ATO Tax Time Hitlist 2026: Common Red Flags That Trigger Audits
The Australian Taxation Office (ATO) is expected to release its Tax Time Hitlist for the 2025–26 financial year in the coming weeks. This hitlist outlines the key areas where the ATO will focus its compliance and audit activity during Tax Time 2026.
Below is a summary of the most common ATO red flags taxpayers should be aware of when lodging their tax return.
Work-Related Expenses Under ATO Scrutiny
Work-related deductions continue to be a major focus area, contributing significantly to the individual tax gap. The ATO closely monitors claims that appear inflated, incorrect, or poorly substantiated.
Key ATO audit focus areas include:
1- Working from home expenses
Taxpayers using the fixed-rate method (currently 70 cents per hour) must meet strict record-keeping requirements. The ATO will verify:
Accurate records of hours worked from home
Supporting evidence such as diaries, rosters, or timesheets
Claims without adequate documentation are a common trigger for ATO reviews.
2- Occupancy expenses
Deductions for rent, mortgage interest, or council rates are only allowable where part of the home is used to run a business, not where an employee is simply working from home.
3- Mobile phone and internet costs
The ATO is targeting:
Claims for 100% or high percentages of phone and internet bills
“Double dipping,” where taxpayers claim the fixed-rate method and also claim phone or internet costs separately
4- Other commonly audited deductions
Work-related clothing, laundry, and dry-cleaning
Overtime meal expenses
Union fees and professional subscriptions
Motor vehicle expenses, particularly where the cents-per-kilometre method is used and the maximum 5,000 km is claimed without evidence
Misuse of the $300 no-receipt deduction rule, especially where no actual expense was incurred
ATO Tip:
Only claim deductions that are genuinely work-related and supported by records. If you cannot substantiate a claim, the ATO may deny it and impose penalties.
Investment Properties and Rental Income: ATO Red Flags
Rental properties remain a high-risk area, with ATO audits historically finding errors in the majority of reviewed returns.
Key rental property audit triggers include:
1- Excessive interest claims
Claiming interest on loans that relate to private purposes, such as the family home, rather than solely the investment property.
2- Incorrect apportionment of income and expenses
For jointly owned properties, deductions must be split according to ownership percentages. The ATO flags arrangements that disproportionately favour the higher-income owner.
3- Holiday homes and short-term rentals
Deductions can only be claimed for periods when the property was:
Rented out, or
Genuinely available for rent
Private or personal use periods must be excluded.
4- New rental property repairs
Costs to fix pre-existing damage or complete renovations after purchase are not immediately deductible and must generally be claimed over time.
Sharing Economy Income Is Heavily Monitored
The ATO receives extensive third-party data from sharing economy platforms, making under-reporting easy to detect.
This includes income from:
Ride-sharing and delivery services (e.g. Uber)
Freelance and task platforms
Short-term accommodation platforms such as Airbnb and Stayz
Data matching allows the ATO to identify discrepancies between platform income and reported tax return figures, making undeclared income a major audit risk in Tax Time 2026.
Cryptocurrency Transactions in the ATO Spotlight
Cryptocurrency remains a growing focus of ATO compliance activity.
The ATO is collecting bulk transaction data from Australian cryptocurrency service providers to identify taxpayers who:
Fail to declare capital gains or losses
Incorrectly treat trading profits
Omit crypto-related income altogether
Cryptocurrency transactions may trigger capital gains tax (CGT) or be treated as business income, depending on the circumstances.
With hundreds of thousands of Australians now holding crypto-assets, the ATO considers this a key audit area for 2026.
