For most Australians, getting an audit notice from the ATO ranks somewhere between finding a parking fine on your windscreen and stepping in hot gum while wearing pluggers. Yet in 2024, with enhanced digital tools at their disposal, the tax office is reaching out to more Australians than ever. With so much on the line, our expert accountants pulled together to create this complete tax audit guide, designed to give you peace of mind.
The 2024 Hit List: Tax Audit Red Flags
The ATO’s current focus falls heavily on several high-risk categories. Cryptocurrency gains remain firmly in their sights, alongside the ever-expanding shared economy income from platforms like Uber, Airtasker, and Airbnb. Vehicle expenses continue to raise eyebrows, particularly when claims seem suspiciously round or conveniently close to the maximum allowable amount.
Property investors should note the enhanced scrutiny of rental deductions, especially those claiming expenses across both investment properties and primary residences. The ATO’s data-matching system readily flags excessive interest claims and unusual patterns of deductions.
Work-related expenses need particular attention in 2024. That black t-shirt you’re claiming? Unless it sports your company’s logo, it’s likely to trigger questions. And if you’re claiming any items that cost more than $300, you need to use a depreciation method rather than claiming them as an immediate deduction. Fail to do so, and you may earn some extra attention from the ATO.
How Far Back Can the ATO Audit?
The ATO’s reach can extend anywhere from two to four years. For individuals with simple tax returns, it’s generally the lower two-year limit. However, for businesses and people with more complex tax affairs, the ATO’s system can dig back into four years of financial history, examining everything from capital asset sales to dividend payments and PAYG discrepancies.
The ATO typically investigates multiple years when they spot patterns of concern or inconsistencies across tax periods. Red flags that could trigger a multi-year audit include:
- Sudden changes in your income patterns: Significant fluctuations in your income from one year to the next, especially without a clear explanation, can raise suspicion.
- Large variances in the deductions you’re claiming between years: Claiming significantly different deductions from one year to the next, particularly if they don’t align with your income or lifestyle, may trigger an audit.
- Large deductions or credits: Similarly, if you claim large deductions or credits without sufficient evidence to support them, this could trigger an audit.
- Missing income from asset sales: Failing to declare income from the sale of property or shares can lead to serious penalties.
- Inconsistent business records: If your records are incomplete, inaccurate, or don’t match your tax return, this could raise red flags with the ATO.
- High-risk industries: Certain industries are more likely to be audited by the ATO, such as property, construction, and self-employment.
- Cash-only businesses: Businesses that rely heavily on cash transactions are more likely to be audited, as the ATO may be concerned about unreported income.
- Foreign assets or income: If you have assets or income held overseas, the ATO may want to ensure you’ve been declaring it correctly.
- Late lodgment of tax returns: If you consistently lodge your tax returns late, this could be a sign that you are trying to hide something, triggering a multi-year audit.
- ‘Anonymous tip-offs: The ATO may receive anonymous tips about potential tax evasion, which could lead to an audit.
- Social media activity: The ATO has been known to monitor social media to identify potential tax evasion. Posts about extravagant purchases or income from undeclared sources can be enough to trigger a thorough audit.
How to Avoid Being Audited by the ATO
When facing the possibility of an ATO audit, finding a huntsman under your sun visor can feel like a welcome distraction. Here’s how to keep yourself safely off their radar (the ATO we mean, not the spiders—you’re on your own there).
Document Everything Like A True-Crime Enthusiast
Your bank statements alone won’t cut it. For every deduction, you need the full story, with documents covering who, what, when, where, and how much. Think of receipts as your financial alibi. The ATO wants to see:
- The vendor’s details (including their ABN)
- The exact date (not “sometime in June”)
- A clear description of what you bought
- The total amount and GST breakdown
- Proof of payment
Only Claim What You’ve Genuinely Spent
The ATO has three golden rules when it comes to claiming tax deductions:
- You must have already incurred the expense
- It needs to directly relate to earning your income
- You can only claim the business-related portion of goods and services that may also be used privately
Time Your Tax Return To Perfection
Many tax headaches start with poor timing—either rushing to lodge on July 1st without all your documentation, or leaving it until October 30th when you’re scrambling for receipts from last July.
