Another Financial Year, Another Round of ATO Audits
Another financial year has come and gone. That means it’s a busy time for us accountants to reflect on the year gone by. We mostly spend time looking at what ATO audits have come our way, which then helps us advise our clients on what not to do.
We sleep soundly knowing many of our clients have Audit Shield insurance that covers professional fees should an audit arise. Another advantage of audit insurance is that providers give us insights into what the ATO is focusing on.
So, let’s dive into what Audit Shield claims from 1 July 2024 to 30 June 2025 can tell us about ATO audit trends. Think of it as accountant-style fortune-telling except instead of crystal balls, we use pie charts, spreadsheets, and just a dose of panic.
The Pie Chart of Doom: The Most Common ATO Audits
Here are the five biggest areas of ATO audits and claims this year:
- Payroll Tax (All States): 14.73% of all claims
- Income Tax (Full/General/Combined): 11.60% of all claims
- BAS Reviews (Pre & Post Assessment): 10.20% of all claims
- Income Tax (Rental Properties): 8.96% of all claims
- Income Tax (Other Specific): 8.63% of all claims
Over 50% of all claims came from these five categories. Let’s break them down.
1. Payroll Tax Investigations
Once again, payroll tax audits take the top spot. Taxing you for employing people still isn’t considered ridiculous by every state government. This marks the second year in a row it has held the gold medal in the Audit Olympics.
Why? Because payroll tax rules are complex, data matching is powerful, and states need the money.
State Highlights:
- VIC: 39.93% ↑ – Audit First, Coffee Later
- NSW: 28.21% ↑ – Loves payroll tax and wants to expand it
- QLD & WA: Dropping – thanks to high stamp duty revenue
The usual traps:
- Forgetting to register in other states
- Incorrect grouping of entities
- Single Touch Payroll (STP) exposing discrepancies
2. Income Tax Audits
This one was expected. Income tax audit claims rose from 9.25% last year to 11.60% this year.
ATO income tax audits often start small like a questionable deduction and quickly snowball into much bigger reviews. Before you know it, you’re answering questions like: How many toilet rolls do your staff use in a month?
Key takeaway: Be reasonable with deductions. Treat the ATO respectfully—they hold all the cards.
3. BAS Reviews (Pre & Post Assessment)
Ah yes, ATO BAS reviews, the audits that question everything from GST lodgements to whether you really needed that $2,000 coffee machine.
BAS reviews are new to the top five audits this year, thanks to the ATO’s increased use of AI.
Yes, the robots are here and they know if your GST lodgement looks suspicious. With e-invoicing on the rise, you can’t hide dodgy receipts in a shoebox anymore.
Audit Shield reports that BAS reviews are proving very lucrative for the ATO. Expect BAS reviews to stay in the top five for years to come.
4. Rental Property Income Tax: ATO Audit Focus
Rental property income tax has been on the ATO’s radar for several years, but in 2025 it officially makes the Top 5 audit areas.
Why? Because too many property owners are still making dodgy rental deductions, underreporting rental income, or assuming that Airbnb income is tax-free passive income (spoiler: the ATO disagrees).
Here’s what the ATO is zooming in on during rental property audits:
- Interest deductions: Especially when loans are refinanced for more than the original property purchase.
- Refurbishments claimed as repairs: Upgrades are capital works, not repairs.
- Reduced rent to family members: Charging mum and dad less doesn’t mean you can claim the full deduction.
- Unreported rental income: Including Airbnb and holiday rentals.
And if you’ve ever tried to claim a Byron Bay weekend getaway as property research, don’t expect that to survive an ATO audit on rental properties.
5. Income Tax (Other Specific Audits)
This is the ATO’s audit junk drawer: everything from R&D offsets to trust distributions to creative interpretations of business income. If your deductions are unusual or too clever, they’ll likely end up here.
Audit Activities You Can’t Control (But Still Get Blamed For)
Even the best accountants can’t prevent every problem. Sometimes, clients file their own tax returns with nothing more than a nephew’s crypto wallet and a shoebox of receipts. Some claims arise from taxes and obligations where accountants are less directly involved.
Here’s the breakdown of additional audit activities:
- Excess Super Contributions: 8.42%
- Land Tax: 6.64%
- Employer Obligations (annual leave, long service leave etc.): 6.64%
- WorkCover: 2.05%
- Stamp Duty: 0.86%
Employer Obligations Audits Drop
Last year’s villain Employer Obligations (PAYG, SG, FBT) dropped from 10.21% to 6.64% this year.
The ATO has found it easier to “nudge” employers into fixing mistakes rather than running full audits.
Instead of dramatic audit letters, businesses now get softer messages like:
“Hey we noticed you forgot super again. Fix it, or we’ll send the boys with big muscles around.” Somehow both kinder and more terrifying.
Final Thoughts: Why Audit Shield Insurance Matters
If there’s one lesson from this year’s audit trends, it’s this: the ATO is always watching.
- They use AI, and it’s expanding daily.
- They leverage e-invoicing.
- They use advanced data-matching tools.
- And they don’t sleep.
So, if you haven’t yet signed up for Audit Shield (audit insurance), ask yourself: Do I want to pay for peace of mind or risk being interrogated about my rental property in Dubbo and the business lunch that was clearly a romantic lunch for two?
ATO audits are stressful, time-consuming, and expensive. I’ve seen business owners go from confident to crushed within months of an audit. Professional fees pile up quickly, and the tax office doesn’t care how much your accountant charges you.
That’s why Audit Shield insurance is essential. Like all insurance, you may hate paying the premium but when you need it, you’ll thank your lucky stars.
The bottom line: Peace of mind is priceless when the ATO comes knocking.
Frequently Asked Questions
What are the most common types of ATO audits in Australia?
How can I protect my business from an ATO audit?
Why is payroll tax often audited by the ATO?
How can I avoid income tax audit issues?
What are BAS reviews and why are they increasing?
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