7 Year End Accounting Mistakes that trigger ATO Scrutiny in FY 2025-26

Most ATO reviews don’t begin with fraud. They begin with a number that doesn’t match. As EOFY approaches, the Australian Taxation Office has become one of the most data-sophisticated tax authorities globally. With real-time Single Touch Payroll feeds, automated BAS cross-checks, and bank data matching, discrepancies that once went unnoticed are now flagged within weeks—sometimes days.

The businesses that come under scrutiny are rarely acting deliberately. More often, it’s rushed EOFY closing, missed reconciliations, or small classification errors that build up over time. As 30 June nears, the difference between a clean set of accounts and an ATO review often comes down to a few specific, avoidable mistakes. Below are seven of the most common—and how to fix them before EOFY closes.

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Mistake 1: Bad Debts Not Written Off Before 30 June

Bad debts are only deductible when they are formally written off before the end of the financial year. Identifying a debt as unrecoverable is not enough. It must be recorded in the accounts within the same financial year. If this step is missed, the deduction is deferred, and in some cases, disallowed.

Why it triggers scrutiny
The ATO examines the timing of income recognition and subsequent write-offs. If a deduction is claimed without a corresponding write-off entry dated before 30 June, it creates a mismatch.

Example
A business raises an invoice of $20,000 in December 2025 and reports it as income. By June 2026, the customer has not paid, and recovery attempts have failed. However, the business delays writing off the debt until July 2026. In this case, the bad debt deduction cannot be claimed for FY 2025–26.

What to do

• Review outstanding receivables before year-end
• Document recovery attempts (calls, emails, formal demand letters)
• Pass formal write-off entries before 30th June

Mistake 2: Incorrect GST Coding

GST errors are one of the most common reasons businesses come under ATO review. Incorrect coding affects Business Activity Statements and can lead to over-claimed credits or under-reported liabilities.

Why it triggers scrutiny
The ATO compares GST reported in BAS with underlying transaction data. Inconsistent patterns, especially repeated errors, raise compliance concerns.

Common issues

• Claiming GST on expenses that are input-taxed or GST-free
• Misclassifying taxable and non-taxable sales
• Claiming input tax credits without valid tax invoices

Example
A business claims GST credits on bank charges and interest expenses. These items do not include GST, resulting in inflated input tax credits.

What to do

• Run a GST coding audit across your chart of accounts
• Verify that high-volume expense categories are correctly mapped in your accounting system
• Ensure every input tax credit claim is backed by a valid tax invoice dated in the correct period
• Conduct periodic GST reviews, ensure accurate tax code mapping in accounting systems, and verify that all claims are supported by valid documentation.

Mistake 3: STP Figures Not Matching Payroll Records

Single Touch Payroll has made payroll discrepancies visible in real time. There is no longer anywhere to hide a mismatch. Since STP became mandatory, the ATO receives payroll data — wages, PAYG withholding, and superannuation — each time you process a pay run. That data is then cross-referenced against your financial statements and BAS lodgements.

Why it triggers scrutiny
Differences between STP submissions, payroll reports, and financial statements indicate reporting inaccuracies. These inconsistencies often lead to further investigation.

Common mismatches

• PAYG withholding discrepancies
• Superannuation not aligned with reported wages
• Incorrect year-end STP finalisation

Example
A company’s financial statements show total wages of $520,000, while STP reports only $495,000. This gap signals incomplete or incorrect reporting.

What to do

• Reconcile STP submissions to your payroll records and general ledger before finalisation
• Confirm superannuation accruals are correctly recorded and align with actual contributions
• Complete STP year-end finalisation accurately

Mistake 4: Personal Expenses Claimed as Business Costs

Blurring the line between personal and business expenses is a common EOFY issue, especially in closely held businesses.

Why it triggers scrutiny
The Australian Taxation Office uses data matching and behavioural analysis to flag expenses that don’t align with business activity. Repeated misclassification increases the risk of audits and penalties.

