Under an ATO audit, what you do next matters as much as the facts. Here are the five things you must not do, and the one habit that makes everything easier.
An ATO audit is one of the few events in commercial life where the outcome depends as much on your conduct during the process as on the underlying facts. Two taxpayers with identical affairs can finish an audit in very different places, one with a manageable adjustment and penalties remitted, the other with maximum penalties, a hardened ATO position and enforcement action under way.
After acting in hundreds of ATO matters, we see the same avoidable mistakes decide audits again and again. Here are the five things you must not do when you are under an ATO audit, and the one thing you should always do.
The most common mistake is also the quietest one: doing nothing much, for too long. Taxpayers routinely underestimate the magnitude of an audit in its early weeks. The letter looks routine, the questions seem answerable, and there is a natural instinct to hope the matter will resolve itself with a few documents and a cooperative phone call.
Many lean on their existing tax agent or accountant during this period, which feels sensible, but carries a structural problem: in many cases, the returns under review are the very returns that adviser prepared. However well-intentioned, they are part of the story the ATO is examining, and they are rarely positioned to assess the risk objectively or to run a defence strategically.
By the time a tax lawyer or specialist is engaged, often months in, the ATO’s patience has run out. Positions have hardened, informal concessions are off the table, and options that were freely available at the start, such as favourable voluntary disclosure treatment, have expired. Time is the one asset in an audit you can never recover. Spend it deliberately, from day one.
This is the worst mistake on the list, and it is not close. Some taxpayers, underestimating the ATO’s information-gathering power, attempt to manage the story, shading the facts to the ATO, and sometimes even to their own professional advisers.
Understand what you are up against. The ATO already holds your banking data, AUSTRAC records of international transfers, data-matching feeds from employers, platforms and state registries, and financial account information from more than 100 countries under the Common Reporting Standard. In most audits, the ATO is not asking questions because it lacks information. It is testing whether you will answer honestly.
The consequences of being caught out are severe and structural. Conduct that reads as dishonest converts a careless-error case (25% penalties) into an intentional-disregard case (75% penalties), opens the door to fraud-or-evasion findings that remove the usual time limits on amending old years, and in serious cases invites criminal referral. And misleading your own advisers is self-sabotage of a special kind: no strategy built on false facts survives contact with the ATO’s data, and once your credibility is spent, with the ATO or with your own team, it does not come back.
Cooperation matters in an audit, but cooperation is not the same as passing every requested document straight through. Everything you provide becomes part of the permanent record, frames how the issues are understood, and can widen the audit into years and topics that were never originally in question.
Before information goes to the ATO, it should be reviewed by a highly experienced tax lawyer or specialist accountant, and, importantly, not the accountant who prepared the returns under review. An independent reviewer checks what the documents actually show, identifies the issues they raise, considers legal professional privilege where it applies, and ensures the material is presented with accurate context rather than left to speak ambiguously for itself.
Skipping this step does not just create tactical problems, it makes the matter harder to reconcile at the strategic level. Once everything is in, unexplained, you have surrendered control of the narrative, and rebuilding a coherent settlement position from a scattered record is slow, expensive work.
Anxiety makes some taxpayers do the opposite of too little: they engage several professionals at once, an accountant here, a lawyer there, a second opinion running in parallel, often without telling each about the others.
The result is a tangled matter that is out of everyone’s control. Different advisers take inconsistent positions, correspondence to the ATO stops speaking with one voice, work is duplicated, nobody holds overall accountability, and the ATO notices the disarray. You pay several sets of fees to make your own case weaker.
An audit needs one team and one strategy. The ideal structure combines legal and accounting expertise working together on the same file, the legal analysis, privilege and negotiation strategy alongside the numbers, with a single point of accountability for the outcome. That is precisely how our firm is built, and it is the model we would recommend whether or not the team is ours.
An audit is not the time for major, unexplained moves. Selling significant assets mid-audit can expose the proceeds to the ATO’s third-party collection powers, a garnishee notice can capture sale proceeds sitting with a purchaser, agent or bank, and, just as damaging, it reads to the ATO as asset dissipation, inviting protective action such as freezing orders. Departing the country suddenly is worse still: it flags flight risk, and the ATO can seek a departure prohibition order that prevents you leaving Australia while a debt is unresolved.
The same discipline applies to smaller moves: restructuring entities, shifting money between accounts, or changing arrangements the ATO is actively examining. Every unexplained change made mid-audit becomes a new question, a new suspicion and a new workstream, lengthening the audit and hardening the ATO’s posture. While the matter is on foot, keep your affairs still, and clear any genuinely necessary transaction with your adviser before it happens.
Finally, the positive counterpart to all five mistakes: show integrity and good faith throughout, to the ATO, and to your own tax lawyer and accountant. Auditors and ATO officers exercise genuine discretion at a dozen points in every matter: the scope they pursue, the characterisation of your conduct, the penalties they impose and remit, the settlement terms they will entertain. They are also human. A taxpayer who is honest, responsive and consistent is treated differently, measurably differently, from one who is evasive, and the same candour is what allows your own advisers to do their best work for you.
Audits are rarely won by cleverness. They are won by discipline: early engagement, honest instructions, reviewed cooperation, one team, and no surprises. Get those five things right and even a difficult audit becomes a manageable process with a negotiated ending.
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