Receiving a letter from the Australian Taxation Office (ATO) asking questions about your tax return can be unsettling. The word “audit” alone can make you wonder whether you have done something seriously wrong.
But an ATO audit is not an accusation of wrongdoing.
An audit is a closer examination of your tax affairs to determine whether the information reported to the ATO is accurate and whether the correct amount of tax has been paid.
Depending on the circumstances, the ATO may review income, deductions, business transactions, GST, records or other tax matters.
For Perth taxpayers, the most important thing is to understand the next steps.
Understanding the process can help you avoid rushed responses, organise the right evidence and recognise when professional assistance from tax accountants in Perth may be worthwhile.
Here is what an ATO tax audit can look like, from the first notification through to the final outcome.
What Is an ATO Tax Audit?
An ATO tax audit is a formal examination of a taxpayer’s affairs.
The ATO may examine information you have reported in your tax return or activity statements and compare it with supporting records and information available to the ATO.
That could include:
- income reported by employers, banks or other organisations
- deductions and expenses
- business income and expenses
- GST and BAS information
- investment or rental property information
- capital gains
- records supporting particular tax claims
- transactions relevant to your tax position.
The ATO uses compliance activities to identify and address incorrect reporting and other tax risks. Its current corporate plan targets $16.3 billion in revenue effects from compliance activities in 2025–26. That figure includes a range of compliance actions, not simply traditional tax audits.
So, an audit should not be viewed as something that only happens because the ATO believes a taxpayer has deliberately done something wrong.
Review, Audit Or Data Check: What Is The Difference?
One reason ATO correspondence can be confusing is that review, audit and other compliance activities are sometimes used interchangeably in everyday conversation.
They are not necessarily the same thing.
A data-matching activity may identify a discrepancy between information you reported and information received by the ATO.
A review may focus on a particular issue, such as a deduction or transaction, and ask you to provide an explanation or supporting documents.
An audit is generally a more formal examination of your tax affairs.
The important point is not to assume what the letter means based solely on the word used. Read the correspondence carefully to understand:
- what the ATO is examining
- which financial years or periods are involved
- what information has been requested
- when you need to respond
- who you should contact.
If you are unsure about the nature or scope of the ATO’s enquiry, getting advice from tax accountants in Perth before responding can prevent unnecessary confusion.
What Happens During an ATO Tax Audit?
The exact process varies depending on the taxpayer and the issues being examined. However, a typical audit follows several stages.
Step 1: You Receive Notification From The ATO
The process normally starts when the ATO contacts you about your tax affairs.
The correspondence should give you information about the matter being examined and what the ATO needs from you.
Do not ignore the letter simply because you believe your tax return is correct.
Likewise, do not immediately assume you need to repay a large amount of tax.
At this stage, your job is to understand exactly what the ATO is asking.
Check these details first
Look for:
- the relevant financial year or tax period
- the specific tax issue being examined
- documents requested
- response deadlines
- contact details
- any proposed meeting or discussion.
Keep a copy of all correspondence and create a simple timeline of communications.
If you are already working with registered tax accountants in Perth, send the correspondence to them promptly.
Step 2: The ATO Establishes The Scope Of The Audit
An audit needs a defined scope.
The ATO’s published guidance explains that, during an audit, it will generally discuss the scope, periods under audit, information required, how the audit will be conducted, and expected milestones.
For more complex audits, the ATO may establish an audit management plan covering these matters.
This is an important stage because you need to understand what is actually being examined.
For example, an audit may focus on a particular deduction rather than your entire tax history.
A small business audit may involve broader records covering income, expenses, GST or other business tax obligations.
If the ATO identifies additional risks during the process, it may broaden the audit’s scope. The ATO says it will advise the taxpayer if it decides to broaden the scope.
Step 3: You Provide Supporting Documents
This is where good record-keeping becomes extremely important.
The ATO may request documents that support information included in your tax return or activity statements.
