If you’re wondering what makes the ATO suddenly take a closer look at your tax return, the short answer is this: inconsistencies and unrealistic claims. That’s what gets most people in trouble. The Australian Taxation Office doesn’t randomly select taxpayers to audit. Their systems are smart enough to pick up when something doesn’t add up.
Now, that doesn’t mean you should live in fear of being audited. It just means you should understand what catches their attention and how to avoid those red flags in the first place.
Let’s go through the most common ATO audit triggers and what you can do to keep your return clean.
What Actually Triggers an ATO Audit?
1. Income That Doesn’t Match Your Records
The ATO already knows a lot about your income before you even file your return. They get information from your employer, bank, and even third-party platforms. So, when your declared income doesn’t match what they already have, the system flags it automatically.
Expert Tip: Always declare all your income sources. That includes side gigs, rent from investment properties, or money earned from online work. Even small amounts count.
2. Unusually High Deductions
Claiming bigger deductions than others in your occupation can look suspicious. The ATO compares your claims to statistical data for similar taxpayers. If your work-related expenses seem inflated, they may decide to investigate further.
Example: If you’re a teacher claiming $3,000 in work expenses when the average is $500, expect questions.
Expert Tip: Keep records for everything you claim. If you can prove it’s a genuine expense, you’re safe. But if it’s exaggerated or unrelated to your job, it’s a risk.
3. Claiming Personal Costs as Business Expenses
This is one of the fastest ways to attract unwanted attention. Trying to pass off personal costs like holidays, clothes, or even family meals as business expenses is a red flag. The ATO can spot patterns in spending that don’t align with your industry or income level.
Expert Tip: Be honest about what’s business-related. If you use something for both personal and business purposes, like your car or phone, only claim the portion that relates to work.
4. Inconsistent or Missing Records
If your figures don’t match up or your paperwork looks incomplete, the ATO might dig deeper. Many people underestimate how detailed they need to be when it comes to receipts, invoices, and records.
Expert Tip: Keep digital and physical copies of all your records. The ATO can ask for supporting documents years after you’ve lodged your return.
5. Reporting Big Losses Every Year
If your business consistently reports losses, especially when your income remains steady, that’s a potential trigger. The ATO might suspect that the business isn’t being run for genuine profit or that some expenses are being overstated.
Expert Tip: If you’ve had a tough year, keep evidence that shows why, like contracts, supplier issues, or market changes. Context helps if the ATO asks for explanations.
How Does the ATO Choose Who to Audit?
The ATO uses a system called data matching. It collects information from employers, banks, insurers, government agencies, and even platforms like Airbnb or Uber. This data is compared to your tax return.
If something doesn’t line up, the system flags it. From there, an officer may manually review your return to decide whether it’s worth auditing.
So no, it’s not luck or bad timing, it’s usually data-driven.
What Should You Do If You’re Selected for an Audit?
First, don’t panic. Being audited doesn’t mean you’ve done something wrong. Sometimes the ATO just wants clarification.
Here’s what to do:
- Respond quickly. Ignoring the ATO only makes things worse.
- Gather your records. Have your receipts, bank statements, and invoices ready.
- Seek professional help. A registered tax agent or accountant can speak to the ATO on your behalf and ensure you’re protected.
The best defence is always clear records and honest reporting.
How to Avoid an ATO Audit Altogether
You can’t eliminate the risk completely, but you can lower it. Here’s how:
- Be accurate. Double-check your figures before lodging.
- Stay consistent. Make sure your claims align with previous years unless something genuinely changed.
- Use a tax agent. A professional can spot problems before you hit submit.
- Keep everything documented. Receipts, invoices, and digital records can save you a lot of stress later.
Remember, the ATO isn’t against you; they just want fair reporting.
Frequently Asked Questions
How far back can the ATO audit me?
Usually up to two years for individuals, but up to four years for businesses or complex cases. If fraud or serious errors are suspected, they can go back further.
Can honest mistakes trigger an audit?
Sometimes, yes. But if it’s a small, one-off error and you can explain it, you’re unlikely to face penalties.
What happens if I can’t find a receipt?
If the expense is genuine, provide other evidence such as bank statements or supplier records. The ATO may accept these if they’re reasonable.
Are cash businesses more at risk?
Yes. Cash-heavy industries like hospitality and construction often face closer scrutiny due to the risk of undeclared income.
Final Thoughts
The fastest way to trigger an ATO audit is to submit a tax return that looks inconsistent, unrealistic, or unsupported by records. The safest way to avoid one is to be accurate, honest, and prepared.
Tax compliance isn’t about being perfect; it’s about being transparent. If your records are solid and your claims are genuine, you have nothing to worry about.
Getting professional advice before lodging your return is always worth it. It’s not just about avoiding audits; it’s about peace of mind.
Need Expert Help? Talk to Clear Tax
Avoiding an ATO audit starts with getting your tax right from the beginning. Clear Tax is a team of professional and experienced tax agents who specialise in helping Australians file accurate, compliant, and stress-free tax returns.
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