Here’s a snapshot of the tax timeline to keep in mind:
- The ATO starts processing returns from July 5th
- First refunds flow from July 14th
- Standard processing takes about 14 days
- Complex returns can take up to 30 days
- The individual lodgment deadline is October 31st
- Tax agent lodgments can stretch to May 15th the following year
A strategic approach to timing your tax return can help avoid ATO scrutiny. The key is having all your documentation ready before you start: payment summaries, investment statements, rental property records, and receipts for any deductions you plan to claim.
Pro tax tip: The extra time you gain from lodging your tax return with an accountant can be invaluable if you’re waiting on documents, dealing with complex investments, or managing multiple income streams.
Work With A Registered Tax Agent
A registered tax agent is like having a translator who speaks fluent ATO. We can:
- Flag potential audit triggers before they become problems
- Identify legitimate deductions you might have missed
- Keep you on the right side of Australia’s tax laws
- Handle ATO correspondence if questions arise
- Extend your lodgment deadline
- Save you money in the long run (our fee is tax-deductible next year)
Pro tax tip: The money you spend on a good tax agent usually pays for itself in legitimate deductions you might have overlooked and audit headaches avoided. ITP also offers free tax advice to your clients year-round, so you’ll have plenty of time to make the most of your investment!
ATO Audit Penalties
The ATO is operated by humans who understand that tax laws are complex and honest mistakes happen. If you’ve taken reasonable care with your tax affairs and voluntarily disclose any errors, you may not face penalties (though that’s no guarantee). Many taxpayers qualify for the ATO’s safe harbour provisions, particularly when they’ve relied on advice from registered tax agents or made genuine attempts to comply.
However, when oversights or deliberate non-compliance are detected, the penalties can be substantial:
- Failure to take reasonable care: 25% of the tax shortfall
- Reckless behaviour or systematic disregard: 50% of the tax shortfall
- Intentional disregard or deliberate evasion: 75% of the tax shortfall
- Plus daily compounding general interest charges (GIC) on any unpaid amounts
The ATO may reduce these penalties if you make a voluntary disclosure before any compliance activity begins. They do also considers factors like your compliance history and individual circumstances when determining the final penalty amount.
What to Do if You Get a Tax Audit Notification
That MyGov notification pops up. Your heart stops. Then your worst fears materialise: the ATO wants to “review” your tax affairs.
Before your mind spirals into dramatic scenarios involving permanent relocation to Cuba, here’s what you need to do.
Don’t Panic But Do Act Fast
The ATO gives you 28 days to respond to a tax audit notification, and they’re not known for timezone flexibility. If you don’t get back to them, they’ll send an amended assessment letter, and you may incur penalties. They calculate these penalties based on the severity of your mistake. The bigger the claim, the higher the penalty. And you can often expect to pay interest on the outstanding amount.
Though you need to get cracking on this, racing to respond without proper preparation will only make things worse. So, take a breath, contact a qualified tax agent, and then take action. Having a tax agent on your side means you benefit from the services of a highly skilled professional who can investigate your case and tell you exactly what you need to do. They’ll help you understand what records and receipts you need, and fill you in on how to get them. They can even file an amendment for you.
What Level of Scrutiny Can You Expect in 2024?
The ATO’s cutting-edge digital systems mean they already know more than you think. Your priority should be:
- Gathering all supporting documentation (receipts, invoices, contracts)
- Collecting relevant emails and digital payment records
- Pulling together bank statements that support your claims
- Finding evidence of work-related expenses, especially those over $300
The numbers need to tell a story that adds up. In 2024, with the ATO’s enhanced data-matching capabilities, vague explanations about lost receipts won’t cut it.
Get Your Own Personal Tax Audit Guide From ITP
A registered tax agent does more than just act as your tax audit guide. We interpret those cryptic ATO requirements, gather your documentation, and manage all correspondence while you focus on more important things—like remembering where you stored last year’s receipts. Once the ordeal is done, you can deduct the fees for audit assistance in next year’s tax return.
ITP’s Income Tax Professionals currently helps more than 200,000 Australians sleep better at night knowing their tax affairs are sorted. With 240 branches across Australia, we’re about as easy to find as a servo on a long road trip. Can’t make it to a branch? No drama. We offer remote services, after-hours appointments, and consultations by phone or email. So, whether you need help with an audit or simply want to avoid them, give us a shout—we’d be happy to take the stress out of tax time for you.