A letter from the ATO with the word "review" or "audit" in it ruins most people's week. It shouldn't. Most ATO enquiries are routine checks of a specific item, often triggered by data the ATO gets from banks, employers, share registries and government agencies. Handled well, they end quietly. Handled badly, a question about one deduction becomes an audit of three years.
Here's how ATO compliance activity works, what we do at each stage, and where the deadlines are.
What kinds of ATO compliance letters are there?
| What you've received | What it usually means | What to do |
|---|---|---|
| A letter or SMS saying your claims look high compared with others | A prompt to check, often sent to many taxpayers at once | Check the claim. If it's right and you have records, usually nothing more. If it's wrong, amend voluntarily |
| A data-matching letter (income from a platform, property sale, crypto exchange, government payment) | The ATO has third-party data that doesn't match your return | Check and explain, or amend. Coming forward now reduces penalties |
| A request for information or documents | The ATO wants evidence for specific items | Respond fully by the due date, or ask for more time before it passes |
| A review (including a GST or employer obligations review) | The ATO is checking whether there's a risk worth looking at more closely | Get your agent involved. Reviews often close without an audit if answered well |
| An audit | A formal examination that can lead to an amended assessment and penalties | Your agent should handle all contact |
| A position paper or notice of amended assessment | The ATO has reached, or is about to reach, a view | Respond to the position paper; diarise objection time limits from the assessment |
Our tax email triage agent reads the letter, identifies every issue and deadline in it and rates the risk, so your accountant starts from a complete list. Your accountant decides the response.
What should you do when the ATO writes to you?
- Don't ignore it, and don't reply straight away. Note the date you received it and the response date.
- Send it to us. A photo is fine. We tell you what's being asked, what the deadline is, and whether you need help.
- Appoint us as your representative. The ATO then deals with us. You won't get calls asking you to explain things on the spot.
- Gather records before answering. Invoices, bank statements, logbooks, contracts, emails and working papers. If records are missing, we work out how to support the claim another way.
- Answer exactly what was asked, completely and on time. Volunteering unrelated information doesn't help; ignoring part of the question hurts.
- Consider a voluntary disclosure. If we find an error the ATO hasn't asked about yet, disclosing it before the ATO raises it can reduce penalties substantially.
Key point: The ATO generally can only amend a return within a set period, usually 2 years for individuals and small and medium businesses and 4 years for others, with no limit where it suspects fraud or evasion. Keep records for at least 5 years.
How do ATO penalties work in an audit?
If an audit finds you underpaid, you'll owe the tax, interest, and possibly a penalty. The penalty depends on your behaviour, not the size of the mistake.
| Behaviour | Base penalty (% of the tax shortfall) |
|---|---|
| Failure to take reasonable care | 25% |
| Recklessness | 50% |
| Intentional disregard of the law | 75% |
| No reasonably arguable position on a large item | 25% |
Penalties can be increased (for example, for obstructing the ATO) and reduced:
- Voluntary disclosure before the ATO tells you about an audit: the penalty is reduced by 80%, and for shortfalls under $1,000 it may be nil.
- Voluntary disclosure after you've been told about the audit: a 20% reduction, where the disclosure saves the ATO significant time or resources.
- Shortfall interest charge applies to amended assessments, and general interest charge applies to amounts unpaid after the due date. Neither is deductible for income years starting on or after 1 July 2025.
Penalties and interest can also be remitted at the ATO's discretion. Our penalty remission agent drafts the request with the chronology, the grounds and the evidence. Read our guide to penalty and interest remission.
What are your rights if you disagree with the ATO?
If the ATO issues an assessment or decision you think is wrong, you can lodge an objection. It's a formal process with strict time limits. An objection must be in the approved form, lodged in time, and must state the grounds fully and in detail.
| Decision | Time limit to object |
|---|---|
| Income tax assessment: most individuals, small businesses and medium businesses (turnover under $50 million) | 2 years from the date the assessment was given |
| Income tax assessment: other taxpayers | 4 years |
| Amended income tax assessment | The later of 60 days from the amended assessment, or the original time limit |
| GST assessment | 4 years and one day |
| FBT assessment | 4 years |
| Amended GST or FBT assessment | The later of 60 days from the amendment, or 4 years from the original |
| Income tax private ruling | The later of 60 days from the ruling, or the 2- or 4-year period from the return due date |
| Shortfall or administrative penalties | The later of 60 days from the penalty notice, or the objection period for the related assessment |
| Refusal to remit a penalty above 2 penalty units, or shortfall interest above 20% of the shortfall | 60 days from the decision |
Time generally runs from when the decision was given to you, which the ATO currently treats as 7 business days after it posts a letter. A late objection can be lodged with a request for an extension of time, but the ATO doesn't have to grant it. We diarise every deadline the day we see the notice.
Our objection agent drafts the objection with each ground set out: the item objected to, the correct position, the law and authority, and the evidence. Your accountant checks every argument and citation before it goes. If the objection is disallowed, you can seek review in the Administrative Review Tribunal or appeal to the Federal Court, each within strict time limits. For disputes heading there, we work alongside a tax lawyer or barrister.
