ATO Audit: What they’re really looking for  

When the Australian Taxation Office decides to ATO Audit an individual or business, their goal is simple: to identify discrepancies, omissions, or signs of tax avoidance or evasion. 

But in practice, what exactly do they look for in an ATO Audit – and how can you stay one step ahead? 

We ask Bodie Simpson, our Director of Accounting to give us her top tips when supporting clients through audits and reviews, and dealing with the ATO: 

1. Income reporting: Is everything accounted for? 

The ATO uses extensive data-matching to ensure all your income has been declared – and they cross-check it against a surprising number of sources: 

• Third-party data: Banks, employers, investment platforms, Centrelink, real estate agents, and more. 

• Business income: EFTPOS records, cash transactions, and online sales platforms like Shopify or Airbnb. 

• Unusual wealth accumulation: Luxury cars, properties, or other big-ticket items that don’t match your reported earnings will also raise red flags. 

Real-world example: Reporting a $50,000 income while purchasing a $1 million home outright? That’s a sure way to trigger a review! 

2. Deductions and expenses: Are they reasonable and backed up? 

The ATO looks closely at high or unusual claims – especially if they’re above average for your industry or occupation. 

Here’s what gets their attention: 

• Work-related expenses: Must be directly tied to your job. Outliers are scrutinised. 

• Home office deductions: Since COVID-19, the ATO expects actual records, not estimates. 

• Motor vehicle and travel claims: Require logbooks, work diaries, or detailed records. 

• Rental property expenses: Watch for confusion between repairs (immediate deduction) and capital improvements (depreciated over time). 

3. Record-keeping: Documentation is everything 

To substantiate your claims, you’ll need: 

• Receipts or digital proof for up to five years. 

• Legitimate logbooks, diaries, or schedules that match your claims. 

• Digital records that align with both income and deductions. 

The ATO increasingly expects real-time digital trails, not handwritten estimates or vague figures. 

4. Business reporting: Alignment is key 

For business owners, the audit lens widens. The ATO focuses on: 

• GST vs income declared – are they consistent? 

• PAYG and super obligations – are you meeting your employee entitlements? 

• Participation in the cash economy – especially where industry benchmarks suggest underreporting. 

• Related-party transactions – especially within trusts, private companies, or family groups. 

5. Lifestyle vs. declared income 

Thanks to AI and big data, the ATO can now compare your lifestyle (travel, purchases, assets) with your declared earnings. 

If there’s a mismatch, expect questions. 

6. Prior history and red flags 

You’re more likely to be audited if: 

• You’ve had errors or amendments in prior tax returns. 

• You’re in a high-risk industry (construction, hospitality, services with high cash flow). 

• Your returns are filed late, inconsistently, or show large fluctuations. 

• Your claims are significantly different from others in your profession. 

Some final thoughts on the ATO Audit: 

Here’s how to reduce your risk and sleep easy: 

• Keep clean, accurate records – digital is always best. 

• Only claim what’s genuinely related to income. 

• Engage a qualified tax agent or advisor – not only for guidance, but also because it signals to the ATO that you’re taking compliance seriously. 

The ATO isn’t just looking for fraud – they’re looking for inconsistency. If your financial picture doesn’t add up, you could find yourself on the ATO Audit list. 

But with clarity, structure, and the right advice, staying compliant becomes part of a broader financial strategy – not just a yearly box to tick. 

Bodie Simpson 
Director – Accounting, Your Future Strategy