ATO’s 2026 Audit Crackdown: What You Need to Know
From 2026, the ATO will significantly enhance how it reviews tax returns, using AI and advanced data-matching to cross-check what you report against information from banks, payment platforms, employers, and online marketplaces.
What’s Being Cross-Checked?
The ATO already receives data from:
- Banks and lenders
- Payment platforms (e.g. Stripe, PayPal, Square, Tyro)
- Online marketplaces (e.g. Amazon, eBay, Shopify)
- Payroll systems (STP Phase 2)
- Crypto exchanges
Example: under-reporting merchant sales
A clothing retailer with multiple retail stores appeared to be under-reporting merchant sales. The ATO found an $870,000 discrepancy between their Business Activity Statement (BAS) and Income Tax Return (ITR). The owner made a voluntary disclosure on reporting errors for 36 activity statements across the financial years 2010 to 2013, resulting in unpaid Goods and Services Tax (GST) of $248,851. Since they were cooperative, no penalties were charged and client only had to pay the outstanding amount.
Example: cash-only business caught avoiding GST
One of the owners of a cash-only takeaway chicken shop had been previously audited twice for another chicken shop, involving cash wages and inadequate record keeping. The owners were claiming a large portion of GST-free sales from the sale of cold, uncooked chickens. When a member of the ATO who went undercover tried purchasing an uncooked chicken, they were told that it was unavailable as the shop is a takeaway. The ATO’s audit revealed they had understated their sales by around $330,000 and were paying cash wages. The owners had to pay back $103,371 in GST as well as $77,528 in penalties.
Learn more about the ATO’s areas of focus.
Date Matching is Becoming Stricter:
From 2026, information will be analysed faster and more closely using AI, meaning even the smallest discrepancies are more likely to be flagged.
Common triggers that raise red flags:
- Undeclared income (side hustles, rental income, investments, crypto)
- Deductions that don’t match your income or industry norms
- Big jumps in expenses from one year to the next
- Round-number claims or estimates without records
- Home office and vehicle claims without proper substantiation
What This Means For You
To stay audit-ready, it’s more important than ever to:
- Keep accurate, up-to-date bookkeeping
- Ensure your bank, POS, payroll and accounting software all match
- Keep receipts and logs for deductions (especially vehicles & home office)
- Make sure workers are classified correctly (contractor vs employee)
- Use automated systems where possible to reduce errors
Our Advice
The businesses that are most at risk are those with:
- Cash-heavy income
- Multiple income streams
- Manual or inconsistent bookkeeping
How Dare Can Help
We can:
- Review your bookkeeping and reporting processes
- Set up automation in Xero/MYOB
- Check deductions and substantiation
- Ensure payroll and contractor reporting is compliant
Reach out to the Dare team for assistance with any of the above.