax returns to large corporate tax planning, multiple fronts are being tackled at once.

What it means for your small business

For small business owners, the ATO's tougher stance means you need to be more vigilant with your tax obligations. Here are some practical implications of this compliance push:

• Greater audit risk: With more funding, the ATO can afford to conduct more audits and reviews. Some of these audits are random, but many are triggered by anomalies – for example, discrepancies between your reported income and the data the ATO has from banks or payment providers, unusually low profit margins for your industry, or repeated losses. The ATO is even leveraging artificial intelligence to automatically red-flag suspicious patterns. The bottom line is that the chance of getting audited or reviewed is higher now than a few years ago, especially if something in your tax filings stands out.
• Crackdown on cash and off-book sales: If your business deals with cash, be extra cautious. The ATO's expanded shadow economy program means they are actively looking for businesses that don't declare all their cash takings or that pay workers cash-in-hand without proper records. Through data-matching, the ATO can compare your reported sales with industry benchmarks, your bank deposits, and even information from third parties. They're also receiving tip-offs from the public about businesses operating in cash. The message is clear: trying to "slip under the radar" by hiding cash income "isn't worth the risk". If you've been operating partly outside the system, now is the time to bring everything onto the books – before the ATO forces you to.
• Scrutiny of deductions and credits: The ATO is targeting incorrect claims more than ever. This spans things like overstated business expense deductions, misuse of special small business concessions, or ineligible claims for recent stimulus measures. For instance, if you claimed the temporary "Skills and Training Boost" or "Technology Investment Boost" (which gives an extra 20% deduction on certain expenses), ensure you met all criteria. Many businesses have been found claiming these incorrectly, and the ATO is auditing those claims closely. Likewise, work-related expense claims on your personal tax return (like home office costs or vehicle use) need to be legitimate and well-documented – ATO agents are being funded to find even small errors in these areas. Expect more requests for proof and justification if your claims are above average.
• Faster detection of mistakes: In the past, a mistake in your tax return might only come to light long after you filed, if at all. Now, with enhanced data reporting, the ATO often gets information in real time – for example, banks and payment platforms regularly report income data. The ATO's new systems can often detect if "something doesn't add up" without waiting for year-end. If your BAS statements, PAYG withholding, super contributions, and income tax returns don't all align, expect the ATO to notice and act. This could mean a letter asking for clarification, an adjustment to your tax return, or a full-blown audit in more serious cases.
• Stricter debt collection: If you have tax debts or late superannuation guarantee payments, be aware that the ATO will be less lenient going forward. The Tax Integrity Program funding is meant for enforcement and debt recovery, so the ATO will invest in more staff and tools to chase down unpaid amounts. Small businesses that have fallen behind on instalments or haven't remitted employee super might receive firmer warnings or legal demands. The ATO can already garnish funds from your bank or initiate insolvency proceedings in extreme cases; with more resources, they may use these powers more readily. To avoid nasty surprises, if you owe any tax or super, it's wise to engage with the ATO early, arrange payment plans, or seek advice on how to clear those debts.

In summary, "heightened enforcement" means the margin for error or omission is slimmer than ever. The ATO is better equipped to find under-reported income, disallowed deductions, or unpaid obligations. But this isn't meant to scare you – it's meant to encourage you to operate cleanly. If you've been doing the right thing, you might not notice anything different except perhaps a few more verification checks. If your compliance has been a bit lax, however, now is the time to tighten up your ship.

How to stay compliant (and avoid trouble)

Being compliant might sound daunting, but it mostly comes down to good business habits and record-keeping. Here are some practical steps and tips to ensure your small business stays on the ATO's good side during this enforcement wave:

