The ATO uses data matching to determine whether or not an audit is required.  Data matching compares data from different sources against lodged tax returns.  If there is a discrepancy, the ATO may escalate the tax return for further investigation.

For individual taxpayers, the ATO matches data with financial institutions, share registries, data reported by employers, and distributions from managed funds and trusts.

With regards to rental properties, the ATO matches data with banks, rental bonds boards, and revenue offices.

When determining whether to audit a business, the ATO can compare data to a larger variety of sources.  For example, is the disposal of a motor vehicle reported by the RTA reflected in the tax return?

If the tax return data does not match the data reported from other organisations, you could be selected for an audit.

In many cases there is a valid reason for the apparent discrepancy, but I recommend that you treat a ‘please explain’ letter with care, and seek advice from your accountant before responding.


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