The ATO has significantly increased its focus on tradie businesses over the past 12 months. With improved data matching and more active compliance teams, certain areas are being scrutinised more closely than ever. As Newcastle and Hunter Valley specialists, Hillier’s Advisors breaks down the red flags the ATO is watching right now—and how to protect your family business.
The ATO regularly compares reported income from tax returns and BAS with lifestyle indicators. In 2026, they are specifically matching data from insurance providers for "lifestyle assets." If you insure a caravan over $65,000, a car over $65,000, or a marine vessel over $100,000, but your declared business profit doesn't support those purchases, you are a primary target for an audit.
The Fix: How do you match your lifestyle with reported income? To align your lifestyle with your tax records, you must declare all income, including cash jobs. Ensure every deposit in your business bank account is matched to a Xero invoice. Your lifestyle spending should reasonably reflect the income your business declares to the ATO.
A common myth is that dual-cab utes are automatically exempt from FBT. In 2026, the ATO is challenging claims of 100% business use, especially when a logbook is missing. The ATO considers "minor and infrequent" private use to be under 1,000km total for the year—a threshold easily crossed by a single weekend trip.
The Fix: How can you avoid an audit on an FBT tax return? Maintain a valid 12-week logbook. Even if you owe zero tax, lodging a "Nil" FBT return is a strategic move that limits the ATO’s ability to audit that year to a three-year window.
If a subcontractor operates like an employee (e.g., you provide the tools, dictate the hours, and pay an hourly rate), the ATO expects you to meet employee obligations. This includes PAYG withholding, Super, and even Payroll Tax in NSW. Penalties for misclassification fall on the business owner, not the contractor.
The Fix: How do you avoid penalties with subcontractors? Use the ATO’s employee vs contractor tool to review every agreement. Ensure you have clear written contracts and are meeting your PAYG and Super obligations for anyone deemed an employee by law.
From 1 July 2026, Super must be paid on the same day as wages. The ATO now has "live feeds" via Single Touch Payroll (STP) and super fund reporting to see if you are even a day late. The Small Business Superannuation Clearing House (SBSCH) will close on 1 July 2026, so businesses must transition to new payroll solutions now.
The Fix: How do you prepare for Payday Super? Review your payroll systems immediately. Ensure your cash flow can handle Super being paid every week or fortnight rather than once a quarter. This change makes Super a real-time cash flow cost. Late payments will trigger the Super Guarantee Charge (SGC), which includes non-deductible interest.
The ATO is monitoring business accounts used for private expenses like groceries, school fees, or personal travel. While the $20,000 instant asset write-off has been extended to 30 June 2026, the ATO is watching for "asset splitting"—trying to claim a $25,000 item by splitting it into two smaller invoices.
The Fix: How can you safely claim business assets? Ensure any asset under $20,000 is used primarily for business. If there is mixed use, you must apportion the claim correctly. Keep separate bank accounts for business and personal spending to avoid "commingling" funds, which is a major audit trigger for many Newcastle trade businesses.
The ATO uses industry benchmarks to identify tradie businesses that fall outside "normal" profitability ranges. If your labour expenses to turnover or motor vehicle expenses to turnover ratios are significantly higher than other Newcastle sparkies or plumbers, your BAS may be flagged for a manual review.
The Fix: How do you avoid income adjustments during audits? Use Xero to maintain strong systems that document every expense. If you fall outside the ATO small business benchmarks, document the specific reasons why—such as specialized high-margin services or temporary supply chain spikes.
If you are a sole trader or operating through a company where 50% or more of your income is derived from your personal skills, you may be subject to PSI rules. The ATO is watching for "income splitting," where tradies try to divert their income to a spouse to pay less tax.
The Fix: How to stay compliant with PSI? At Hillier's, we help you determine if you pass the "Results Test"—proving you are paid to produce a specific result and are liable for rectifying defects. If you don't pass, your income must be treated as individual salary for tax purposes, regardless of your company structure.
ATO interest is no longer tax-deductible, and recovery action is more aggressive than ever. The ATO is actively issuing Director Penalty Notices (DPNs), which can make you personally liable for the company's PAYG, GST, and Super debts.
The Fix: How do you stay on top of ATO debt obligations? Never ignore a letter from the ATO. If you are struggling with BAS payments, seek professional help early. The ATO is significantly more lenient with businesses that engage transparently before a deadline is missed. This proactive approach protects your family home from personal liability.
Navigating the ATO’s 2026 crackdown doesn't have to be a solo struggle for your family business. At Hillier’s Advisors, we’ve spent over 30 years helping Newcastle and Hunter Valley tradies stay ahead of compliance changes like Payday Super, BAS lodgements, and FBT audits. As Xero Gold Partners, we specialize in turning "red flags" into solid systems that protect your family assets and your lifestyle.
Don't wait for a Director Penalty Notice to act. Book your free 15-minute "Compliance Check" call with Lauren today and let us ensure your trade business is as secure as your workmanship.
Since 1989 Hillier’s Advisors have been delivering financial services to individuals, businesses and business owners across Newcastle and the wider Hunter Region. A major focus for the Hillier’s Advisors team and the work we do is providing the right financial advice when our clients need it, not just when they ask for it.
