What the ATO Audits
ATO audits fall into three main types: GST audits, income tax audits, and payroll/super audits. Most small business audits are triggered by: income below industry benchmarks, large GST refund claims, significant increase in deductions, data-matching flags (bank deposits don't reconcile to reported income), or random selection.
| Audit Type | What the ATO Checks | Documents Required |
|---|---|---|
| GST / BAS Audit | Tax invoice compliance, correct GST coding, BAS to ledger reconciliation, input tax credit validity | All tax invoices, bank statements, Xero reports, BAS workpapers |
| Income Tax Audit | Income completeness, deduction validity, private use exclusion, depreciation | Bank statements, invoices, motor vehicle log, depreciation schedule, source documents for all deductions |
| Payroll / Super Audit | STP data vs payroll records, super guarantee compliance, PAYG withholding accuracy | Payroll records, payslips, TFN declarations, super payment confirmations, STP reports |
| FBT Audit | Private use of motor vehicles, entertainment, loans to employees/shareholders | Vehicle logs, entertainment records, FBT return workpapers |
Pre-Audit Checklist — What the Indian CA Team Prepares
When an ATO audit notice arrives, the Indian CA team can turn around the following within 48–72 hours:
- BAS reconciliation report — GST collected and GST credits per BAS compared to Xero ledger totals for each period. Any discrepancies identified and explained
- GST coding summary — Xero account transaction listing showing the GST code applied to each income and expense category, with explanations for any non-standard coding (BAS-excluded, GST-free, input-taxed)
- Source document trail — all invoices and receipts in Dext or Hubdoc, matched to Xero transactions. Complete records accessible within minutes, not requiring manual searching
- Payroll audit pack — STP submission summary, payslips for sampled pay periods, super payment confirmation (clearing house receipts), TFN declaration register, leave accrual reconciliation
- Income reconciliation — total bank deposits reconciled to invoiced income in Xero, with explanations for any non-income deposits (inter-account transfers, loan proceeds, GST refunds)
- Deduction workpapers — schedule of all significant deductions claimed with source document references and business purpose notes
- Depreciation schedule — all fixed assets, acquisition dates, cost, depreciation method, accumulated depreciation, and current written-down value
- Motor vehicle log — if a vehicle is claimed, the Indian team maintains a business use log throughout the year, not reconstructed at audit time
What Good Indian CA Record-Keeping Looks Like to an Auditor
ATO auditors look for structured, consistent records. Indian CA firms that use Dext or Hubdoc for source document capture, reconcile bank accounts weekly, and run monthly BAS checks produce records that look like this:
- Every transaction in Xero has a source document attached (invoice/receipt in Dext)
- Bank reconciliation is current — no unreconciled items older than 7 days
- All GST-coded transactions have tax invoices with the supplier's ABN, GST amount, and the business name
- BAS returns tie exactly to Xero GST reports for the same period
- Payroll records match STP submissions — no discrepancies between payslips and ATO data
- Super guarantee has been paid on time — super payment receipts are filed
This level of organisation is the standard operating procedure for well-run Indian CA teams with Australian clients. See our guide on reviewing your Indian bookkeeper's work for the monthly checklist to maintain this standard.
Working With Your Australian Accountant During an Audit
During an ATO audit, your Australian tax agent communicates with the ATO (as a registered tax agent, they can represent you). The Indian CA firm's role is to prepare the documentation — quickly, completely, and accurately. The typical workflow:
- ATO issues audit notice → client notifies Indian CA team and Australian tax agent
- Indian CA team prepares full audit pack within 48–72 hours (BAS reconciliations, source documents, payroll records)
- Australian tax agent reviews audit pack, identifies any gaps, engages with ATO on your behalf
- Indian CA team responds to any follow-up document requests within 24 hours
- ATO completes audit — with complete, well-organised records, most audits close with no adjustment
About This Article
Written by Sharma Jyoti, CA (ICAI) — Founder, Sharma Jyoti and Co. We are an ICAI-registered Chartered Accountant firm providing outsourced bookkeeping and accounting services to Australian, US, UK and Canadian businesses. Learn more about our firm →
Written by Sharma Jyoti, CA (ICAI) — Founder, Sharma Jyoti and Co. We are an ICAI-registered Chartered Accountant firm providing outsourced bookkeeping and accounting services to Australian, US, UK and Canadian businesses. Learn more about our firm →
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Frequently Asked Questions
No. The ATO selects audit targets based on tax return data, industry benchmarks, and data-matching — not bookkeeper location. A well-run Indian CA relationship often produces cleaner audit-ready records than informal local arrangements, because structured document capture and monthly reconciliation cycles leave a complete, organised trail.
GST audits: correct tax invoice compliance, BAS-to-ledger reconciliation, valid input tax credits. Income tax audits: income completeness (bank deposits reconcile to reported income), deduction validity, private use exclusion. Payroll audits: STP data matches payroll records, super paid on time. FBT audits: motor vehicle private use, entertainment benefits.
48–72 hours for a full audit pack — BAS reconciliations, GST coding summary, source document trail, payroll records, income reconciliation, deduction workpapers, and depreciation schedule. Because Dext/Hubdoc has all source documents already attached to Xero transactions, retrieval is a matter of running reports, not searching through paper.
No — direct ATO communication on a client's behalf requires Australian Tax Agent registration. The Indian team prepares all audit documentation; your Australian tax agent communicates with the ATO using those documents. This division works well — the Indian team knows the detail of your books and produces accurate responses quickly.
5 years from the date of lodgement for most records. Electronic records are acceptable — Xero, Dext, and email are all compliant. Physical paper originals are not required if the digital copy is clear and complete. The Indian CA team maintains your Xero and Dext archive throughout the engagement — no manual filing required on your side.