The Australian Taxation Office has announced enhanced compliance measures targeting businesses that deliberately overstate deductible expenses and GST credit claims, warning non-compliant businesses of audits, adjusted liabilities and penalties.Â
The Australian Taxation Office (ATO) announced on 8 July 2026 enhanced compliance measures targeting businesses that intentionally overstate deductible expenses and GST credit claims.
ATO is strengthening compliance action on businesses that deliberately over-claim expenses and GST credits. This helps ensure a level playing field for small businesses that do the right thing.
The ATO is seeing small businesses claim expenses and GST credits that don’t meet the rules for deductibility.
Businesses that don’t comply may face audits, adjusted liabilities and penalties.
Common errors
The ATO’s sophisticated data and analytics help identify incorrect claims, and firm action is being taken where needed. Common errors businesses make include:
- over-claiming deductions or GST credits
- claiming private expenses as business costs
- making incorrect claims in BAS or tax returns, including claiming GST credits where GST is not included in the price
- failing to keep records or missing records.
Recent outcomes show the consequences of such behaviour. For example, a bistro operator deliberately over-claimed expenses, including GST credits on expenses where GST was not included in the price. This resulted in more than AUD 141,900 in overstated expenses (including GST credits of AUD 12,900), along with omitted income of AUD 194,000, and over AUD 35,306 in penalties.
How to claim correctly
To claim a business deduction, expenses must:
- directly relate to earning business income
- not be private in nature
- be supported by valid records.
If an expense is partly private, only the business portion can be claimed. Businesses registered for GST can claim GST credits for the GST included in the price of goods and services bought for the business. If a GST credit is claimed, the GST amount cannot also be claimed as a deduction in an income tax return.
The ATO is urging businesses to correctly report expenses and business deductions in their tax returns and BAS. Keeping accurate records and carefully checking all claims before lodging is essential.
