Quick answer: What should you do if the ATO reviews your tax return?
Read the ATO communication carefully, confirm exactly what information is being requested and gather the records that support the income, deductions or other items being checked. Do not ignore an ATO request, but also do not panic or make unnecessary changes before understanding the issue.
Not necessarily. The ATO undertakes different types of compliance activity and may contact taxpayers when it wants to check information, clarify an item or obtain supporting records.
The seriousness and scope of the enquiry can vary considerably. The most important first step is to understand exactly what the ATO communication says rather than assuming the worst.
ATO review vs ATO audit: What is the difference?
The words review and audit are sometimes used interchangeably in everyday conversation, but an ATO compliance process can vary in scope.
Initial checking
The ATO may seek clarification or supporting information about particular details reported in a tax return.
Review
A review can involve examining particular tax issues and requesting additional information or records.
Audit
An audit can involve a more detailed examination of tax affairs, records and the application of tax law to the relevant circumstances.
Why might the ATO check a tax return?
The ATO uses information from a range of sources as part of administering Australia's tax system. A tax return may attract further attention for many reasons, and an enquiry does not automatically establish that a taxpayer has intentionally provided incorrect information.
Issues that may require checking can include:
- income that may not have been included in the tax return,
- work-related deductions that require substantiation,
- expenses that may include a private component,
- business or ABN income and expenses,
- capital gains or investment transactions,
- foreign income,
- bank interest or investment income,
- information that differs from third-party records, or
- insufficient or inconsistent record keeping.
How does ATO data matching relate to reviews?
The ATO receives information from employers, financial institutions, government bodies and other sources and can compare information available to it with details reported by taxpayers.
This is one reason it is important to check pre-filled information and your own records carefully before lodging a return.
For a more detailed explanation, see: ATO Data Matching in Australia: What Nepali Taxpayers Should Know .
Common areas that can create ATO questions
1. Income left out of the tax return
Taxpayers can sometimes overlook income from a second job, casual employment, bank interest, contracting work, investments, business activities or overseas sources.
Whether a particular amount is assessable depends on the applicable tax rules and the taxpayer's circumstances.
2. Work-related deductions
A deduction generally needs to satisfy the relevant tax rules. For work-related expenses, issues can include whether the taxpayer actually incurred the expense, whether it was sufficiently connected with earning assessable income, whether a private portion was excluded and whether appropriate records exist.
Read our guide: Deductions Without Receipts Rules for Nepali in Australia .
3. Cash income
Being paid in cash does not automatically make income tax-free. If an amount is assessable income, receiving it as cash rather than by bank transfer does not by itself remove the obligation to report it.
See: Cash Jobs and Tax Return in Australia: Guide for Nepali Students and Workers .
4. ABN and sole-trader income
Nepali workers operating under an ABN should keep clear records of business income and eligible business expenses.
Personal spending and business expenses should not simply be combined.
5. Foreign income
Foreign income can be particularly important for people who have financial connections with Nepal or another country. Australian tax residents generally need to consider Australian tax rules applying to worldwide income, subject to the taxpayer's circumstances and any relevant exceptions.
Tax residency and immigration or visa status are not necessarily the same concept.
What about money transferred between Nepal and Australia?
A bank transfer itself does not determine whether an amount is taxable. What matters is the underlying nature and source of the money.
For example, money transferred from Nepal might represent:
- a genuine family gift,
- a genuine loan,
- the taxpayer's existing savings,
- foreign employment or business income,
- foreign investment income, or
- proceeds from an overseas asset.
These situations can have different Australian tax consequences.
See our detailed guide: Tax on Money Received from Nepal in Australia: Gift, Loan or Income? .
What records might the ATO ask you to provide?
The documents required depend on what the ATO is examining. Relevant records might include:
- receipts and tax invoices,
- bank statements,
- payslips and income statements,
- employment records,
- work-related expense calculations,
- vehicle logbooks,
- working-from-home calculations,
- phone or internet usage calculations,
- ABN or business invoices,
- business income and expense records,
- foreign income records,
- foreign bank statements,
- investment documents,
- property records,
- contracts or agreements, and
- other evidence relevant to the item being reviewed.
What should you do after receiving an ATO review or audit notice?
Read the communication carefully
Identify the income year, issue being examined, information requested and any response date stated in the correspondence.
Confirm the communication is genuine
Be alert to scams. If you are uncertain, verify the communication through official ATO channels rather than relying on contact details contained in a suspicious message.
Review the tax return
Check the relevant return against your source records and identify whether the information originally reported appears correct.
Gather supporting records
Organise documents according to the issues the ATO has asked about rather than sending unrelated material.
Identify any genuine errors
If you discover an error or omission, determine the appropriate way to correct it rather than attempting to hide or ignore it.
Respond accurately
Provide factual information and supporting records relevant to the request.
Get professional assistance if needed
If the tax treatment is unclear, the amount is significant or the enquiry is complex, consider obtaining assistance from an appropriately qualified tax professional.
Should you ignore an ATO letter if you think your return is correct?
No. Even if you believe your return is correct, an ATO request should be taken seriously.
If the return is correct, your records may help explain and support the position you took. Ignoring correspondence can make it harder to resolve an issue efficiently.
What if you discover a mistake in your tax return?
Mistakes can happen. You might discover that income was omitted, an amount was entered incorrectly or a deduction was claimed incorrectly.
Depending on the circumstances, it may be possible or necessary to correct a tax return through the appropriate amendment process. However, if the ATO has already contacted you about the issue, consider the stage of the review and the ATO's instructions before taking action.
