Australia Tax Audit & Appeals Guide
Australian tax audits and the dispute resolution. The guide covers: the ATO audit (the "compliance check" or the "tax audit") — the ATO can audit the taxpayer at any time to verify the accuracy of the tax return; the ATO selects the taxpayers for the audit based on the "risk indicators" (the "compliance risk" — the "data-matching" from the third parties, the "industry benchmarks", the "anomalies in the tax return", the "international transactions"); the ATO audit can be: (a) the "desktop audit" (the "desktop audit" — the ATO reviews the tax return and the records without the visit), OR (b) the "field audit" (the "field audit" — the ATO visits the taxpayer's premises); the ATO can request the information and the documents under the "Section 353-10" of the "Taxation Administration Act 1953" (the "TA Act"); the taxpayer objections (the "objection process") — the taxpayer who disagrees with the "notice of assessment" (the "NOA") or the ATO decision can lodge the "objection" (the "written objection") with the ATO within the 60-day objection period (the "60 days from the date of the notice"); the objection must state the reasons for the disagreement (the "grounds of the objection") and provide the supporting evidence; the ATO must decide on the objection within the "60-day period" (the "ATO decision period" — if the ATO does not decide within 60 days, the objection is "deemed disallowed"); the Administrative Appeals Tribunal (the "AAT") — the taxpayer who is dissatisfied with the ATO's objection decision can apply to the AAT for the review; the AAT is the "merits review" tribunal — the AAT considers the facts and the law and can confirm, vary, or set aside the ATO decision; the AAT application must be lodged within the 60-day period (the "60 days from the date of the ATO objection decision"); the AAT fees are: (a) the "application fee" of $1,085 (the "AAT application fee" for the 2025-26 year), (b) the "hearing fee" of $1,085 (the "AAT hearing fee" for the 2025-26 year); the AAT can order the costs (the "costs order") against the taxpayer if the taxpayer's case is "unreasonable"; the Federal Court appeals — the taxpayer who is dissatisfied with the AAT decision can appeal to the Federal Court of Australia (the "Federal Court") on the "question of law" (the "question of law" — NOT the "question of fact"); the Federal Court can confirm, vary, or set aside the AAT decision; the appeal to the Federal Court must be lodged within the 28-day period (the "28 days from the date of the AAT decision"); the taxpayer can also appeal directly to the Federal Court without the AAT (the "test case" or the "large case" — the taxpayer can apply for the "judicial review" under the "Administrative Decisions (Judicial Review) Act 1977" — the "ADJR Act"); the penalties for the tax evasion (the "tax evasion penalties") — the penalties for the "tax evasion" (the "intentional disregard of the tax law" or the "recklessness") include: (a) the "shortfall penalty" (the "tax shortfall penalty") of 25% to 75% of the tax shortfall (depending on the "culpability" — the "reasonable care" vs the "recklessness" vs the "intentional disregard"), (b) the "failure to lodge penalty" (the "FTL penalty" — $313 per 28 days for the small entities), (c) the "interest on the unpaid tax" (the "general interest charge" — the "GIC" at the rate of 10.43% per year for the 2025-26 year), (d) the "criminal prosecution" (the "tax fraud" — the "tax evasion" is the criminal offence under the "Criminal Code Act 1995" punishable by the imprisonment of up to 10 years for the individuals and the fine of up to $1,110,000 for the companies); the voluntary disclosure (the "voluntary disclosure") — the taxpayer who voluntarily discloses the error or the omission before the ATO audit can receive the "remission of the penalty" (the "penalty reduction"): (a) the "voluntary disclosure before the audit" — the penalty is reduced to 0% of the tax shortfall (the "full remission"), (b) the "voluntary disclosure after the audit has started" — the penalty is reduced to 20% of the tax shortfall; the interest (the "GIC") is still payable on the unpaid tax; the tax practitioner privilege (the "tax agent-client privilege") — the communications between the taxpayer and the registered tax agent are protected by the "legal professional privilege" (the "LPP") only if the tax agent is also the legal practitioner; the tax agents do NOT have the statutory privilege for the tax advice (the "Baker v ATO" case). All amounts in Australian Dollars (AUD). For related reading, see our Tax Filing Procedures Guide → and Personal Tax Guide →.
Objection Process
- 60-day period: The taxpayer must lodge the objection within 60 days from the date of the "notice of assessment" (the "NOA") or the ATO decision. The taxpayer can request the "extension of time" (the "extension of time to object") if the objection is lodged after the 60-day period. The ATO may grant the extension if the taxpayer has the "reasonable cause" for the delay.
- Objection content: The objection must be in the writing and must state: (a) the "grounds of the objection" (the "reasons for the disagreement" — the "facts" and the "law" that support the taxpayer's position), (b) the "outcome sought" (the "amendment of the assessment" or the "refund of the tax"). The taxpayer can engage the registered tax agent or the tax lawyer to prepare the objection.
For the AAT review and the Federal Court appeals, see the ATO website (ato.gov.au) — the "Objections, reviews and appeals" section.
Penalty Reduction — Voluntary Disclosure
- Before audit — 0% penalty: The taxpayer who voluntarily discloses the error before the ATO audit receives the "full remission" of the penalty. The taxpayer must: (a) disclose the error in the writing, (b) provide the full details of the error, (c) cooperate with the ATO. The interest (the "GIC") is still payable.
- After audit starts — 20% penalty: The taxpayer who voluntarily discloses the error after the ATO audit has started receives the "reduced penalty" of 20% of the tax shortfall. The taxpayer must: (a) provide the "full and true disclosure" of the error, (b) provide the "reasonable assistance" to the ATO.
For the ATO risk indicators and the industry benchmarks, see our Tax Filing Procedures Guide →.