Ever stared at your tax return and wondered, “What are the actual chances the ATO comes knocking?” You’re not alone. Most Australians ask themselves that same question every July, somewhere between hunting for receipts and second-guessing their deductions.
The truth is, an ATO audit isn’t a coin flip. It’s a risk score. And your job, income, lifestyle, and reporting habits all push that score up or down. The more you understand how the scoring works, the more control you have over staying off the radar.
At RPS Accountants, we help individuals and small business owners across Epping and Melbourne’s north tidy up their position before tax time gets messy. So let’s walk through what the numbers really say, and what they mean for you.
You’ll come out the other side a bit less worried, and a lot more prepared.
What are the real odds of facing an audit?
Here’s the bit no one wants to say straight. The ATO contacts around two million taxpayers a year for some form of review. That sounds huge, but most are short check-ins, not full-blown audits.
A full audit is far rarer. For a regular PAYG employee with simple affairs, the real-world chance of a deep audit in any given year sits in the low single digits, often under 2%.
But the numbers shift the moment your situation gets more interesting. Run a small business, claim large deductions, hold crypto, own a rental, or have foreign income, and your risk can climb several times higher.
Think of it like a smoke alarm. Most kitchens never set it off. But the more cooking, the more smoke, and the more likely it is to ring.
The takeaway? Your odds aren’t fixed. They follow your behaviour, not random chance. And that means you’ve got more say in them than you might think.
If your tax life is steady and well-documented, you can breathe easier. If it’s a bit messy, the right tidy-up before lodging makes a real difference.
Here’s a useful way to think about it. The ATO has a finite team and a massive workload. So they focus their attention where the return on effort is highest. Returns that look unusual, inconsistent, or out of line with industry norms float to the top of the pile. Returns that look ordinary and well-supported usually drift to the bottom.
That’s why getting the basics right matters more than chasing fancy tricks. Boring is good when it comes to tax.
Audit risk by industry and income level
Some industries get more attention than others. It’s not personal. It’s just where the ATO finds the most mistakes.
Trades, hospitality, construction, ride-share, beauty, and retail all sit higher on the watchlist. The reason is simple. Cash transactions, mixed personal and business expenses, and tighter margins lead to more reporting slips.
White-collar employees with one PAYG income, no side gig, and standard deductions tend to sit at the lower end. Add a rental property, a share portfolio, or a small ABN, and your risk profile changes overnight.
Income level matters too, but maybe not how you’d expect. The ATO doesn’t only chase high earners. It looks at patterns.
A modest income paired with a lifestyle that screams “Bondi penthouse” raises eyebrows faster than a high earner with steady, well-reported numbers. So the question isn’t only “how much do I make?” The real question is, “do my numbers tell a consistent story?”
If your story holds together, your risk drops. If it doesn’t, the ATO will ask why. Our team can help you walk through that story before you lodge, with a friendly set of fresh eyes.
It’s a small step that often saves a big headache.
A quick example. A tradie pulling in $90k with a work ute, a few tool purchases, and modest deductions usually slides under the radar. The same tradie claiming 100% private-use car expenses, ten new “tools” worth $1,500 each, and a home office without records? That’s a different story.
Same income. Different risk score. The difference is detail and documentation.
How long can the ATO look back at returns?
This is the bit that catches people off guard. The ATO doesn’t have a one-year memory.
For most individuals, the ATO can amend your return for up to two years from the date of assessment. For business owners with more complex affairs, that window stretches to four years.
And if there’s any suspicion of fraud or deliberate evasion, the window opens indefinitely. That’s right. No cap. They can look back as far as they need to.
So even if last year’s return felt fine, a question can pop up years later. That’s why good record-keeping isn’t just about this tax year. It’s about every tax year you’ve still got skin in.
The ATO suggests keeping records for at least five years. We’d suggest seven if you’ve got anything ongoing like a rental, a small business, or a self-managed super fund.
Storing records doesn’t have to be a paper nightmare. A simple cloud folder, the myDeductions app, or a basic Xero or MYOB setup can do most of the heavy lifting for you.
If you ever get a “please explain” letter, your future self will thank you for those tidy folders.