Depending on the circumstances, these could include:
- invoices
- receipts
- bank statements
- loan documents
- work-related expense records
- motor vehicle records
- rental property records
- accounting records
- business transaction records
- contracts
- tax invoices
- correspondence relating to transactions.
For businesses, records generally need to explain and support transactions and tax calculations. The ATO generally requires relevant business records to be retained for at least five years, although some records need to be kept for longer.
The practical lesson is simple: do not wait for an audit to discover that your records are incomplete.
Step 4: The ATO Examines Your Evidence
Once the ATO receives the requested information, it may compare the evidence against what was reported.
This is where an apparently simple question can become more detailed.
For example, imagine you claimed a deduction for an expense.
The ATO may want to establish:
- Did you actually incur the expense?
- Was it connected to earning assessable income?
- Was there also a private component?
- Do you have sufficient records?
- Was the amount calculated correctly?
- Does the evidence support the amount claimed?
The same principle applies to business transactions.
A figure appearing in accounting software does not prove that it is deductible. The underlying transaction and supporting records may still matter.
Step 5: The ATO May Ask Follow-Up Questions
An audit is rarely just a matter of sending one folder of documents and never hearing anything again.
The ATO may ask additional questions after reviewing your information.
For example, it may identify a transaction that requires clarification or notice that the records provided do not fully explain a particular figure.
This is why your response should be:
accurate, relevant, consistent and supported by evidence.
Avoid guessing.
If you do not know the answer to a question, it is generally better to investigate the records and provide a properly supported response than to speculate.
The ATO’s audit guidance emphasises ongoing communication during an audit and says it will communicate as its view develops.
Step 6: The ATO Forms A View About The Issues
After considering the information, the ATO will form a view about whether the relevant tax treatment was correct.
There are several possible outcomes.
1. The ATO accepts your position
If the evidence supports your tax treatment, the matter may be finalised without an adjustment to your tax liability.
This is one reason an audit notice should not be interpreted as a finding that you owe more tax.
2. The ATO identifies an adjustment
If the ATO concludes that an amount was incorrectly reported or a claim was not allowable, it may make an adjustment.
Depending on the circumstances, this can result in additional tax becoming payable.
Interest and penalties may also become relevant.
3. The ATO identifies a more significant issue
If the audit identifies broader concerns, the ATO may examine additional transactions or tax periods.
That is why responding carefully to the initial enquiry matters.
Step 7: You Receive The Audit Outcome
The final outcome depends on what the ATO finds.
If an adjustment is required, the taxpayer may receive an amended assessment or other formal notification explaining the outcome.
Do not simply pay an amount without first understanding how the ATO arrived at the figure if you believe something is incorrect.
Read the decision carefully and compare it with the records and explanations provided during the audit.
Can You Disagree With an ATO Audit Decision?
Yes, taxpayers can have certain ATO decisions reviewed through the appropriate dispute process.
If an amended assessment is issued and you believe the ATO’s decision is incorrect, you may have objection rights, subject to the applicable rules and time limits.
The ATO confirms that individuals have a right to have certain decisions about their tax affairs reviewed and can object to amended assessments.
This is an area where professional advice can be particularly useful because an objection is not simply another explanation sent to the ATO. It is a formal process with specific requirements.
What Should You Do If You Receive an ATO Audit Notice?
The first response should be calm and methodical.
1. Read the entire notice
Do not focus only on the word “audit”.
Identify precisely what the ATO wants to know.
2. Check the deadline
Put the response date somewhere you will not miss it.
If you need additional time or cannot provide the requested information by the deadline, deal with the issue promptly rather than allowing the deadline to pass without communication.
3. Gather the original records
Do not rely solely on memory.
Look for the actual documents supporting the relevant income, expenses or transactions.
4. Reconcile the figures
Where possible, check that the documents you provide agree with the figures in your tax return, BAS or accounting records.
If there is a discrepancy, understand why it exists before responding.
5. Avoid changing records retrospectively
Do not create documents simply to make an old transaction appear compliant.
