No one enjoys the idea of an Australian Taxation Office (ATO) audit — but it’s a reality that individuals, investors, and business owners should understand and prepare for. The good news is that most ATO audits are triggered for specific reasons. With accurate reporting and open communication with your accountant, you can reduce the risk — and the stress — of an ATO review.

How often does the ATO conduct audits?

While not every taxpayer will face an audit, the ATO conducts thousands of reviews and audits every year across Australia. These are often targeted at industries or activities where discrepancies are more common, such as:

• Cash-based businesses (cafés, salons, trades, hospitality).
• High-value property or capital gains transactions.
• Unusually large deductions or expenses compared to similar taxpayers.

With increasingly sophisticated data-matching technology, the ATO automatically cross-checks information from banks, employers, superannuation funds, land titles offices and even digital platforms like Airbnb, Uber and eBay. If something doesn’t match what you’ve lodged, the ATO can quickly flag it for review.

Who might be audited by the ATO?

The ATO uses data analytics to identify potential red flags in tax returns and BAS statements. Common audit triggers include:

• Income that doesn’t match employer, bank or third-party data.
• Deductions that are unusually high for your occupation or industry.
• Sudden changes in income or expenses without a clear explanation.
• Failure to lodge tax returns or BAS on time.
• Being involved in arrangements that appear to artificially reduce tax.

Even when your records are accurate, you can still be selected for a random review — which is why keeping your documentation up to date is so important.

Why full disclosure to your accountant matters

Your accountant can only prepare accurate and compliant returns based on the information you provide. If income, expenses, assets or business activities are withheld, forgotten or misrepresented — even unintentionally — the risk of an issue during an ATO audit increases.

It’s also worth noting that your accountant generally cannot be held responsible for errors or penalties that arise because the information supplied by the client was incomplete or incorrect.

By being fully transparent, you allow your accountant to:

• Ensure your returns comply with current tax law.
• Claim all legitimate deductions — but not the risky ones.
• Prepare supporting documentation in advance.
• Defend your position more effectively if the ATO asks questions.

At Holmans, we always encourage clients to tell us everything upfront — prevention is far cheaper than responding to an audit.

The real cost of an ATO audit

An audit isn’t just inconvenient — it can be costly. Depending on the scope of the review, you may face:

• Professional fees for responding to ATO queries.
• Time spent locating and providing records.
• Interest and penalties if tax has been underpaid.
• Repayments that can stretch back several years.

Because of this, some businesses and high-risk industries choose to take out audit insurance to cover the professional costs of dealing with an ATO review. If you’re unsure whether this is appropriate for you, speak with us and we can outline the pros and cons.

How to stay on the safe side

You can’t completely remove the possibility of an audit, but you can make yourself far less likely to be targeted — and far easier to defend — by following some good practices:

• Keep thorough records — invoices, receipts, bank statements, logbooks.
• Lodge on time — late lodgements are a simple audit trigger.
• Be consistent from year to year, especially with deductions.
• Ask before you claim — get advice before making unusual or large claims.
• Respond to ATO correspondence quickly — never ignore a letter.

Good record-keeping plus an active relationship with your accountant is still the best defence.

Need help reducing your audit risk?

An ATO audit doesn’t have to be a nightmare. With transparency, solid documentation, and the right advice, you can get through it — or better still, avoid it.

Holmans helps clients across the Sunshine Coast and throughout Australia to stay compliant, minimise audit risk and understand exactly what the ATO is looking for.

Contact Holmans today to talk about ATO audit risk, audit insurance, or tax compliance for your business.

Disclaimer: This article contains general information only. Regrettably, no responsibility can be accepted for errors, omissions or possible misleading statements or for any action taken as a result of any material in this guide. It is not designed to be a substitute for professional advice, as such a brief guide cannot hope to cover all circumstances and conditions applying to the law as it relates to these items.

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Holmans Noosa: (07) 5430 7600 or email info@holmans.com.au
Holmans Maroochydore: (07) 5451 6888 or email infohm@holmans.com.au