ATO Audit vs ATO Review: What Is the Difference?

Many taxpayers who receive correspondence from the Australian Taxation Office assume the worst, that they are being formally audited and that serious consequences are imminent. In reality, the ATO uses a range of different compliance processes, and not every contact from the ATO means a full audit is underway.

Understanding precisely what type of process you are dealing with is the first step to responding appropriately. The nature of the process determines your rights, your obligations, the ATO’s powers, and the timeline you are working within. This article explains the key distinctions.

What Is an ATO Review?

A review is the ATO’s most common and least formal compliance activity. It typically involves the ATO asking questions or requesting information about specific items in your tax return, for example, a deduction that appears unusually large relative to your income, or an item that does not match information held by the ATO from third-party sources such as banks or employers.

Reviews are generally conducted by correspondence. You may receive a letter asking you to explain a particular claim and provide supporting documentation. At this stage, the ATO has not made any findings against you. It is simply seeking clarification.

The important thing to understand about a review is that it can escalate. If the ATO is not satisfied with your response, or if your response reveals further areas of concern, a review can become a formal audit.

What Is a Formal ATO Audit?

A formal audit is a more structured and comprehensive examination of your tax affairs. The ATO has significantly broader powers in an audit than in a review. These include the power to issue formal notices requiring the production of documents, to access your business premises, and to seek information from third parties including banks, employers, and business associates.

Audits are typically conducted where the ATO has identified a specific area of concern, where a review has not been resolved satisfactorily, or where the ATO’s risk assessment systems have flagged your affairs as higher risk.

Audits can cover a single tax year or multiple years, and may focus on a specific issue, such as cash income or overseas assets, or examine your tax affairs more broadly.

What Is an Amended Assessment?

An amended assessment is issued after the ATO has completed its review or audit and reached a conclusion. It is, in effect, a revised tax bill. The amended assessment states what the ATO considers you owe, including any additional tax, penalties, and General Interest Charges (GIC) that have accrued.

Receiving an amended assessment does not mean the matter is final. You have the right to object to an amended assessment, typically within 60 days of the date it is issued. After that, you may appeal to the Administrative Review Tribunal or, ultimately, the Federal Court.

It is critical not to miss the objection deadline. If you disagree with an amended assessment, professional advice should be sought immediately.

What Is a Statement of Audit Position or Position Paper?

During a formal audit, the ATO may issue a Statement of Audit Position (sometimes called a position paper). This sets out the ATO’s preliminary findings and gives you an opportunity to respond before a final amended assessment is issued.

A position paper is an important, and time-sensitive, document. It represents your last meaningful opportunity to persuade the ATO to change its view before it finalises the assessment. How you respond to a position paper can significantly affect the final outcome.

Responses to ATO position papers should always be prepared with professional assistance. A well-constructed legal and factual response can, in many cases, lead to the ATO revising its position substantially.

Does It Matter Which Process I Am In?

Yes, significantly. Your rights, obligations, and tactical options differ depending on where you are in the process. In a review, you have more flexibility in how and what you disclose. In a formal audit, the ATO’s information-gathering powers are much stronger, and your responses must be carefully managed.

One common mistake is treating an ATO review as routine correspondence and responding casually, only to find that a thoughtless reply has triggered a wider audit or conceded a position unnecessarily.

Regardless of whether the ATO has characterised its contact as a review, an audit, or simply a request for information, treat every piece of ATO correspondence as significant, and take advice before responding.

When Should You Engage a Specialist?

The answer, in short, is as early as possible. At Australian Tax Experts, we regularly assist clients who have been managing ATO correspondence themselves for months before coming to us, often having inadvertently worsened their position along the way.

Whether you have received a simple review letter or a formal audit notice, our team of specialist tax lawyers and accountants can assess your position, advise you on the right response, and represent you throughout the process. The earlier we are involved, the more options we have available to protect your interests.

Related guides: What to Do When the ATO Contacts You for a Review or Audit.