The other thing worth knowing is that the ATO can also raise a “default assessment” if you’ve never lodged or kept proper records. That means they estimate what you owe based on industry data, and the number usually isn’t kind. You then have to argue it back down, which is harder than getting it right the first time.
So keeping records isn’t only about defending yourself. It’s about keeping the steering wheel in your hands instead of the ATO’s.
What does an audit actually cost you?
Worried about the dollars? Fair enough. Let’s break it down honestly.
If an audit finds you owe more tax, you’ll pay the shortfall plus interest. The ATO uses what’s called the General Interest Charge, and right now it’s well above 11% a year. That compounds daily, which adds up fast.
Then come the penalties. They depend on whether the ATO sees your mistake as carelessness, recklessness, or intentional. Penalties can range from 25% to 75% of the shortfall, and in serious cases, even higher.
On top of that, you might pay for an accountant or tax lawyer to help you respond. Audit defence work isn’t included in your standard tax return fee, and complex cases can run into thousands.
And then there’s the cost no one bills you for. Your time. Pulling together five years of records, writing responses, attending meetings, and waiting on outcomes can stretch over months.
So while the audit itself is free in theory, the ripple effect rarely is. Getting things right the first time is almost always cheaper than fixing them later.
A short call with our team before tax time often costs less than a single hour of audit defence later on. It’s the cheapest insurance you’ll ever buy.
Is audit insurance really worth the money?
Audit insurance is one of those things most people ignore, then wish they hadn’t. It usually costs between $50 and a few hundred dollars a year, depending on your situation.
What does it cover? Professional fees if you get audited. So if your accountant needs to spend ten hours responding to the ATO, the insurance pays that bill instead of you.
What doesn’t it cover? The actual tax shortfall, the General Interest Charge, or any penalties. Those still come out of your pocket.
So is it worth it? For most regular employees with simple affairs, probably not. The chance is low, and the bill if it happens is usually manageable.
But for sole traders, rental property owners, crypto investors, and small business owners, it can be a smart bit of peace of mind. The chance of being reviewed is higher, and the fees to respond properly can add up quickly.
We can help you weigh it up based on your actual situation. There’s no one-size-fits-all answer, and we’re happy to give you a straight take rather than a sales pitch.
If audit insurance feels like the right fit, great. If not, we’ll tell you that too.
Inside the ATO’s new AI risk scoring
The ATO of 2026 looks nothing like the ATO of 2016. Modern selection isn’t done by humans flipping through files. It’s done by algorithms that score every return in seconds.
These systems pull data from banks, employers, real estate platforms, crypto exchanges, super funds, Centrelink, and even private health insurers. They cross-check what you report against what others report about you.
If something doesn’t line up, your return gets flagged. Sometimes the system fixes it on the spot. Other times, a human reviewer takes a closer look to decide if a deeper audit is needed.
The system also uses what’s called industry benchmarking. If your business numbers fall outside the normal range for your industry, expect a quiet flag in the background.
The good news is, the system isn’t out to get you. It’s looking for inconsistencies, not honest reporting. Lodge accurately, match your prefill, and you’ll usually sail through without a hiccup.
The bad news? Sloppy returns get caught fast now. The “she’ll be right” approach to tax has a shorter shelf life every year.
If you’re not sure how your numbers compare to your industry benchmark, just ask us. We’ve got access to the same kind of data the ATO uses to compare you, and we can flag any wobbles before they become a problem.
Let’s get you off the radar together
A tax review or audit isn’t the end of the world, but it’s also not a fun afternoon. The smartest move is reducing your risk before the next return goes in.
If you’ve ever wondered whether your return is squeaky clean, our team can give it a friendly second look. We’ll spot the gaps, fix the wobbly bits, and lodge with confidence on your behalf.
Whether you’re a PAYG employee, sole trader, small business owner, property investor, or SMSF trustee, we’re here to keep your numbers tidy and your stress levels low.
Reach out to our Epping team for a quick chat. No jargon, no pressure, just a clear-eyed look at where you stand. We’ll take it from there.
You don’t have to figure this out alone. We’re right here in Melbourne’s north, and we’ve got your back.
