What to Expect During an ATO Audit

It can be a very daunting experience to be audited by the ATO. The process can be quite confusing and frustrating, especially if you don’t know what to expect. But there’s really nothing to worry about if you’re prepared and you know what will come up during the audit process. This guide should help you know what to expect from an ATO audit, so you get ready.

What the ATO Looks for When Auditing a Business

The ATO is the Australian Taxation Office, responsible for collecting taxes and enforcing tax laws in Australia. When a business is selected for an audit, the ATO will look at the business’ tax returns and financial records to ensure that the business is complying with tax laws. The ATO may also issue penalties if they find any discrepancies.

There are a few things that the ATO looks for when auditing a business:

1. Accurate Record-Keeping

The ATO will want to see that your business is keeping accurate records of its income and expenses. This includes both financial and non-financial records. Financial records include things like invoices, receipts, bank statements, and tax returns. Non-financial records include things like employee records, customer records, and inventory records.

2. Compliance with Tax Laws

During the audit process, one of the first things the ATO will want to see is whether or not your business is complying with all relevant tax laws. This includes things like paying the correct amount of tax, filing correct and complete tax returns, and keeping accurate records of income and expenses.

3. Proper Classification of Expenses

One of the most common issues the ATO finds during audits is businesses incorrectly claiming expenses. The ATO will want to see that your business is only claiming expenses that are legitimate business expenses and that they have been properly classified. This means that expenses should be classified according to their purpose and not lumped together into one general category. For example, expenses for advertising should be classified as advertising expenses and not as general business expenses.

4. Reasonableness of Expenses

In addition to the proper classification of expenses, the ATO will also want to see that the expenses your business claims are reasonable. This means that the expenses are not excessive and that they are in line with what other businesses in your industry would spend on similar items. For example, a small business is not likely to have expenses for first-class travel or luxury hotels.

5. Proper Documentation

The ATO will want to see that your business has documentation to support its expenses. This includes things like receipts, invoices, and bank statements. The ATO may disallow expenses that are not properly documented.

Preparing for an ATO Audit

If you’re a small business owner, it’s important to be prepared for an ATO audit. Here are a few tips to help you get through an audit with minimal stress:

Know Your Rights – The first step is to educate yourself on your rights during an ATO audit. You have the right to legal representation, and you should also familiarise yourself with the ATO’s audit process.

Gather Your Records – The ATO will request a range of documents and records during an audit. These may include your financial records, tax returns, GST returns, payroll records and superannuation records.

Be Prepared to Answer Questions – The ATO auditor will ask you a range of questions about your business. It’s important to be prepared to answer these questions and to have supporting documentation to back up your answers.

Cooperate with the Auditor – It’s important to cooperate with the ATO auditor, as this will make the audit process go more smoothly. However, you should also know when to draw the line – if you feel like you’re being interrogated or treated unfairly, you can always seek legal representation.


An ATO audit can be a stressful experience for small business owners – but if you’re properly prepared, you should be able to get through it unscathed. If you’re worried about an upcoming audit, it’s always a good idea to get in touch with a tax professional who can help you understand your rights and obligations.

You don’t have to power through an audit all by yourself. You can always hire an accountant in Sunshine Coast to help you prepare for it and make sure you have everything in order. That’s what SMB Accounting is here for. We offer a range of accounting services, including business advice, taxation and Quickbooks consulting. With our help, you don’t have to worry about surprise audits by the ATO. Reach out to us today and let our business accountants in Sunshine Coast assist you.