The Australian Taxation Office (ATO) and Victorian State Revenue Office (SRO) have been very clear that they are going to increase audits this year.

They have both indicated the key areas of focus, allowing you to ensure you are staying compliant and have adequate insurance in case of an audit. 

Their focus is a wide range of areas, so both individuals and small businesses should be prepared. Here’s what you need to know about increasing audits: 

Audit Focus Areas

• Payroll Tax
  Employers need to ensure they are accurately reporting wages and complying with payroll tax thresholds and exemptions.

• Land Tax
  Ownership and usage of properties, including exemptions for principal places of residence, are under scrutiny. 

• Income Tax
  This includes rental property deductions, capital gains tax (CGT) compliance, and the reporting of foreign income. 

• Rental Property Claims
  With a 90% error rate detected, the ATO is closely scrutinising interest deductions, repairs misclassified as capital improvements, and ‘genuinely available for rent’ claims on holiday homes.

• Work-Related Expenses
  Particularly work-from-home claims lacking proper records.

• Gig Economy + Side Hustles
  Information from platforms like Uber, Airbnb, and Airtasker is reported directly to the ATO, targeting undeclared income from side hustles.

Why the crackdown?

The ATO and SRO aim to close tax gaps and ensure compliance with Australia’s tax laws. With advanced data-matching technology, they can cross-check information from various sources, such as banks, employers, and property registries, to identify discrepancies. 

This happened!: Rental Property Audits

Recently, the ATO flagged rental property deductions as a key focus.

In 2024, an audit revealed that a property owner had over-claimed deductions for repairs and renovations by $5,000. The individual had incorrectly classified initial improvements as repairs, which are not deductible. As a result, they faced penalties and had to repay the amount – with interest. 

After the income tax audit, the ATO then audited all the entities both the individual and their partner were directors of. This is a clear case of how one audit can lead to many, and it can easily add up to a large audit fee.

The total added up to over $16,000 worth of audits. Luckily, they had audit insurance so they were not financially devastated, but this could have ended up very differently if they had not had adequate insurance.

What can you do?

Preparation and compliance are key to avoiding penalties. Here are some tips: 

• Consider Audit Insurance:
  Audit insurance can provide financial protection by covering professional fees incurred during an audit or review. Accountants can assist by identifying appropriate policies for your circumstances and ensuring you are prepared for potential audits. 

• Maintain Accurate Records:
  Keep thorough documentation for all deductions, expenses, and income. 

• Review Your Obligations:
  Regularly review your payroll tax, superannuation, and BAS reporting to ensure compliance.

• Seek Professional Advice:
  If you’re unsure about your tax obligations, consulting with an expert can help you stay compliant and avoid unnecessary risks. 

Don’t wait until it’s too late

The increasing audits are a timely reminder to ensure your tax affairs are in order. Whether you’re a landlord, a business owner, or an employee with complex income streams, staying proactive can save you stress and financial strain. 

If you’re concerned about your compliance or want to review your financial records, our team is here to help. Book an appointment today to ensure you’re prepared for any audits. Contact us today to book a free, no-obligation consultation, and let’s explore how we can help protect you and your business from increasing audits.

Sources:
Australian Taxation Office (ATO): Audit Focus Areas 2026
State Revenue Offices (SROs): Compliance Initiatives 2026