Top 5 Tax Traps Small Businesses in Australia Must Avoid

Running a small business in Australia is exciting, but it also comes with responsibilities — especially when it comes to taxes. Many small business owners unknowingly fall into avoidable tax traps, which can lead to hefty fines, audits, or cash flow issues.

At Reyes Group, we work closely with small businesses to make sure they stay compliant, maximise deductions, and avoid the common pitfalls. Here are the top 5 tax traps you should watch out for.

1. Misclassifying Employees as Contractors

It might seem easier to hire someone as a contractor, but if they’re legally considered an employee, you could face serious consequences from the ATO.

• What’s the risk? You may be liable for unpaid superannuation, PAYG withholding, and even penalties.

• How to avoid it: Understand the legal tests that distinguish contractors from employees — including control, independence, and ongoing work expectations.

👉 Need help with worker classification? We can guide you through the correct process.

2. Not Lodging BAS and Tax Returns on Time

Your Business Activity Statement (BAS) is crucial for GST, PAYG, and other tax obligations. Delays in lodgement or payment can lead to penalties and interest charges.

• What’s the risk? Missed deadlines can lead to audit flags and accumulating debt.

• How to avoid it: Stay on top of deadlines with cloud accounting tools and professional bookkeeping support.

💡 Tip: Set calendar alerts or use an accountant to automate reminders and lodgements.

3. Overlooking Deductions and Expenses

Many small business owners fail to claim all legitimate deductions — or worse, claim expenses incorrectly, which can raise red flags with the ATO.

• What’s the risk? You could end up paying more tax than necessary — or trigger an audit.

• How to avoid it: Keep accurate records, understand what’s deductible, and consult a tax professional to review your expense claims.

📘 Download our free checklist of common small business deductions [insert link].

4. Choosing the Wrong Business Structure

The way your business is structured — sole trader, partnership, company, or trust — affects your tax rate, liability, and future growth.

• What’s the risk? A poor structure can lead to higher tax bills, legal exposure, or missed opportunities for income splitting.

• How to avoid it: Review your structure annually or as your business grows. It might be time to restructure.

✅ Reyes Group offers business structuring advice to suit your goals and minimise tax.

5. Ignoring Cloud Accounting and Real-Time Reporting

Manual bookkeeping or outdated spreadsheets often lead to errors and missed financial insights.

• What’s the risk? Poor record-keeping can lead to inaccurate returns, missed GST credits, or delayed decision-making.

• How to avoid it: Move to cloud-based systems like Xero, MYOB, or QuickBooks. These platforms make BAS and tax compliance faster and more accurate.

🛠️ We offer setup, training, and support for cloud accounting systems tailored to your business.