How to Prepare for GST Audits

By Staff Editor • April 1, 2025

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The Australian Taxation Office (ATO) has ramped up its GST compliance efforts, placing businesses under greater scrutiny. With GST audits and assurance reviews becoming more frequent, accurate records & compliant reporting are more important than ever.

A GST audit can be triggered for various reasons—discrepancies in reporting, frequent refund claims, or even random selection. Whatever the case, being well-prepared lowers your liabilities (not to mention the stress!) and gives you the confidence to respond to the ATO appropriately. So, follow our GST audit guide to understand the audit process, key risk areas, and how to prepare your records to ensure compliance.

Who
Pays GST
in Australia?

All businesses in Australia with an annual turnover of $75,000 or more must pay the Goods and Services Tax (GST) on their sales. If your business’s turnover is below this threshold, you can decide whether or not to register for GST. Some companies will still voluntarily register because doing so allows them to claim GST credits on business expenses, which can be beneficial in some cases.

How much is the GST in Australia?

The GST rate in Australia is 10% on most goods and services. However, some items, like basic food, medical services, and education, are exempt or ‘GST-free.’ When GST is payable, businesses must report it on their Business Activity Statement (BAS).

What is
a GST Audit?

A GST audit is an in-depth review conducted by the ATO to verify that a business has correctly reported and paid its GST obligations. The process involves checking:

  • BAS lodgements – Ensuring BAS accurately reflects GST collected and claimed.
  • Tax invoices and records – Verifying all transactions are properly documented.
  • GST refunds and exemptions – Investigating any high or unusual claims.
  • Industry benchmarks – Comparing financial data to similar businesses.
Is there a GST audit threshold limit?

There is no specific threshold limit for a GST audit in Australia. The ATO can audit any business, regardless of its size or turnover, if they suspect non-compliance or irregularities in GST reporting.

What is the GST audit period in Australia?

The ATO has the authority to audit GST records for up to four years from the date a business lodges its BAS. However, in cases of fraud or evasion, they can extend this period to six years.

What Triggers
a GST Audit Process?

While some GST audits happen randomly, others are triggered by specific warning signs. Let’s look at several common red flags that can bring a business under
ATO review.

1. Frequent or Large GST Refund Claims

The ATO closely monitors businesses that regularly claim GST refunds or have unusually high refund amounts. If your company, shop or firm consistently receives refunds, expect to provide detailed supporting documentation.

2. Discrepancies Between Income Reporting and GST Lodgements

If the revenue reported on your income tax return does not match the GST turnover figures provided in your BAS, the ATO may flag this discrepancy for further investigation.

3. Unusual or Inconsistent GST Reporting

Certain patterns or inconsistencies in GST reporting can raise red flags with the ATO. Here are some common triggers:

  • Significant variations in GST payable or claimable.
  • Incorrect classifications of GST-free and taxable supplies.
  • Large input tax credits that don’t match business activity.
4. Late or Incorrect BAS Lodgements

Missing BAS deadlines or submitting frequent corrections can raise red flags with the ATO. This can trigger audits, additional scrutiny, and potential penalties.

5. Cash-Based Businesses

Cash-based businesses are considered high-risk due to the potential for underreporting income and GST. The ATO may closely monitor these businesses to verify all transactions are
accurately reported.

How to Prepare
for a GST Audit

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1. Keep Accurate and
Organised Records

Failing to maintain proper records is one of the biggest mistakes many businesses make. The ATO requires companies to keep GST-related records for at least five years.

Your GST records should include the following:

  • Tax invoices for all purchases and sales
  • Receipts for business expenses
  • Bank statements reflecting transactions
  • Records of GST-free or input-taxed sales
  • Adjustments and corrections made to past BAS lodgements
2. Reconcile Your GST
Reports Regularly

Regular reconciliation prevents errors that could signal concerns during an audit. So, before lodging each BAS, cross-check your accounting records with GST reports to confirm the following:

  • All sales and expenses have been reported correctly.
  • The GST collected matches the recorded data in your system.
  • Input tax credits claimed are supported by valid tax invoices.
3. Ensure Tax Invoices Meet
ATO Requirements

Not all invoices qualify as valid tax invoices. So, review supplier invoices regularly to ensure compliance before claiming input tax credits. The ATO requires that tax invoices for purchases over $82.50 (including GST) include:

  • The seller’s ABN (Australian Business Number)
  • Date of the invoice
  • A description of the goods or services
  • GST amount (if applicable)
  • Total price of the transaction
4. Lodge BAS Accurately
and on Time

Late or amended BAS lodgements can raise compliance concerns.
Avoid last-minute lodgements by:

  • Setting reminders for BAS due dates.
  • Reviewing all figures before submission.
  • Consulting a registered tax agent for complex GST matters.

What to do
if you are
selected for
a GST Audit

If ATO informs you about a GST audit, stay calm and take a structured approach:

1. Review the ATO’s Request

The ATO will provide a list of documents and information they require. Carefully review the request and gather the necessary records.

2. Cross-Check Your GST Records

Before submitting any documentation, review your BAS lodgements, tax invoices and receipts, and bank statements and reconciliations. Look for discrepancies that might require explanation.

3. Cooperate and Respond Promptly

Delays or incomplete responses can extend the GST audit process. Provide clear, well-organised documentation and be upfront if errors are found. If the ATO identifies mistakes, they may allow you to correct them without penalties (if unintentional). However, they may apply interest and penalties if errors are deliberate or reckless.

4. Seek Professional Guidance

A registered tax agent or accountant can provide expert advice and communicate with the ATO on your behalf. If the audit becomes complex, professional representation can help resolve
issues efficiently.

Stay Ahead
of GST Audits
with W Advisory

A GST audit doesn’t have to be stressful—staying prepared is the best way to avoid costly mistakes. At W Advisory, we help businesses:

  • Maintain accurate GST records to support compliance.
  • Reconcile GST reports to steer clear of errors before BAS lodgement.
  • Ensure tax invoices meet ATO standards to avoid disallowed claims.
  • Provide expert guidance during GST reviews and audits.
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