The Australian Taxation Office (ATO) has announced that the property and construction industry will be its small business focus area for the current quarter. The move reflects both the sector’s economic significance and its record when it comes to tax compliance.
The ATO says it is concerned about “recurring issues” across the industry, ranging from honest mistakes to deliberate evasion. The message is clear: builders, contractors, and developers are under the microscope.
Why Property and Construction?
Construction is one of Australia’s largest small business sectors, employing more than 1.3 million people and contributing around 8% to GDP. But it has also long been identified as “high risk” for tax integrity.
A significant proportion of transactions are still done in cash. Complex subcontracting chains make record-keeping difficult. And the blurred lines between personal and business expenses are fertile ground for mistakes or, in some cases, deliberate misrepresentation.
In its latest bulletin, the ATO pointed to patterns it sees year after year. These include:
- Omitted income — failing to declare cash payments, misclassifying property development proceeds, or contractors leaving out income already reported through the Taxable Payments Reporting System (TPRS).
- Overclaiming expenses — including GST credits on private purchases, or not properly splitting costs between business and personal use.
- Failure to register for GST — despite turnover exceeding the $75,000 threshold.
- Lifestyle funding — where business accounts are effectively used to bankroll personal spending.
“Construction has always been a sector where cash work, complicated contracting, and inconsistent reporting create red flags,” an ATO spokesperson told The Good Builder. “We are now combining our data-matching programs with increased industry surveillance to ensure a level playing field.”
The Risks: More Than Just a Bill
The ATO’s warning isn’t just about back taxes. Builders caught out could face:
- Penalties that can exceed the amount of the tax shortfall.
- Criminal charges under the Taxation Administration Act 1953 or Criminal Code Act 1995 for egregious behaviour.
- Higher interest bills that are no longer tax-deductible after recent legislative amendments.
At the same time, the ATO has emphasised that voluntary disclosure remains the best way to minimise penalties. Businesses that come forward before an audit is underway are more likely to see leniency.
ATO’s Toolkit: Data-Matching and TPRS
Over the past decade, the ATO has quietly built one of the most advanced data-matching programs in the world. In the construction sector, this includes:
- Taxable Payments Reporting System (TPRS): Contractors must report payments to subcontractors, giving the ATO visibility of income across the supply chain.
- Banking and payments data: Matching deposits and transfers against reported income.
- Third-party data: Including BAS statements, supplier invoices, and even council records for development approvals.
“Put simply, the ATO already knows more than many small businesses think,” says Sydney tax advisor Jane Hollis. “If you’re not declaring income that someone else has reported, you will get caught. It’s not if, it’s when.”
Industry Reaction: ‘We Need Clarity, Not Just Crackdowns’
Not everyone is convinced the ATO’s approach will solve the sector’s compliance headaches.
Master Builders Australia welcomed the crackdown on deliberate avoidance but warned that many errors are due to confusion rather than misconduct.
“Builders are not accountants,” a spokesperson said. “They are often trying to manage cashflow, staff, subcontractors, and clients at the same time. The ATO needs to pair enforcement with clearer guidance and education.”
Small builders agree. A Brisbane residential contractor who spoke to The Good Builder on condition of anonymity said the rules around property development income are especially confusing.
“We build a few houses a year on land we’ve subdivided. Sometimes the ATO says it’s business income, other times it looks like capital gains. It changes the tax outcome dramatically. Most small builders don’t have the resources to get a private ruling every time.”
What Builders Can Do Now
For small construction businesses, the message is to get ahead of the problem rather than wait for an audit. Practical steps include:
- Check GST obligations: If turnover is above $75,000, registration is compulsory.
- Separate business and personal spending: Avoid using business accounts to cover lifestyle costs.
- Keep clean records: Track all payments, especially subcontractor invoices, and reconcile regularly.
- Seek professional advice: Especially for complex areas like property development income classification.
- Consider voluntary disclosure: If errors are found, self-reporting can significantly reduce penalties.
The Bigger Picture
This latest announcement comes against the backdrop of rising insolvencies in construction. More than 2,000 building companies entered administration in the past 12 months, making the sector the hardest hit by collapses nationwide.
Some industry figures worry that the ATO’s focus could add pressure to already strained businesses.
But others see it as a necessary clean-up. “If the industry is to rebuild trust with clients and investors, compliance is part of that,” says Melbourne-based developer Alan Fisher. “Too many operators still treat tax as optional. That damages everyone.”
TGB Take
The ATO’s spotlight on construction is not going away. With advanced data tools and cross-industry reporting, the chances of flying under the radar are slim.
For reputable builders, this is an opportunity to differentiate themselves by doing the right thing. Compliance doesn’t just keep the tax office happy it also signals professionalism to clients, lenders, and partners.
The message is simple: sort your books, keep your records clean, and don’t risk your business on shortcuts.
0 Comments