With the ATO increasing its use of data-matching, AI-driven risk profiling, and targeted compliance programs, ATO audits in 2026 are more sophisticated than ever. While many directors assume audits only affect large corporations, the reality is that small and medium-sized companies are increasingly under scrutiny—especially where errors appear in a company tax return.
Understanding the most common mistakes that attract ATO attention can help business owners avoid unnecessary stress, penalties, and cash flow disruption. This article outlines the key company tax return errors that trigger ATO audits in 2026 and explains how to reduce your audit risk through proper planning and professional support.
Why the ATO Is Auditing More Company Tax Returns in 2026
The ATO’s compliance focus has expanded significantly due to:
- Enhanced data-matching across banks, payroll systems, and financial institutions
- Real-time reporting through Single Touch Payroll (STP)
- Increased scrutiny of private companies and closely held entities
- A focus on underreported income and inflated deductions
As a result, even minor inconsistencies in a company tax return can raise red flags.
1. Underreporting or Omitting Business Income
One of the most common triggers for an ATO audit is income mismatches.
In 2026, the ATO cross-checks company income against:
- STP payroll data
- Merchant facility and bank transaction records
- BAS and GST lodgements
- Third-party reporting from payment platforms
Common mistakes include:
- Failing to declare cash or online sales
- Incorrect revenue recognition timing
- Omitting foreign or one-off income
Even unintentional omissions can trigger an audit if the numbers don’t align with ATO data.
2. Claiming Personal or Private Expenses as Business Deductions
Another major audit trigger is overclaiming deductions, particularly where personal expenses are incorrectly claimed through the company.
- High-risk deductions include:
- Motor vehicle expenses
- Home office costs
- Travel and accommodation
- Entertainment and meals
The ATO closely examines whether expenses are:
- Directly related to earning assessable income
- Supported by valid records
- Apportioned correctly between business and private use
Incorrect claims in a company tax return can result in denied deductions, penalties, and interest.
3. Incorrect Treatment of Director Loans (Division 7A)
Division 7A errors remain one of the biggest audit risks for private companies in 2026.
Common issues include:
- Unpaid director loans treated as tax-free withdrawals
- Missing or non-compliant Division 7A loan agreements
- Incorrect interest calculations
- Failure to meet minimum yearly repayments
The ATO actively targets companies using informal or undocumented loan arrangements. Errors in this area often lead to audits and unexpected tax liabilities for directors.
4. Inconsistencies Between BAS, Payroll & Company Tax Return
Data inconsistency is a powerful audit trigger.
The ATO compares:
- BAS figures (GST and PAYG)
- Payroll data submitted via STP
- Financial statements
- The company tax return
Red flags include:
- Sales figures not aligning across reports
- PAYG withholding inconsistencies
- Wages claimed without matching STP data
Even small discrepancies can result in review letters or full audits.
5. Incorrect Asset Write-Offs and Depreciation Claims
While asset deductions remain valuable, incorrect depreciation claims are drawing increased ATO attention in 2026.
Common errors include:
- Claiming immediate write-offs for ineligible assets
- Incorrect effective life calculations
- Misclassifying repairs vs capital improvements
- Claiming private-use assets as fully deductible
With changes to depreciation rules in recent years, many businesses continue to apply outdated assumptions—leading to audit risk.
6. Poor Record-Keeping and Missing Documentation
Inadequate documentation doesn’t just make audits harder—it invites them.
Common record-keeping issues:
- Missing invoices or receipts
- Poorly reconciled bank accounts
- Incomplete asset registers
- Lack of supporting contracts or agreements
In 2026, the ATO expects digital records to be:
- Accurate
- Complete
- Easily accessible
Failure to substantiate claims during an audit often results in adjustments and penalties—even where deductions were technically valid.
7. Incorrect Classification of Workers
Worker classification errors continue to trigger audits, especially in industries using contractors.
ATO audit risks arise when companies:
- Classify employees as contractors incorrectly
- Fail to withhold PAYG
- Avoid superannuation obligations
- Misreport labour expenses
Incorrect classification impacts payroll tax, super, and income tax reporting—making it a high-risk area in any company tax return.
8. Late or Inaccurate Lodgement of Company Tax Returns
Late lodgement alone doesn’t always cause audits, but repeated delays or corrections do.
Audit triggers include:
- Regular late lodgements
- Multiple amended tax returns
- Inconsistent financial results year-to-year
Engaging a professional tax agent Perth businesses trust can significantly reduce these risks through proactive compliance management.
9. Aggressive Tax Positions Without Supporting Advice
In 2026, the ATO closely monitors aggressive tax minimisation strategies, including:
- Artificial loss generation
- Income shifting without commercial justification
- Related-party arrangements lacking arm’s length terms
Without proper documentation or professional advice, these strategies often lead to audits and disputes.
How to Reduce Your ATO Audit Risk in 2026
While audits can’t always be avoided, risk can be significantly reduced by:
- ✔ Ensuring income and deductions are accurately reported
- ✔ Maintaining clean, reconciled financial records
- ✔ Reviewing Division 7A loan arrangements annually
- ✔ Aligning BAS, payroll, and company tax return data
- ✔ Seeking professional review before lodgement
Working with an experienced tax agent Perth businesses rely on helps ensure errors are identified and corrected before submission.
Why Professional Support Matters More Than Ever
With increased ATO scrutiny and more complex reporting requirements, preparing a company tax return is no longer a simple compliance task—it’s a risk management exercise.
Professional tax agents provide:
- Pre-lodgement audit risk reviews
- Accurate application of tax law changes
- Strategic tax planning (not just compliance)
- ATO representation if issues arise
This level of support is invaluable in 2026’s heightened compliance environment.
Final Thoughts
The most common company tax return errors that trigger ATO audits in 2026 are often avoidable. Income mismatches, incorrect deductions, Division 7A mistakes, and poor record-keeping continue to dominate ATO audit activity.
By understanding these risks and working with a trusted tax agent Perth businesses can rely on, company directors can lodge with confidence—knowing their tax position is accurate, compliant, and defensible.
Proactive planning today can prevent costly audits tomorrow.
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