Common examples

• Personal travel recorded as business travel
• Private vehicle expenses claimed without proper logbooks
• Household costs included as business expenses

Example
A director claims family holiday expenses as a business deduction without demonstrating a clear business purpose. These claims are typically disallowed and may attract penalties.

What to do

• Clearly separate personal and business expenses using dedicated business accounts and cards
• Maintain a compliant logbook for any vehicle-related claims
• Document the business purpose for all travel and entertainment expenses
• Apportion home and mixed-use expenses accurately, based on actual business usage
• Review expense classifications regularly before EOFY to catch and correct errors early

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Mistake 5: Unjustified Inventory Valuation Changes

Inventory valuation directly impacts cost of goods sold and taxable income. Any change in valuation method must be justified and consistently applied.

Why it triggers scrutiny
Significant year-end adjustments that reduce taxable income can raise concerns, particularly if they lack supporting documentation or deviate from prior methods.

Common issues

• Switching valuation methods without rationale
• Writing down inventory without evidence of obsolescence
• Inflating closing stock to manipulate profits

Example
A retailer reduces inventory value by 30 percent at year-end without documenting damage, expiry, or slow-moving stock analysis. This adjustment is likely to be questioned.

What to do

• Conduct a physical stocktake and retain supporting records
• Document any write-downs with evidence: condition reports, photos, supplier communications, or market analysis
• If changing valuation methods, record the reason and obtain accounting advice before lodgement

Mistake 6: Undocumented Director or Shareholder Loans

Loans between a company and its directors or shareholders must be properly structured and documented in line with Division 7A rules—especially as EOFY approaches.

Why it triggers scrutiny
The Australian Taxation Office closely reviews director loan accounts. Non-compliant or undocumented loans can be treated as unfranked dividends, leading to unexpected tax liabilities.

Common issues

• No formal loan agreement
• No interest charged
• No defined repayment terms

Example
A director withdraws funds from the company during the year without recording them as salary, dividends, or a formal loan. Without proper documentation, the ATO may treat these withdrawals as taxable income.

What to do

• Put a compliant Division 7A loan agreement in place before the company tax return lodgement date
• Charge interest at or above the ATO benchmark rate
• Set clear repayment terms, including minimum yearly repayments
• Record all director withdrawals accurately as salary, dividends, or loans
• Review director loan accounts before EOFY to ensure compliance and avoid reclassification

Mistake 7: Prior-Year Adjustments Not Updated Correctly

Adjustments relating to previous financial years must be handled carefully. Errors here can affect both current and historical reporting.

Why it triggers scrutiny
The ATO reviews amended figures and reconciles them with prior lodgements. Poorly documented adjustments create inconsistencies across reporting periods.

Common issues

• Adjusting prior-year figures without explanation
• Failing to amend previously lodged returns where required
• Incorrectly posting adjustments in the current year

Example
A business identifies an expense omission from FY 2024–25 but records it entirely in FY 2025–26 without disclosure. This distorts financial results and may require amended filings.

What to do

• Review prior-year accounts for any known omissions or misclassifications
• Determine whether a formal amendment is required — material errors in lodged returns generally need to be corrected
• Where adjustments are made in the current year, disclose them clearly in financial statements and consider seeking advice on whether an amended return is also required

Partner with Professionals Who Keep Your Numbers Clean and Compliant

As EOFY approaches, many Australian businesses focus on closing their books quickly, often overlooking accuracy, reconciliation, and proper documentation before the 30 June deadline. This rushed EOFY approach can lead to inconsistencies, missed adjustments, and compliance risks that may attract ATO attention.

A structured EOFY close changes this completely. With timely reconciliations, accurate adjustments, and alignment across GST, payroll, and financial reports, your numbers are not just complete—they are reliable and audit-ready.

At Whiz Consulting, we help Australian businesses manage year-end accounting with precision and consistency; ensuring your records are clean, compliant, and fully aligned with ATO requirements, so you can close the year with confidence and step into the next with complete financial clarity.