No one enjoys the idea of an Australian Taxation Office (ATO) audit, but it’s a reality that both individuals and businesses should be prepared for.
The good news is that most audits are triggered for specific reasons — and staying honest and transparent with your accountant can make all the difference if the ATO ever comes knocking.
How Often Does The ATO Conduct Audits?
While not every taxpayer will face an audit, the ATO regularly reviews data and conducts targeted compliance activities across Australia. Thousands of reviews and audits are performed each year, particularly in industries or areas where discrepancies are more common — such as cash-heavy businesses, high-value property transactions, or unusually large deductions.
With data-matching technology improving every year, the ATO now automatically cross-checks information from banks, employers, super funds, and even online platforms like Airbnb and Uber. This means inconsistencies in reported income, deductions, or business activity are far easier to spot than in the past.
Who Might Be Audited?
The ATO uses data analytics to identify potential red flags, such as:
• Income that doesn’t match third-party data (like employer-reported earnings).
• Unusually high deductions compared to others in your occupation or industry.
• Sudden or unexplained changes in business income or expenses.
• Failure to lodge returns or BAS statements on time.
• Participation in schemes or arrangements that appear to artificially reduce tax.
Even if your records are accurate, you can still be randomly selected for review — so it pays to keep everything above board.
Why Full Disclosure To Your Accountant Matters
Your accountant’s advice and reporting are only as accurate as the information you provide. If you withhold or misrepresent income, expenses, or assets — even unintentionally — you may face serious consequences if an audit reveals discrepancies.
Importantly, your accountant cannot be held liable for errors or penalties resulting from incomplete or false information supplied by the client. When you disclose openly, you give your accountant the best chance to prepare accurate returns and ensure compliance with tax law — and to protect you in the event of an ATO review.
The Real Cost Of An Audit
An audit isn’t just stressful — it can also be costly. Depending on the scope and duration, professional fees, time spent gathering records, and potential penalties can add up quickly. If the ATO finds that you’ve underpaid tax, you could face interest charges, penalties, and repayment obligations stretching back several years.
Some businesses choose to protect themselves with audit insurance, which covers the professional fees incurred during an ATO review or audit. It’s worth discussing whether this option suits your circumstances.
Staying On The Safe Side
The best way to avoid audit trouble is simple — keep thorough records, stay compliant, and communicate openly with your accountant.
Double-check your information before lodging, seek professional advice before making unusual claims, and never ignore ATO correspondence.
By maintaining transparency and good record-keeping, you can face any ATO scrutiny with confidence — and stay focused on running your business, not defending your books. For tax advice speak with our tax accountants.
Disclaimer
The information contained in this publication is for general information purposes only, professional advice should be obtained before acting on any information contained herein. Neither the publishers nor the distributors can accept any responsibility for loss occasioned to any person as a result of action taken or refrained from in consequence of the contents of this publication.