Compliance
Compliance Essentials for Small Businesses with Upcoming ATO Oversight Expansions
With new Budget allocations boosting ATO compliance programs—even targeting shadow economy and multinational avoidance—small business owners must sharpen compliance practices now to avoid increasing risk.
By NomadicTax Research Team • 5-8 min read • February 20, 2026
## Heightened Compliance Focus in Recent Budget Measures
Australia’s 2025-26 Federal Budget allocated **AU$999 million over four years** to expand multiple compliance programs through the ATO. These include:
- Tax Avoidance Taskforce (for multinationals and large business) – AU$717.8 million;
- Shadow Economy Compliance Program – AU$155.5 million;
- Personal Income Tax Compliance Program – AU$75.7 million;
- Tax Integrity Program – AU$50 million (from 1 July 2026). ([taxnews.ey.com](https://taxnews.ey.com/news/2025-0763-australias-2025-26-federal-budget?utm_source=openai))
These programs are designed to increase scrutiny on noncompliant behaviour—underreported income, exaggerated deductions, GST issues, improper structuring—and signal stricter enforcement ahead.
## What Small Businesses Should Do Now
Even if your business is small, it may face risks under expanded programs:
- **Shadow economy risks**: If you have cash sales, off-book transactions, or unreported turnover, expect audits or investigations. Maintain accurate records and use digital tools where possible.
- **GST and BAS obligations**: Ensuring timely lodgement and accurate reporting of Business Activity Statements is more important than ever; the ATO is expanding verification and retention rules.
- **Avoid aggressive or questionable deductions**: Some practices previously tolerated may now draw attention—e.g., claiming expenses for limited usage, or mixed personal/business costs.
- **Employ proper documentation**: Receipts, invoices, contracts, bank statements—all must support claims. Where possible, use clear written agreements, especially for related-party dealings.
- **Understand carry forward obligations and fringe benefits**: Superannuation payments, fringe benefits, and salary packaging must comply with rules and proper report showing to avoid penalties.
## Examples
- A café owner using some supplies for personal use can no longer stretch the business portion arbitrarily—be ready to show proportion of business usage.
- A tradesperson who hires labour off-the-book or underassets cash payments may find themselves in the Shadow Economy Compliance Program; better to register workers, document invoices, and use certified payroll software.
- Businesses relying on related-party loans or payments to overseas affiliates should review their structures in light of Pillar Two top-up tax exposure and transfer pricing obligations.
## Penalties, Risk and Financial Exposure
- Possible **shortfall interest charges, fines or penalties** for failing to lodge or misreporting items may increase.
- Additional **ATO funding means more audits, more scrutiny**, especially for schedules, fringe benefit tax, and large deductions.
- Weak internal controls or poor record keeping may be costly—errors prolong audits and amplify penalties.
## Actionable Steps to Strengthen Compliance
1. **Review your GST, BAS and income estimations**: audit your past statements for accuracy; correct any misclassifications.
2. **Upgrade your bookkeeping system**: adopt cloud accounting, use time sheets, cut manual reconciliation errors.
3. **Train your team or advisers** on new rules: particularly superannuation guarantee, tax offsets, fringe benefits and international dealings.
4. **Perform internal reviews annually**, ideally before lodging returns, to catch mistakes—leave nothing to chance.
5. **Stay informed of legislative changes and guidance**: monitor ATO announcements on new rulings, amendments, and compliance expectations.
## Takeaway
Small businesses can no longer rely on low risk or under-enforcement assumptions. With expanded funding and tighter laws in place, the cost of noncompliance rises. But by staying ahead—clean records, realistic claims, and solid governance—you can reduce risk and perhaps even benefit from increased clarity and consistency in rules.