The Australian Taxation Office (ATO) is intensifying its focus on small business tax compliance, with a particular emphasis on “unexplained wealth” and undeclared income. This strategic shift aims to address the significant “tax gap” and ensure fairer contributions from businesses across the country. The ATO is leveraging advanced technology, including artificial intelligence, to identify discrepancies and non-compliance.

• The ATO is prioritizing the detection of “unexplained wealth” among small business owners.

• Increased scrutiny on undeclared income, particularly from cash-based businesses.

• New AI tools are being deployed to identify potential tax evasion and non-compliance.

• Payday superannuation reforms are being implemented, with a checklist to assist businesses.

• A vulnerability framework is in place to ensure empathetic treatment for taxpayers facing hardship.

ATO Commissioner Chris Jordan has identified “unexplained wealth or lifestyle for individuals and small businesses” as a top priority. The tax office is utilizing social media and other data-matching techniques to identify individuals whose reported income does not align with their displayed lifestyle. This includes monitoring for undeclared income, especially from cash-only businesses, and ensuring private expenses are not incorrectly claimed as business deductions. The ATO is also focusing on instances of unpaid superannuation and the misrepresentation of income by contractors.

An audit revealed that the ATO employs numerous AI tools to enhance tax compliance among small businesses. These tools assist in identifying omitted income in the “black economy,” assessing the accuracy of tax agent reporting, and flagging potential understatements of income or overstatements of deductible expenses. AI models are used to support decision-making, with “nudge” messages prompting taxpayers to review their figures. While AI does not make fully automated decisions, it plays a crucial role in identifying areas of concern.

In a significant shift, employers will now be required to pay superannuation guarantee payments at the same time they process regular salary and wages, starting from July 1. The ATO has released a checklist to guide small businesses through this transition, emphasizing the need to review cashflow management and payroll systems. While the ATO acknowledges potential challenges, it encourages proactive preparation to avoid compliance issues.

The ATO has also introduced a vulnerability framework to ensure fairer and more empathetic treatment for small businesses and individuals experiencing hardship. This framework broadens the definition of vulnerability to include social, economic, and health-related factors. While it aims to provide tailored support and understanding, it does not waive tax obligations. The ATO will continue to use all available tools to collect outstanding debts while applying a nuanced approach to those facing genuine difficulties.

• ATO commissioner says tax office will be targeting “unexplained wealth” of small business owners –
  SmartCompany, SmartCompany.

• New ATO checklist prepares small businesses for payday super, SmartCompany.

• ATO reveals hit list for businesses in 2025, SmartCompany.

• Audit reveals how the ATO uses AI to assess small business tax, SmartCompany.

• Small businesses included in ATO’s new vulnerability framework, SmartCompany.