• Keep business and personal finances separate: Use a dedicated business bank account for all your business income and expenses. Mixing personal transactions with business can not only create confusion but also raise red flags during an audit. Keeping them separate makes your bookkeeping clearer and substantiates that you aren't claiming personal costs as business expenses.
• Maintain accurate, detailed records: Good record-keeping is your best defence in an audit. Save all receipts, invoices, and relevant documents for at least five years. Use software or apps to digitise receipts and track expenses. If you claim a deduction, you should be able to produce evidence for it. Accurate records ensure that your BAS and tax returns are based on solid data, reducing the chance of mistakes.
• Declare all income (no exceptions): Every dollar your business earns should be accounted for, whether it's electronic or cash. This includes side gigs and even small amounts. The ATO's data-matching can spot undeclared income by comparing various sources (banks, platforms, etc.), so never assume something is too minor to report. Declaring all income means you won't get caught out later with penalties for omissions.
• Meet your lodgement deadlines: File your Business Activity Statements (BAS), income tax returns, and other required reports on time. Late lodgements can draw attention and incur fines. Plus, a pattern of late or missed BAS submissions could prompt the ATO to put you on monthly GST reporting (which they have started doing for persistently late filers). Mark your calendar with key due dates or use an automated system that reminds you, so you stay compliant by default.
• Pay your taxes and super on time: Ensure you remit GST, PAYG withholding, and any tax instalments by the due dates. If cash flow is an issue, talk to the ATO early – they often allow payment plans, which is far better than silently accruing a debt. Also, if you have employees (or even if you're a director paying yourself super), prioritise those superannuation contributions. The ATO is very strict on super payments – they consider unpaid super as effectively stealing from employees. With increased enforcement funds, the ATO will crack down hard on businesses that don't fulfil these obligations.
• Double-check deductions and credits: Before claiming any tax deduction, offset, or special credit, ensure you're truly eligible. For example, if you're claiming a home office expense, do you have a dedicated work area and an accurate log of hours? If you're claiming a motor vehicle expense, do you have a logbook or mileage records? Be especially careful with newer incentives like investment or training boosts – review the ATO's criteria to confirm that you qualify. When in doubt, consult a tax advisor. It's better to claim a little less than to over-claim and get hit with penalties later.
• Leverage technology for bookkeeping: One of the best ways to avoid human error and stay constantly compliant is to use automated accounting software. Modern tools can automatically import your bank transactions, categorise income and expenses, calculate GST and even flag anomalies. By using an automated solution, you reduce the risk of errors in your record-keeping and tax calculations. This not only saves you time but also means that if the ATO comes knocking, your books are tidy and up-to-date.
• Stay informed and proactive: Tax rules and ATO focus areas can change from year to year. Keep yourself informed about any new compliance requirements (for instance, changes in reporting or new tax breaks). If the ATO sends out educational material or warnings for your industry, take them seriously. Sometimes the ATO will give a grace period to correct mistakes (like voluntary disclosures) before unleashing full audits – taking advantage of those opportunities can save your business. Being proactive might mean consulting a tax professional for an annual "compliance check-up" to catch any issues early.

Following these steps will not only help you avoid costly penalties or audits, but also give you peace of mind. Many savvy business owners are treating the ATO's crackdown not as a threat, but as motivation to improve their financial practices. The upside of running a squeaky-clean operation is that you can focus on growth rather than looking over your shoulder.

How Thriday can help small businesses navigate heightened enforcement

Staying compliant can be time-consuming, which is exactly why Thriday exists. Thriday is an all-in-one financial management platform designed to make banking, bookkeeping, and tax as automatic and foolproof as possible. Here's how Thriday can specifically help you thrive under the ATO's increased scrutiny:

