Getting a letter from the ATO is stressful. But an audit doesn't have to be a disaster. Here's exactly what to do.
First Things First
Don't panic. Don't ignore it. And don't try to handle it alone. The first 14 days are critical.
Step 1: Understand What Type of Audit It Is
Not all ATO contact is a full audit. There are different levels:
- Review: The ATO wants clarification on specific items. Usually resolved quickly.
- Audit: A comprehensive examination of your tax affairs. More serious.
- Investigation: The ATO suspects fraud or serious non-compliance. Get legal help immediately.
Step 2: Respond Within the Deadline
The ATO letter will specify a response deadline — usually 14-28 days. Missing this deadline makes everything worse.
If you need more time, request an extension before the deadline. The ATO is generally reasonable if you communicate.
Step 3: Gather Your Documentation
The ATO will request specific records. Common requests include:
- Bank statements (all accounts)
- Receipts and invoices
- Motor vehicle logbooks
- Home office calculations
- Asset registers
- Loan agreements
- Contracts and agreements
Provide exactly what they ask for — no more, no less. Don't volunteer additional information.
Step 4: Get Professional Representation
You have the right to have your tax agent communicate with the ATO on your behalf. Use this right.
A good tax agent will:
- Review the ATO's requests for reasonableness
- Prepare and organise your response
- Negotiate on your behalf
- Identify potential issues before the ATO does
- Minimise penalties where possible
Step 5: Know Your Rights
You have rights during an audit:
- Right to be treated fairly and professionally
- Right to have a representative
- Right to request reasons for decisions
- Right to object to amended assessments
- Right to complain if treated unfairly
What Happens If They Find Issues?
If the ATO finds problems, they'll issue an amended assessment. This may include:
- Additional tax: The tax you should have paid
- Interest: Currently around 11% per annum
- Penalties: 25-75% of the shortfall, depending on circumstances
Penalties can often be reduced through voluntary disclosure, cooperation, and demonstrating reasonable care.
Facing an ATO audit?
We've helped clients through major ATO audits — including one where we saved a client from a $160,000 CGT bill. Don't face the ATO alone.
Get Audit Support