If a record is missing, explain the situation honestly and investigate what alternative evidence may exist.
6. Consider getting professional advice
An audit can involve technical tax questions, evidence requirements and formal correspondence.
A registered tax agent can help you understand the request, organise supporting information and communicate with the ATO where appropriate.
What Can Make an ATO Audit Harder?
An audit becomes more difficult when the evidence does not clearly support the tax return.
Common practical problems include:
- missing receipts
- incomplete business records
- personal and business expenses mixed together
- unexplained bank transactions
- inconsistent figures between accounting records and tax returns
- unsupported deductions
- incomplete vehicle records
- missing rental property documentation
- late or incomplete responses to ATO requests.
Good record keeping is therefore not just an administrative task.
It can become the evidence that explains why a number in your tax return is correct.
For businesses, the ATO specifically recommends keeping records that support income, expenses, GST and other tax obligations, with many records required to be retained for at least five years.
How Perth Taxpayers Can Prepare Before An Audit Ever Happens
The best time to prepare for an ATO audit is before receiving the letter.
For individuals, this means keeping evidence for deductions and maintaining records relevant to investments, employment expenses, property and other tax matters.
For sole traders and businesses, it means maintaining reliable accounting records throughout the year rather than reconstructing transactions at tax time.
A useful habit is to ask one question whenever you record a significant transaction:
“If the ATO asked me to explain this amount two years from now, could I prove where it came from?”
If the answer is yes, your records are doing their job.
If the answer is no, that is a warning worth addressing now.
Frequently Asked Questions About ATO Tax Audits
How long does an ATO tax audit take?
There is no single timeframe that applies to every audit. The duration depends on the scope, complexity, information required, and how quickly relevant records and explanations are provided.
Simple matters can be relatively straightforward, while complex business or transaction reviews may take considerably longer.
Can the ATO ask for more documents after I respond?
Yes. If the information provided does not resolve the issue or raises additional questions, the ATO may request further information. An audit can also broaden if additional risks are identified.
Should I contact the ATO myself?
You can communicate with the ATO yourself, but you do not necessarily have to manage a complicated audit without professional assistance.
If you have a registered tax agent, discuss the notice with them before making substantive responses, particularly where the matter involves significant tax amounts, complex transactions or potential penalties.
How long should I keep tax records?
For many tax records, the general requirement is five years, although the precise period depends on the type of record and circumstances. Some records need to be kept longer.
Can an ATO audit result in more tax being owed?
Yes. If the ATO determines that the tax originally assessed was incorrect, an adjustment may result in additional tax becoming payable. Interest and penalties may also apply depending on the circumstances.
What if I disagree with the ATO’s decision?
You may have formal review or objection rights depending on the type of decision. Because time limits and eligibility requirements can apply, obtain advice promptly if you disagree with an amended assessment or other significant decision.
The Key Takeaway For Perth Taxpayers
An ATO audit can feel intimidating because you are being asked to explain information that may relate to transactions from months or even years ago.
The most important thing is not to panic or ignore the correspondence.
Read the notice carefully, preserve your records, respond accurately, and seek professional help when the matter is beyond your confidence or experience.
For taxpayers in Perth, preparation is ultimately about more than keeping receipts in a folder.
It is about being able to connect every significant figure in your tax return to evidence that explains it.
Need Help Responding to an ATO Audit?
An ATO audit can become stressful when you are unsure what the ATO is asking, which records matter, or how to respond without creating further complications.
Perth Tax People provides practical tax and accounting support for individuals, sole traders and businesses, with more than 15 years of experience and registered tax agent expertise.
If you have received an ATO audit notice or need help reviewing your tax records before responding, our experienced tax accountants in Perth can help you understand the issue, organise the relevant information and work through the next steps with you.
Our goal is to make a complex tax process clearer, more manageable and less stressful.
Get clarity before you respond; speak with Perth Tax People for experienced guidance on your ATO audit.