How to Prepare for an ATO Audit in the Hospitality Industry
The Australian hospitality sector, cafés, restaurants, bars, and takeaways, has long been under the ATO’s spotlight. Why? Under-reported income, dodgy payroll practices, and poor record-keeping.
In 2025, the ATO is ramping up audits across cash-heavy industries under its Shadow Economy Program. If you run a hospitality business, now’s the time to get your books in order, staff correctly paid, and systems clean enough to withstand scrutiny.
Here’s how to proactively prepare your hospitality business for an ATO audit, and avoid costly penalties.
1. Solid Record-Keeping Is Non-Negotiable
ATO audits start with your records. You must prove that your reported income, expenses, and GST figures are accurate and supported by evidence. The ATO requires you to keep records for at least five years.
Minimum records to retain:
Daily sales summaries or Z-reports from your POS
Cash register tapes or software records
EFTPOS merchant settlement reports
Tax invoices for all purchases
Employee timesheets and payslips
Superannuation payment records
Tip: Store everything digitally in a cloud-based accounting system. Regular backups and easy access make audit responses faster and safer.
2. Declare All Income, Cash and Card
Cash remains common in hospitality, and that’s exactly what the ATO targets. Under the Electronic Payments Reporting System (EPRS), your EFTPOS takings are already visible to the ATO.
Common audit red flags include:
Sales not matching ATO industry benchmarks
Declared income much lower than supplier purchases
Excessive cash expenses or high director withdrawals
POS data not matching bank deposits
If you’re accepting cash, use a robust daily reconciliation process. Match takings to deposits, dockets, voids, and tips.
Invest in an integrated POS system that tracks all payment types, cash, EFTPOS, tips, and refunds. The ATO uses data-matching to detect anomalies.
3. Get Payroll Right or Get Penalised
Payroll compliance is a joint focus of the ATO and Fair Work Ombudsman. Underpaying staff, misclassifying contractors, or missing superannuation can lead to audits and prosecution.
Key areas to check:
Staff are correctly classified (casual, part-time, contractor)
Superannuation is paid quarterly and in full
Single Touch Payroll (STP) is lodged each pay run
PAYG withholding is correctly calculated and remitted
STP finalisation declarations are made by 14 July each year
Bonus tip: Use the Fair Work Pay Calculator to ensure compliance with Award rates, including penalty rates on weekends and public holidays.
4. Reconcile Your Bank Accounts Properly
Bank reconciliation errors are a classic audit trigger. In the hospitality industry, mismatches between deposits and reported income are often a sign of cash manipulation.
Common reconciliation issues:
Deposits not matching daily POS sales
Undeposited cash not recorded as income
Chargebacks and refunds not entered
Merchant and EFTPOS fees incorrectly allocated
Best practice: Reconcile weekly or fortnightly. Match deposits to their source—POS, merchant batch, or manual adjustment.
5. Understand What the ATO Will Ask For
If selected for audit, the ATO may request:
Full general ledger
POS and bank records
Staff rosters and payroll summaries
Tax invoices and supplier statements
BAS lodgements and GST calculations
Inventory movement and wastage reports
Be proactive:
Conduct an internal mini-audit yearly
Review wage compliance every time minimum rates change
Involve your accountant, especially during growth or structural changes
Quick Audit Survival Checklist for Hospitality Operators
Area | What to Review |
Sales Reporting | Match POS to deposits and BAS |
Cash Handling | Daily summaries and proper float/tip tracking |
Payroll | Award rates, STP, super, PAYG compliance |
GST & BAS | Accurate and timely lodgement |
Reconciliations | Weekly reconciliation of bank, EFTPOS, tips, refunds |
Documentation | Store 5 years of digital records and contracts |
Let Dolman Bateman Help You Stay ATO-Ready
As expert hospitality accountants, we understand the audit hot spots, and how to fix them before they cost you. Whether you run a single café or a group of venues, we’ll ensure your systems are tight, your payroll is compliant, and your records are audit-proof.
📞 and stay one step ahead of the ATO.
Disclaimer: The information provided in this article is general in nature and does not constitute personal financial, legal or tax advice. All content relates to the current financial year only. Future changes to tax laws, thresholds or administrative requirements may affect the accuracy or relevance of this information, so you should always confirm that the guidance remains current. While every effort has been made to ensure accuracy at the time of publication, Dolman Bateman accepts no responsibility or liability for any loss or damage arising from reliance on this information. You should seek professional advice tailored to your circumstances before making any financial or tax decision.