The ATO now sees construction in near-real-time — TPAR, STP, bank and merchant data all feed a matching engine that flags the gap between what you declared and what others reported paying you. Here is what triggers an audit, what illegal phoenixing costs (up to 15 years), and why voluntary disclosure before they contact you is the cheapest fix.
What the ATO is watching in construction
Building and construction is a standing ATO focus — a large sector with a history of cash work. The triggers that flag you:
- Income that does not match TPAR — a builder reports paying you, but it is missing from your return.
- Bankings above declared turnover — cash, transfers and platform payments that do not reconcile with reported income.
- Poor GST compliance — missed or late BAS, under-reported GST, credits claimed without valid tax invoices.
- Business money funding a private lifestyle — personal spending through the business, a "work" vehicle barely used for work, materials on personal projects.
- Lifestyle inconsistent with income, non-lodgment while visibly trading, super underpayments showing in STP, and aggressive structures with no commercial rationale.
How works
- TPAR — payers report each subbie's ABN and total paid; the ATO cross-matches it to your return. Declare materially less than the TPAR shows and you are flagged; ignore the "nudge" letters and it escalates to a full audit. (See TPAR Explained.)
- STP — employers report wages and SG each pay cycle; the ATO matches STP against BAS and super-fund data to spot unpaid super and sham contracting.
- Other data — bank, merchant (EFTPOS, PayPal, card), property titles, vehicle registrations and industry benchmarks that flag outliers with implausibly low margins.
It runs continuously. A mismatch usually starts as a review (an information request) and escalates to audit only if your response is poor or the issues are serious.
Illegal phoenixing — the 15-year line
"Phoenixing" is using a new company to continue the business of a liquidated or abandoned one to dodge its debts — tax, super, trade creditors and employee entitlements. The classic construction pattern: strip assets to a new entity below value, liquidate the old company with unpaid liabilities, then resume under a near-identical name with the same people, plant and clients.
The Treasury Laws Amendment (Combating Illegal Phoenixing) Act 2020 targets creditor-defeating dispositions — transferring company property below market value to hinder creditors in a winding-up:
- Directors and officers who fail to prevent them face civil penalties and criminal offences.
- Advisers who facilitate them (pre-insolvency advisers, accountants, dummy directors) are pursued the same way.
- Sanctions include substantial fines and, for serious activity, up to 15 years' imprisonment.
- Under the Director Penalty Notice (DPN) regime, the ATO can recover unpaid GST, PAYG and SG personally from directors and retain refunds while lodgements are outstanding.
The takeaway: a fresh company is not a reset button on tax and super debts.
Preparing for an audit
Audit-ready means solid records and a consistent story across your books, bank accounts, TPAR, BAS and returns. Keep:
- quotes, invoices and job files (variations, addresses, dates);
- cash books and POS reports (including cash takings);
- bank, loan and credit-card statements with reconciliations;
- expense records (materials, tools, vehicles, insurances);
- vehicle logbooks and running costs;
- payroll/STP, timesheets, super evidence, worker agreements;
- copies of every BAS, return and TPAR with workpapers.
The process runs risk/desk review → audit → outcome: a strong response at the review stage often closes it; at audit the ATO reconstructs your income from bankings, TPAR, STP and benchmarks, issues a position paper you can respond to, then makes assessments with penalties and interest (serious cases are referred for prosecution). A construction-experienced tax agent is worth it for the reconciliations and to negotiate penalty remission. If you disagree with an assessment, you have formal objection rights — lodge an objection within the time limit rather than ignoring it.
Voluntary disclosure — the cheapest fix
If you have historic cash jobs, omitted contractor income or over-claimed deductions, come forward before the ATO contacts you. You (or your agent) write to the ATO explaining the periods and errors and how you have recalculated, lodge amended returns/BAS/TPAR, and propose a payment plan.
The penalty effect is significant: a full, genuine voluntary disclosure before the ATO notifies a review or audit can see administrative penalties reduced substantially — commonly up to 80%, or fully remitted. Disclose after contact but before they uncover the full extent and you get a partial reduction. GIC usually still applies, but the ATO may allow time to pay. With TPAR/STP/bank matching now mature, the longer you leave it the more likely the ATO finds it first — and treats it as deliberate.
Common mistakes
- Ignoring TPAR/STP "nudge" letters until they become an audit.
- Treating a new company as a clean slate on old tax/super debts.
- Waiting for the ATO to find it instead of disclosing voluntarily.
- Missing the objection deadline after an assessment.
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