What to Do If You Receive an ATO Audit Notice

Receiving a letter or call from the Australian Taxation Office telling you that your tax affairs are under review is one of the more unsettling experiences a taxpayer can face. For many people, the immediate reaction is anxiety, and a temptation to either ignore it and hope it goes away, or respond immediately without thinking through the consequences.

Both instincts are wrong. What you do, and what you say, in the first days after receiving an ATO audit notice can significantly influence the final outcome of your matter. This article explains the steps you should take, and the mistakes you must avoid.

Step 1: Do Not Ignore It, Time Limits Apply

The ATO operates within strict statutory timeframes, and so must you. Depending on the nature of the correspondence, you may have a limited window in which to respond, request documents, or lodge an objection. Missing these deadlines almost always worsens your position.

Read the letter carefully and note:

• The type of review or audit being conducted
• The specific tax years or periods under examination
• The response deadline stated in the letter
• The name and contact details of the ATO officer handling the matter

Do not discard or file away an ATO audit notice intending to deal with it later. Later often becomes too late.

Step 2: Understand the Difference Between a Review and an Audit

The ATO uses several different processes, and the terminology matters.

A review is generally less formal. The ATO is seeking clarification or additional information about specific items in your return. It does not necessarily mean they believe something is wrong, but it can escalate into a formal audit if they are not satisfied with your response.

A formal audit is a deeper examination of your tax affairs. The ATO has broader powers at this stage, including the ability to issue formal notices requiring the production of documents, access your business premises, and contact third parties such as banks.

An amended assessment means the ATO has already made a decision and is issuing a revised tax bill. You now have a limited time, typically 60 days, to object if you disagree.

Understanding where you sit in this process determines what your options are and how urgently you need to act.

Step 3: Do Not Respond Without Professional Advice

This is the single most important piece of guidance in this article. Many taxpayers respond to an ATO audit notice by calling the ATO officer directly, providing documents without review, or writing explanatory letters that inadvertently concede positions they did not need to concede.

The ATO’s audit officers are experienced professionals who conduct these reviews regularly. Their questions are often carefully worded to elicit specific information. An answer that seems perfectly reasonable to a layperson may, in the context of tax law, significantly narrow your defensible position.

Step 4: Gather Your Records, But Do Not Send Anything Yet

Begin collecting the records relevant to the period under review. This may include:

• Tax returns and financial statements for the relevant years
• Bank statements and transaction records
• Invoices, receipts, and contracts
• Evidence of any foreign income, assets, or transactions
• Correspondence with advisers or third parties relating to the items in question

Organising your records early gives your adviser the information they need to assess your position quickly. However, do not send documents to the ATO until your adviser has reviewed them. Documents provided voluntarily can define the scope of the audit, and in some cases, providing more than is strictly required can open new lines of inquiry.

Step 5: Consider Whether a Voluntary Disclosure Is Appropriate

If you already know there is an issue with your tax affairs, unreported income, an incorrect deduction, or an undisclosed overseas asset, it is worth considering whether to make a voluntary disclosure to the ATO before they reach their own conclusions.

Voluntary disclosure made early and in good faith can significantly reduce or eliminate penalties. Once the ATO has independently identified the same issue through their audit, this option is no longer available. The timing of a voluntary disclosure is therefore critical, and it should always be made with professional guidance to ensure it is framed correctly.

Step 6: Engage a Specialist, Not a Generalist

Not all accountants and not all lawyers are equipped to handle ATO audit matters. Tax audit defence requires a specific combination of skills: an understanding of how the ATO conducts its audits, knowledge of the relevant tax law, and the ability to negotiate effectively with the Commissioner’s representatives.

A generalist accountant who handles your annual returns is not necessarily the right person to manage an ATO audit. Similarly, a commercial lawyer who does not specialise in tax is likely to be working at a disadvantage against an experienced ATO officer.

At Australian Tax Experts, our team of specialist tax lawyers and tax accountants works together on every audit matter, combining legal rigour with precise financial analysis. We have defended clients in ATO audits across income tax, superannuation, GST, and international tax matters for nearly two decades, and our results are documented in the case studies on our website.

The Bottom Line

Receiving an ATO audit notice is serious, but it is manageable with the right response. The key principles are:

• Act promptly; do not ignore deadlines
• Do not speak to the ATO or provide documents before taking advice
• Engage a specialist tax lawyer or accountant as early as possible
• Consider voluntary disclosure if you are aware of an existing issue

The earlier you engage professional representation, the stronger your position will be.

Related guides: How to Handle an ATO Audit of Your Business BAS; The 5 Things You Must Not Do When You Are Under an ATO Audit.