When should you apply for a private ruling?
A private ruling is the ATO's written view on how the tax law applies to your specific arrangement. It's free, and it binds the ATO if you carry out the arrangement as described.
It's worth applying when:
- The tax outcome is uncertain and the amount is large: selling a business, a restructure, a property subdivision, or a significant capital gain
- You need certainty before you sign, for example on whether the small business CGT concessions apply
- The ATO has said it disagrees with a common view in your industry and you want to know where you stand
It's usually not worth applying when the law is clear, the amount is small, or you need an answer in days. Rulings take time, especially when the ATO asks for more information.
Our private ruling agent frames the questions, sets out the facts and the arrangement, and drafts the submission. Your accountant checks it, because a ruling based on incomplete facts gives no protection. Our guide to ATO private rulings explains the process.
How does ATO audit help work with BPAG?
- Quick triage. Send the letter. We tell you what it means and the deadline.
- Fixed quote for the response. Small reviews are often a short piece of work. Full audits are quoted in stages, so you know the cost before each one.
- We become the ATO's contact. Calls and letters come to us.
- Evidence first. We gather and organise records, rebuild anything missing from bank data where we can, and check the position before we answer.
- Written responses. Every answer to the ATO is drafted, checked by a qualified accountant, and approved by you before it's sent.
- Outcome and next steps. If the result is right, we close it off and fix whatever caused it. If it's wrong, we object or ask for remission within time.
The agents draft; a qualified accountant reviews and signs everything; nothing goes to the ATO without your approval. Every action is timestamped, so there's a clear record of what was sent and when.
What does it cost?
ATO reviews, audits, objections and private rulings are quoted as fixed fees, by stage. Our Fractional CFO plan includes proactive annual tax planning, which is the best way to reduce the chance of an audit in the first place. See our pricing page.
When you might not need us: if you've received a general "your claims look high" letter and you're confident the claim is right and fully documented, you may need to do nothing at all. If the ATO has simply asked for a document you have, sending it may be enough. We'll tell you if that's the case.
What mistakes make ATO audits worse?
- Missing the response date without asking for an extension, which pushes the ATO to decide without your side of the story.
- Phoning the ATO to "explain" and making concessions on the record.
- Sending a box of unsorted documents, which invites more questions and widens the scope.
- Records that don't exist, especially logbooks, home office diaries and evidence of private versus business use.
- Amending one year without checking the others, when the same issue repeats.
- Missing the objection deadline because the assessment arrived weeks after the audit ended.
What should you send us?
- The ATO letter or notice, and the date you received it
- The returns or BAS the ATO is asking about
- Records supporting the items in question (invoices, bank statements, contracts, logbooks)
- Any earlier correspondence with the ATO
- Your own notes on why the item was treated the way it was
If the audit concerns a business, it's often the moment to fix the underlying process too. Our accounting and bookkeeping service keeps records audit-ready all year, and if you're also behind on lodgements, see overdue tax returns and ATO debt. For what to expect in an audit step by step, read our guide to the ATO audit process.
Frequently asked questions
How far back can the ATO audit me?
For most individuals and small and medium businesses, the ATO can amend an income tax assessment within 2 years of the notice of assessment; for others it's generally 4 years. There is no time limit where the ATO considers there was fraud or evasion. That's one reason the law requires most records to be kept for 5 years.
Can I talk to the ATO myself during an audit?
You can, but it's rarely wise. Off-the-cuff answers become part of the ATO's file, and it's easy to concede something you didn't need to or widen the audit's scope. Appointing your tax agent means the ATO contacts us, and every response is considered, consistent and backed by evidence.
What is a reasonably arguable position?
It's a position that is about as likely to be correct as incorrect, or more likely correct, having regard to the law and relevant authorities. If you took a reasonably arguable position, some shortfall penalties are reduced or don't apply, even if the ATO disagrees with you in the end. Writing down your reasoning at the time is how you show it later.
Does an objection stop me having to pay the tax?
No. Lodging an objection doesn't by itself defer payment. Interest keeps running on unpaid amounts, so many people pay the disputed amount, or agree a payment arrangement, while the objection is decided. If the objection succeeds, the money is refunded with interest in some cases.
How long does an ATO audit take?
It depends on the scope and how quickly information is provided. Simple reviews of a single item can finish in weeks; a full audit of a business can take many months. Answering completely and on time, with organised evidence, is the most reliable way to shorten it.
Is a private ruling binding?
A private ruling binds the ATO for you, provided the arrangement is carried out as described in the ruling. It doesn't bind you: if you later think the law is better applied differently, you can take that position, though penalty protection may differ. A ruling is only as good as the facts in the application, which is why we take care over them.
Official sources
General information only, current as at 18 October 2026. It is not personal tax, legal or financial product advice and doesn't take your circumstances into account. Talk to us before you act. Where a recommendation needs a licensed financial adviser or a solicitor, we work alongside them.