The ATO does not audit returns randomly. It uses sophisticated data-matching technology and risk-profiling algorithms to identify returns that are statistically unusual compared to people with similar incomes and occupations. Understanding what the ATO looks for helps you ensure your claims are legitimate, well-substantiated, and correctly reported.
Key point: The goal is not to avoid claiming what you are entitled to — it is to ensure everything you claim is genuine, correctly calculated, and supported by records. A large but legitimate claim with proper records is far preferable to a small claim with no documentation.
How the ATO Identifies Returns for Review
The ATO’s data-matching program receives information from:
- All Australian employers (via Single Touch Payroll)
- Banks and financial institutions (interest and account data)
- Share registries (dividends, shareholdings)
- Centrelink and Services Australia
- State revenue authorities (stamp duty, property transactions)
- ASIC (company and director information)
- Crypto exchanges (the ATO has sought data from major Australian exchanges)
- Airbnb and other short-term rental platforms
- Foreign tax authorities (under information exchange agreements)
When your return differs significantly from this data — or from the ATO’s benchmarks for your occupation and income level — a review flag is raised.
Common ATO Audit Triggers
1. Work-related deductions that are unusually high for your income level
The ATO publishes occupation benchmarks — typical deduction ranges for teachers, nurses, tradies, office workers, etc. A claim that is two to three times the benchmark for your occupation and income is likely to draw scrutiny.
2. Claiming 100% work use for phone, vehicle, or home office
Claiming that your mobile phone, car, or home internet is used 100% for work almost never reflects reality. The ATO expects to see mixed personal/work use in most cases, with apportionment based on a representative sample. A 100% claim suggests either unusual circumstances (which you should be able to explain) or an inflated claim.
3. Large rental property deductions or losses
Rental property is one of the ATO’s most active focus areas. Specific triggers include:
- Initial repair claims that look like capital improvements
- Interest claimed exceeding the loan balance
- Travel to inspect investment property (no longer deductible in most cases since 2017)
- Depreciation claims that exceed what a quantity surveyor’s schedule would support
4. Undeclared income
The ATO’s data-matching means it often knows about income you have received even before you lodge. Undeclared bank interest, share dividends, Airbnb income, and freelance income paid through digital platforms are areas of active matching.
5. Crypto transactions not declared
The ATO has specifically stated that cryptocurrency is an area of focus. With data from exchanges, it can identify people who traded or held crypto but did not declare CGT events. Every sale, swap, or use of crypto to pay for goods or services is a CGT event.
6. Large CGT discounts
A return showing very large capital gains offset by the 50% discount and capital losses may attract review, particularly if the cost base for assets appears low relative to expected values or if the asset acquisition records are incomplete.
7. Income significantly different from prior years with no apparent reason
A sudden, large drop in income or a sharp spike — with no corresponding life event (job loss, redundancy, business sale) — may trigger a review.
8. Multiple returns with refunds well above the norm
While refunds are entirely legitimate, a pattern of very large refunds from aggressive deduction claims may attract a second look.
What the ATO Does During a Review
A review is not the same as a formal audit. In a review, the ATO may:
- Send a letter asking you to confirm certain claims or provide documentation
- Request receipts, diary records, logbooks, or bank statements
- Ask your employer to confirm arrangements (for WFH claims)
If the review identifies issues, it may escalate to an audit. In an audit, the ATO has broader powers to request information from third parties.
How to Protect Yourself
- Keep all receipts — for five years from the date you lodge the relevant return
- Keep your WFH diary — contemporaneous records of hours are required for the fixed rate method
- Keep a vehicle logbook — if using the logbook method, a valid 12-week log is required
- Apportion mixed-use items correctly — phone, internet, vehicle
- Distinguish repairs from capital improvements — get advice if unsure
- Declare all income — the ATO has extensive data and will likely know
Frequently Asked Questions
Does the ATO audit everyone with rental property? No — but rental property returns are a focus area and statistically more likely to be reviewed than simple wage returns. Ensure all income is declared and all expenses are documented and correctly categorised.
If I am audited and I have all my receipts, do I have anything to worry about? An audit is a factual process. If your claims are legitimate and you have proper records, the outcome should confirm your return is correct. Proper documentation is the best protection.
Does lodging early (July) reduce audit risk? Not necessarily. Audit selection is based on risk profiling, not the order of lodgement. Lodging early does not reduce or increase audit risk.
Can my tax agent reduce audit risk? A good registered tax agent will ensure your claims are correctly categorised and your return is prepared to ATO standards. This reduces the risk of a claim being flagged as incorrect. It does not eliminate review risk for returns with complex affairs.
This article provides general tax information. If you receive an ATO review notice, you have the right to obtain advice from a registered tax agent before responding. Find one through the Tax Practitioners Board register.