Our related guide explains amendments in more detail: Forgot to Declare Income? How to Amend Your Tax Return in Australia .
What can happen after an ATO review or audit?
The outcome depends on the facts and the issue being examined. Possible outcomes can include:
| Possible outcome | What it can mean |
|---|---|
| No change | The information examined may be accepted without an adjustment. |
| More information requested | The ATO may need additional records or explanations before reaching a conclusion. |
| Tax return adjustment | An amount of income, deduction, offset or another tax item may be changed where the applicable tax treatment differs from the original return. |
| Additional tax payable | An adjustment can result in additional tax becoming payable. |
| Change to refund | A refund may be reduced or another adjustment may affect the taxpayer's account. |
| Interest or penalties | Depending on the circumstances and applicable law, interest charges or penalties may arise. |
Does an ATO audit automatically mean you will receive a penalty?
No. Being reviewed or audited does not, by itself, mean that a penalty will automatically be imposed.
If an adjustment is required, the consequences depend on factors such as the nature of the error, the applicable tax provisions and the taxpayer's circumstances.
Where additional tax becomes payable, there may also be interest or other consequences under Australian tax law.
What if an audit creates a tax debt?
If an adjustment results in tax becoming payable, read the notice carefully and understand the amount, due date and basis for the adjustment.
If you cannot pay the full amount immediately, do not simply ignore the debt. Depending on eligibility and circumstances, payment arrangements may be available.
See: ATO Payment Plan and Tax Debt Help for Nepali Individuals and Small Business Owners .
Can a tax agent help during an ATO review?
An appropriately authorised tax professional may be able to assist with understanding the issue, reviewing records, explaining the tax treatment and communicating with the ATO within the scope of their authority.
However, using a tax agent does not replace the need for accurate information and genuine records.
Read: Should You Give Your myGov Login to a Tax Agent?
Good record keeping can make an ATO review easier
Trying to reconstruct an entire financial year after receiving an ATO enquiry can be difficult. Keeping organised records throughout the year can make it easier to explain the figures in your tax return.
Consider keeping separate digital folders for:
- employment income,
- work-related deductions,
- vehicle expenses,
- work-from-home expenses,
- education and professional expenses,
- ABN or business records,
- investment income,
- foreign income and overseas assets, and
- documents used to prepare your tax return.
ATO reviews and Nepali international students
International students can have several sources of income during an Australian financial year. For example, a student might work casually for multiple employers, undertake delivery or gig work, earn bank interest or receive other payments.
Having several income sources can make record keeping especially important.
A Nepali student works at a restaurant for part of the year and later starts a second casual job. They should ensure income from all relevant sources is properly considered when preparing the tax return rather than assuming that only their main employer matters.
Related guide: Tax Return With Multiple Jobs in Australia .
ATO reviews for Nepali ABN holders and sole traders
Sole traders may have more complex records than employees because they need to account for business income and expenses.
Potential areas requiring careful records include:
- sales and service income,
- cash payments,
- business bank transactions,
- motor vehicle expenses,
- tools and equipment,
- phone and internet,
- home-based business costs,
- private use of business assets, and
- GST and BAS obligations where applicable.
Keeping business and personal transactions clearly identifiable can make accounting and substantiation easier.
What should you avoid during an ATO review?
- Do not ignore the ATO communication. Read it and understand what is being requested.
- Do not panic and amend unrelated parts of your return. First identify the actual issue being examined.
- Do not invent receipts or supporting records. Only provide genuine information and documents.
- Do not provide misleading explanations. If you made a genuine mistake, identify it accurately.
- Do not send large amounts of unrelated information. Organise your response around what has actually been requested.
- Do not assume cash income is invisible. Tax treatment depends on the nature of the income, not simply the method of payment.
- Do not assume an overseas transaction is automatically outside the Australian tax system. Tax residency and the underlying transaction need to be considered.
- Do not miss a response deadline without addressing it. If you need clarification or have difficulty responding, consider contacting the ATO or obtaining appropriate assistance.
ATO review checklist for Nepali taxpayers
- Read the entire ATO notice.
- Confirm the income year being reviewed.
- Identify the specific income, deduction or transaction involved.
- Check that the communication is genuine.
- Review your lodged tax return.
- Compare the return with your original records.
- Gather receipts, invoices and statements.
- Check whether income was accidentally omitted.
- Check whether deductions include private expenses.
- Review foreign income if relevant.
- Check ABN and business records if applicable.
- Identify employer reimbursements.
- Keep copies of information supplied.
- Respond within applicable timeframes.
- Seek professional assistance where appropriate.
Related Hamro Accountant guides
ATO Data Matching in Australia: What Nepali Taxpayers Should Know
Forgot to Declare Income? How to Amend Your Tax Return
Deductions Without Receipts Rules for Nepali in Australia
Cash Jobs and Tax Return in Australia
Tax on Money Received from Nepal: Gift, Loan or Income?
ATO Payment Plan and Tax Debt Help
Frequently asked questions
Received an ATO review or audit notice?
Hamro Accountant can help you understand the tax issue, organise relevant records and review your Australian tax position before you respond.
General information only: This article provides general Australian taxation information and does not constitute personal tax, financial or legal advice. ATO reviews, audits, amendments, penalties, interest charges, record-keeping requirements and foreign-income treatment depend on the relevant tax law and individual circumstances. If you receive correspondence from the ATO, read the actual communication carefully and obtain advice appropriate to your circumstances where required. Australian tax law and ATO administrative guidance can change.