• Automatic transaction tracking: Thriday connects your business banking with accounting, so every dollar in and out is automatically tracked and categorised. This means no income gets overlooked and no expense goes unrecorded, giving you complete and accurate financial records at all times. In fact, Thriday "tracks every dollar" for you, so come tax time (or an audit), you can be confident nothing is missing or misstated.
• Real-time tax estimates and BAS prep: The platform uses AI to continuously calculate your GST and income tax obligations based on your transactions. It's like having a running tally of your tax bill. Thriday can auto-generate your BAS statements and even pre-fill a lot of the info needed for your tax returns. By automating BAS lodgements and tax prep, Thriday helps ensure you never miss a deadline or make a math error. This is especially handy if you move to monthly GST reporting – Thriday handles the increased frequency with ease.
• Receipt capture and audit-ready records: Ever lost a receipt that you needed to claim a deduction? With Thriday, you can snap photos of receipts and attach them to transactions, or email invoices into the system. All your paperwork is stored digitally in one place. The software also tags and organises your expenses automatically. This means if the ATO ever questions a deduction, you can quickly pull up the proof. You're essentially "always audit-ready," because your books are tidy and substantiated.
• Seamless separation of finances: Thriday provides business banking accounts and tools to help segregate funds (for taxes, expenses, etc.). This supports the golden rule of keeping business finances separate from personal finances. For example, you can have sub-accounts for tax savings, operating expenses, and profit. By structuring your finances within Thriday, you avoid commingling funds and make compliance straightforward.
• AI-powered error reduction: Because Thriday uses AI and machine learning, it learns your patterns and can flag anomalies or duplicates. It's like having a smart assistant watching for anything unusual. This reduces human mistakes – no more accidentally forgetting to record a sale or double-counting an expense. The result is more accurate reporting, which in turn lowers your audit risk.
• Expert support and tax agent services: Sometimes you need a human expert. Thriday has you covered here as well. The company is a registered tax agent and offers on-demand support from qualified accountants. If you're unsure about a complex deduction or a new tax rule, you can consult with Thriday's tax professionals. They even partner with services like Audit Cover for tax audit insurance and support. In short, Thriday combines automation with real human expertise, so you're never alone in managing compliance.

Using an automated accounting tool like Thriday gives you confidence that your finances are accurate and up to date. Many Thriday users say they "feel like I'm always on my A-game" with compliance after switching to the platform. By taking care of the tedious admin work and calculations, Thriday frees up time (on average, 6+ hours a week saved) and reduces stress, so you can concentrate on actually running your business rather than worrying about paperwork.

Most importantly in this context, Thriday helps ensure that you meet all your tax obligations without hassle. It's much easier to stay compliant when the right systems are doing a lot of the work for you behind the scenes. With Thriday's help, you can rest assured that "everything is taken care of" when it comes to your accounting and tax lodgements. That means even with the ATO ramping up enforcement, your business will be prepared, transparent, and bulletproof on the compliance front.

Final thoughts

Heightened tax enforcement can sound intimidating, but it really boils down to this: run your business "clean and by the book," and you have little to fear. The ATO's crackdown is a reminder of the importance of good financial practices. By staying organised, recording all income, and only claiming what you're entitled to, you can not only survive but thrive under increased scrutiny. Those who have been cutting corners should see this as a wake-up call to get compliant – the cost of non-compliance is only rising.

The good news is that tools like Thriday make compliance far easier than it used to be. You don't have to drown in spreadsheets or stress over every receipt. Automation, smart software, and a proactive mindset are your best defence in this new era of enforcement. The businesses that embrace these will find that ATO audits and checks are far less of a worry (and may even never materialise, because an immaculate record often avoids triggering an audit in the first place).

In short, the government's $1b enforcement boost is shining a spotlight on everyone's tax affairs. Take this opportunity to get your books in order and adopt better habits. If you do, you'll not only dodge penalties but also gain clearer insight into your business's financial health. And if you need a helping hand, remember that Thriday is here to turn onerous compliance work into a smooth, automated process, giving you peace of mind and more time to focus on what you love – growing your business. Being informed, proactive, and automated is the best way to succeed in 2025 and beyond.

Federal Budget | Other tax measures

https://www.pwc.com.au/insights/federal-budget-tax-analysis-and-insights/other-tax-measures.html

ATO crackdowns 2025: What small businesses need to know | Thriday

https://www.thriday.com.au/blog-posts/ato-small-business-crackdowns-2025

ATO Secures $999 Million In Budget, But Where's The Transparency?

https://taxtank.com.au/2025/03/26/ato-secures-999-million-in-budget/

Business Banking, Invoicing, Accounting & Tax - Automated, In One Place

https://www.thriday.com.au/

Tax Audit: A Small Business Owner's Survival Guide | Thriday

https://www.thriday.com.au/blog-posts/small-business-tax-audit-survival-guide

‍