The ATO's 2026 "Naughty List": Are You Walking into These 3 Business Traps?

The ATO has given us a peek at its "naughty list"—the key focus areas for privately owned and wealthy groups in the year ahead. These aren't simple mistakes. They are complex, high-stakes technicalities that the ATO is actively pursuing, and getting them wrong can have disastrous financial consequences.

We've translated the "ATO-speak" to show you the three biggest traps we see and how you can avoid them

Trap 1: The "Members-Only Club" (Family Trust Traps)

Family trusts are a cornerstone of Australian business, but the ATO is suspicious of how they're being used.

The Family Trust Election (FTE)

• The Analogy: Think of an FTE as giving your trust a "members-only club jacket." It makes dealing with certain tax rules (like losses and franking credits) much simpler.

• The Trap: The catch is a monster called Family Trust Distribution Tax (FTDT). If your trust, while wearing its exclusive jacket, makes a distribution of income or capital to someone who is not in the defined family group, you are hit with a penalty tax at the highest marginal rate (currently 47%).

• The Takeaway: The rules on who is "in the family" are far more complex than you think. We see people make an election to solve a small, $1,000 tax loss problem, without realising they’ve created a 47% tax problem for generations to come. Don't put on the jacket unless you've read the fine print.

The "Magic Trick" Restructure

• The Analogy: A magician sawing a person in half. The ATO is watching businesses try to split themselves in two right before a sale.

• The Trap: The goal is often to restructure a business so it suddenly fits under the threshold for the incredibly generous Small Business Capital Gains Tax Concessions. The ATO sees this as a "magic trick" with no real commercial reason. They will invoke the general anti-avoidance rule (Part IVA) and deny the concessions, leaving you with a massive, unexpected tax bill.

Trap 2: The "Pizza Voucher" (A Franking Credit Time Bomb)

This is a ticking time bomb for new companies and trusts. It's about a deadly technicality in the 45-day holding rule.

• The Analogy: A franking credit is a "Buy One, Get One Free" pizza voucher taped to a pizza box (the share). The ATO says you can't just buy the pizza, rip off the voucher, and sell the box. To use the voucher, you must hold the share "at risk" for at least 45 days. You have to commit.

• The Trap: This is where the timeline gets you.

  • Day 1: Your Family Trust receives a franked dividend (the pizza with the voucher).

  • Day 30: You decide to set up a new "bucket company" to receive the trust's income. 'Leo's Glorious Holdings Pty Ltd' is incorporated.

  • Day 60: Your trust distributes the dividend and the franking credit to your brand-new company.

• The Problem: The ATO says 'Leo's Glorious Holdings' cannot claim the franking credit. Why? Because the entity claiming the credit must have been exposed to the risk for the full 45 days. Your company didn't even exist for the first 30 days of that period.

• The Takeaway: The solution is simple risk management. Set up your companies before the dividend is paid. Don't be late to the party.

Trap 3: The "Campfire Horror Story" (The Case of the Vanishing GST Credits)

This isn't an analogy; it's a real and terrifying case (Trustee for the Bath Family Trust). It's a horror story about what happens when you lodge your BAS late.

• The Story: A swimming pool business fell behind on its paperwork and in 2018, finally lodged a stack of overdue Business Activity Statements (BAS) dating back to 2012.

• The Nightmare: The ATO and the Tribunal ruled:

  1. The business had to pay every dollar of GST on its sales from those 2012-era BAS.

  2. The business's claim for all its GST credits on purchases from those same periods was denied. The credits had vanished forever.

• The Trap: This is caused by a deadly timing mismatch in the law.

• The ATO's Clock (to collect GST): The ATO has four years to review your BAS from the date you lodge it. The business's 2018 lodgement started the ATO's clock, so they could demand the money.

• Your Clock (to claim credits): You only have four years to claim a GST credit from the original due date of the BAS. That clock started back in 2012 and the four-year time limit had long since expired.

The moral of this story is terrifyingly simple: LODGE YOUR BAS ON TIME.

Even if you cannot pay, lodging the form preserves your right to claim your credits. If you lodge late, your credits can disappear, but your debt will not.

Don't Get Caught in the ATO's Traps

These issues—complex trust elections, franking credit technicalities, and brutal lodgement deadlines—are where businesses get into serious trouble. This is not a DIY area.

This is where professional advice becomes essential armour. At Aevum Accounting, we specialise in navigating these intricate rules to ensure your structures are compliant, protected, and optimised for your long-term goals.

Click here to book a consultation and make sure you're not walking into a trap.

Disclaimer: The information and strategies shared in this article are for general informational purposes only and do not constitute specific tax or financial advice. Everyone's situation is unique, and tax laws are complex and constantly evolving. For personalized advice tailored to your specific individual or business needs, we always recommend consulting with a qualified professional at Aevum Accounting.