Tax time in Australia can be stressful enough without the looming possibility of an audit. Yet for many individuals and small business owners, a few seemingly minor mistakes on a tax return can become the start of a serious issue. The Australian Taxation Office (ATO) runs increasingly sophisticated systems to flag and review returns that appear incorrect, inconsistent, or incomplete. These red flags – known as ATO audit triggers – can result in everything from a friendly clarification request to a full-blown audit.
Understanding the most common ATO audit triggers is critical for anyone lodging a tax return. This is particularly important if you’re preparing your return without a tax agent, as the margin for error is often wider without professional oversight. We’re pulling back the curtain on the most common ATO audit triggers – why they get you flagged and how to steer well clear of them.
What Are ATO Audit Triggers and Why Should You Care?
ATO audit triggers are specific behaviours, claims, or patterns that alert the ATO to investigate further. These triggers may be generated by automated systems that compare your return to millions of others in similar occupations or income brackets. Alternatively, they may arise from inconsistencies between what you report and the data the ATO receives from third parties, such as employers, banks, government agencies, or financial institutions.
While being audited doesn’t necessarily mean you’ve done something wrong, it can be time-consuming, stressful and costly – particularly if the ATO identifies errors or unpaid tax. For that reason, it’s essential to understand what might cause your return to be flagged in the first place.
1. Underreporting Income
One of the most common ATO audit triggers is the failure to declare all forms of income. This includes income from full-time employment, part-time or casual jobs, gig economy work (such as Uber or Airtasker), freelance contracts, overseas earnings and cryptocurrency transactions.
Because the ATO already collects much of this data directly from third-party sources, discrepancies are easy to detect. Leaving out even small amounts of income can result in a reassessment and penalties. For example, if your employer has reported $70,000 in salary and you only declare $65,000, that $5,000 gap may trigger an automatic red flag.
2. Excessive or Unsubstantiated Work-Related Deductions
Another key ATO audit trigger is claiming deductions that are unusually high compared to others in your industry or income bracket. The ATO benchmarks different professions and reviews deductions that fall outside the normal range.
While you are entitled to claim work-related expenses that are directly connected to earning your income, these must be substantiated. Claiming expenses such as tools, travel, uniforms, or training courses without keeping proper records – like receipts or logbooks – puts you at risk. If you can’t prove your claim during a review, the deduction may be denied, and you may face interest and penalties on the reassessed amount.
3. Repeating Last Year’s Claims Without Review
A common mistake, especially for self-lodgers, is to replicate deductions or income figures from a previous return. Although your work situation may not have changed drastically, copying last year’s return without checking for changes in your entitlements or rules can create errors. The ATO’s audit systems are designed to detect unusual patterns over time, including repeated claims that don’t align with reported income or updated tax laws.
4. Incorrect Home Office Expenses
Since the rise of remote and hybrid work, home office deductions have become more popular – but also more closely monitored. In 2025, the ATO revised the fixed rate method for calculating these deductions, requiring more precise record-keeping and documentation. If you claim home office expenses, you must have evidence of the hours worked from home and ensure your expenses are directly related to your income.
Vague estimates or inflated internet and electricity costs are now a key ATO audit trigger. If your claims don’t line up with expected norms or you’re unable to provide logs or receipts, your return could be scrutinised.
5. Errors in Rental Property Deductions
Rental property deductions remain a major focus area for ATO audits. Common issues include incorrectly claiming capital works as repairs, overstating interest on loans, or deducting personal travel as property-related expenses.
With access to third-party data from real estate agencies, property managers and banks, the ATO is well-equipped to detect discrepancies. If your expenses seem excessive or inconsistent with what’s expected for the property type or location, your return may be flagged.
6. Failing to Declare Capital Gains, Especially from Crypto
Capital gains tax applies when you sell, swap, or dispose of an asset for profit – including property, shares, and cryptocurrency. Failing to declare these gains is a growing ATO audit trigger, particularly in relation to digital assets.
Many Australians still mistakenly believe crypto is anonymous or off the ATO’s radar. However, the ATO receives data from major crypto exchanges and can match wallet activity to individuals. If you’ve sold or traded crypto – even if it’s peer-to-peer – it may be reportable, and omitting it could prompt a review.
7. Lifestyle Doesn’t Match Declared Income
Another significant ATO audit trigger is when a person’s lifestyle appears inconsistent with their declared income. For example, if someone earning $60,000 per year is consistently travelling overseas, buying luxury goods, or purchasing high-value property, the ATO may initiate a review.
This is particularly relevant for cash-based businesses or sole traders who might under-report earnings. The ATO may use lifestyle modelling tools or the “asset betterment” approach to estimate undeclared income and issue revised assessments.
How to Avoid Common ATO Audit Triggers
While no one is immune from the possibility of an audit, there are practical steps you can take to avoid unnecessary scrutiny:
- Keep accurate records for all income and deductions
- Use a registered tax agent or accountant who understands audit risks
- Avoid making claims without documentation or justification
- Update your return annually based on your current situation
- Declare all income, including digital and foreign sources
If you realise you’ve made a mistake, it’s often better to amend your return voluntarily. The ATO tends to be more lenient with taxpayers who correct errors before being contacted.
What If You’ve Already Been Contacted by the ATO?
Receiving a letter, phone call, or data-matching warning from the ATO doesn’t necessarily mean you’re in trouble – but it does mean you need to act carefully. Providing incomplete or incorrect responses can escalate the matter.
This is where a tax negotiation expert can help. At Tax Negotiators, we work with individuals and businesses facing audits, assessments and compliance action. Our team can review your circumstances, communicate with the ATO on your behalf and ensure you’re positioned for the best possible outcome.
Final Thoughts
Tax returns are more than just numbers – they tell a story. And if your story doesn’t line up with what the ATO expects or knows, it may prompt a deeper look. Knowing the most common ATO audit triggers can help you avoid that stress, stay compliant and make informed financial decisions.
If you’re worried about your tax return or have received ATO contact, don’t wait until it becomes a bigger problem. Reach out to the team at Tax Negotiators – we’re here to help you get back on track with confidence and clarity.
