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    TaxKiln Australia
    TaxKiln

    ATO Audit: What to Expect

    How the ATO selects taxpayers for review and audit, what powers it holds under Division 353, your rights during the process, and the outcomes that follow.

    An ATO audit is a formal examination of your financial records and tax affairs under Division 353 of the Tax Administration Act 1953. The ATO selects targets through data matching across 60+ third-party sources, industry benchmark comparison, and risk profiling. For individuals and small businesses, the standard amendment period is two years from the date of the original assessment notice, extending to four years for more complex affairs and unlimited where fraud or evasion is suspected.

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    Guidance, not advice. We explain the rules, we don't assess your situation. Always seek financial or tax advice from your accountant, or contact ATO. Read our editorial scope →

    Reviews, audits, and compliance activity

    The ATO conducts three tiers of scrutiny. A review is a targeted check on specific items in your return, such as work-from-home claims or motor vehicle expenses. Reviews resolve quickly with adequate documentation. An audit is a formal, comprehensive examination of your entire financial position, covering all income sources, deductions, CGT events, and related-party dealings. Audits take months and involve iterative document requests. Compliance activity runs continuously through automated data matching, cross-referencing over 60 third-party sources including banks, employers, superannuation funds, share brokers, property records, online platforms, and the Taxable Payments Annual Report (TPAR) system.

    How taxpayers are selected

    Risk profiling compares your reported financial performance against expected patterns. Data matching is the primary source of audit activity in 2025-26. Industry benchmarks cover over 100 industries, flagging businesses whose cost ratios, labour expenses, or margins fall outside the middle 50%. Random selection ensures coverage across all segments. Informant tip-offs can also trigger investigations.

    ATO access and information-gathering powers

    Division 353 of the Tax Administration Act 1953 gives the Commissioner extensive statutory powers. The ATO can require you to provide information, attend and give evidence, and produce documents. Officers may enter and remain on any land or premises, take full and free access to documents and property, make copies, and inspect or test goods. These powers override contractual confidentiality obligations. A formal Division 353 notice is legally enforceable, and failure to comply can result in criminal conviction and an expanded review of your affairs.

    Your rights during an audit

    The Taxpayers' Charter establishes enforceable standards that apply throughout any ATO review or audit. The ATO must treat you with courtesy and respect, and must assume you are telling the truth unless it has reason to believe otherwise. You have the right to professional representation, meaning your tax agent can handle all communications. You are entitled to confidentiality of your financial information, reasonable time to respond to requests, written reasons for any proposed adjustments, and the right to object and appeal including formal legal review.

    Outcomes and penalty exposure

    An audit can end with no adjustment (your original assessment stands), an amended assessment (revised liability, which may increase or decrease your tax), penalties and interest, or referral for prosecution in serious fraud cases. Base penalty percentages under Division 284 of the Tax Administration Act 1953 are 25% for failure to take reasonable care, 50% for recklessness, and 75% for intentional disregard. An additional 20% uplift applies where you have prior relevant penalty history, bringing the maximum administrative penalty to 90% of the tax shortfall.

    Statute of limitations and objection deadlines

    The amendment period determines how far back the ATO can revise your assessment. For individuals and small businesses, the standard period is two years from the date of the original assessment notice. Complex affairs and larger businesses face a four-year window. From 2024-25 onwards, small and medium business entities have four years after the assessment notice to apply for their own amendment. Where fraud or evasion is suspected, there is no time limit. If you receive an amended assessment and disagree, you have 60 days from the date of that amended assessment to lodge a formal objection under Part IVC of the Tax Administration Act 1953.

    Record-keeping requirements

    The ATO enforces five core record-keeping rules. Keep all records relevant to your tax and super affairs, including financial statements, invoices, receipts, bank statements, logbooks, and asset records. Records must be protected from alteration and damage. Most records must be kept for five years from when you prepared or obtained the record or completed the transaction, whichever is later. FBT records run from the FBT return lodgement date. Superannuation contribution records run from the contribution date. If records cover an active period of review, keep them beyond five years until the review concludes. Records must be accessible on ATO request and must be in English or easily convertible to English.

    Statute references

    • Tax Administration Act 1953, Division 353 (access and information-gathering powers)
    • Tax Administration Act 1953, Division 284 (administrative penalties)
    • Tax Administration Act 1953, Part IVC (objections and appeals)
    • Taxpayers' Charter
    • TAA Sch 1 Part 4-25 (self-assessment and amendment periods)
    • TAA Sch 1 s 284-75 (false or misleading statement penalties — 25% / 50% / 75% base penalty tiers)
    • TAA Sch 1 s 284-220 (uplift for repeat or aggravated conduct)
    • TAA Sch 1 Division 353 (Commissioner's formal information-gathering powers — s 353-10 notices)
    • PS LA 2014/4 (administration of false or misleading statement penalties)

    Frequently asked questions

    What is the difference between an ATO review and an ATO audit?+
    A review is a targeted check on specific items in your return, typically resolved in weeks if you provide supporting documents. An audit is a comprehensive, formal examination of your entire financial records and tax affairs, often taking months. Both are conducted under Division 353 access powers, but audits involve broader scrutiny of all income sources, deductions, CGT calculations, and related-party transactions.
    Can I have my tax agent handle all communication with the ATO during an audit?+
    Yes. The Taxpayers' Charter gives you the right to professional representation. You do not have to speak directly to the auditor. Your registered tax agent can handle all communications, attend interviews on your behalf, and respond to document requests. Using professional representation is strategically important because it keeps responses consistent and prevents inadvertent disclosures.
    How does the ATO use small business benchmarks to select audit targets?+
    The ATO publishes performance benchmarks for over 100 industries covering ratios like cost of sales to turnover, labour expenses to turnover, and profit margins. If your reported figures fall outside the middle 50% of your industry, particularly below expected income or above expected expenses, your audit risk increases. Input benchmarks also estimate expected turnover for tradespeople based on labour and materials used, flagging cases where reported income looks low relative to inputs.
    What happens if I do not cooperate with an ATO audit?+
    Under Division 353 of the Tax Administration Act 1953, the Commissioner can require you to provide information, attend and give evidence, produce documents, and allow entry to premises. Failure to cooperate with a formal Division 353 notice can lead to criminal prosecution, penalties, and a more extensive review. Cooperation and voluntary disclosure before or during an audit significantly reduce penalty exposure.

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