ATO Focus Areas 2025-26: What the ATO Is Looking at This Tax Season

Each year before tax season, the ATO publishes its "tax time hitlist": the specific areas where it will direct additional compliance resources and automated data matching. These are not guesses. They are based on patterns of error and deliberate misreporting the ATO identified in prior years, combined with new data sources the ATO gained access to since last tax time.

For the 2025-26 tax year (income earned 1 July 2025 to 30 June 2026), the ATO’s focus areas for individuals remain consistent with recent years but with added intensity: rental property claims are under scrutiny with a reported error rate above 90%, cryptocurrency reporting is being cross-matched against exchange records, and sharing economy income from platforms like Uber, Airbnb, and Airtasker is being matched directly against data the ATO now receives from those platforms.

This guide covers every major focus area for both individuals and small businesses, explains how the ATO’s data matching program works, and gives you the practical steps to stay on the right side of it. If you have already lodged and are concerned you may have made errors, our second look tax assessment service can review your return and lodge an amendment.

Why the ATO Publishes Focus Areas Each Year

The ATO’s annual tax time focus list exists because of a specific problem: Australia’s individual tax gap (the difference between the tax individuals should pay and the tax they actually pay) is estimated at $8.7 billion. Work-related deductions are identified as the biggest single contributor, estimated to account for around a third of the gap.

The ATO’s compliance approach is no longer primarily audit-led. It is now data-led. The ATO receives data from hundreds of sources, runs automated cross-matching against lodged tax returns, and flags inconsistencies for review without any human intervention at the initial stage. The ATO does not need to select your return at random. It knows what your employer paid you, what interest your bank credited, what your crypto exchange records show, and what income you declared on your return. Discrepancies between those datasets are flagged automatically.

In 2025, the ATO received nearly $1 billion in additional funding to expand its compliance activities. This translated directly into more automated matching, more data sharing agreements with third parties, and a larger compliance team. The focus areas listed below are where that capacity is being deployed.

ATO Focus Areas for Individuals in 2025-26

1. Work-Related Expense Claims

Work-related deductions remain the ATO’s single biggest area of focus for individual taxpayers. The category covers WFH expenses, vehicle claims, uniforms, tools, training, and professional subscriptions.

The ATO identified several specific compliance failures it is targeting in 2025-26:

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  Working from home 70c/hr double-claiming: the fixed rate of 70 cents per hour covers electricity, internet, phone, and stationery. Taxpayers who use the 70c rate AND separately claim internet or electricity bills are double-claiming. This is one of the most common errors the ATO’s automated systems detect.
• 
  WFH hours estimates: the ATO no longer accepts representative or estimated hours. You must have an actual record of every hour worked from home kept contemporaneously (timesheet, calendar, roster). Reconstructed records fail the substantiation test.
• 
  Car expense overclaims: for 2025-26, the cents-per-kilometre rate is 88 cents per km (not 85 cents as in earlier years). The ATO specifically targets taxpayers who automatically claim the maximum 5,000 km regardless of actual travel. Claims that look round or estimated attract review.
• 
  $300 threshold misuse: the $300 no-receipt threshold does not mean you can claim $299 without spending anything. You still need to have genuinely incurred the expense. The ATO is specifically targeting claims made without any actual expenditure.
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  "Pub test" failures: the ATO has specifically flagged household appliances (air fryers, coffee machines, kitchen gadgets), personal expenses (commuting, childcare, gym memberships), and general clothing as areas of overclaiming. These are not work-related, regardless of how they are framed.

For the full working from home deduction rules, including what the 70c rate covers and what can be claimed separately, see our ATO working from home expenses guide.

2. Rental Property Claims

The ATO reports that more than 90% of rental property schedules contain errors. This is not primarily about deliberate fraud; it reflects widespread misunderstanding of what is and is not deductible, and how mixed-use properties must be apportioned. The ATO is cross-matching rental schedules against bond lodgment data from state authorities, bank records, and data from short-term rental platforms.

The most common errors the ATO identifies in rental property claims:

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  Repairs vs capital improvements: a repair restores the property to its original working condition and is immediately deductible. A capital improvement enhances the property beyond its original condition and must be depreciated over its effective life. Replacing a broken tap is a repair. Replacing an entire bathroom is a capital improvement. This distinction is consistently confused.
• 
  Interest on mixed-use loans: if you refinanced your investment loan to access equity for personal use, only the portion of interest relating to the investment property is deductible. The personal-use portion is not. Claiming 100% of interest on a mixed loan is the single most common rental property error.
• 
  Holiday homes and genuine availability: a rental property deduction requires the property to be genuinely available for rent. A holiday home that was occupied by the owner for several weeks and listed at above-market rates during peak season does not meet the test for those periods.
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  Short-term rental income: Airbnb, Stayz, and similar platforms now report income data directly to the ATO. Undeclared short-term rental income is cross-matched against lodged returns. All income from short-term rental arrangements must be declared, including platform fees charged to guests that flow to the host.

For property investors, the 2026 Federal Budget also introduced negative gearing restrictions on established residential properties purchased after 7:30 pm AEST on 12 May 2026. From 1 July 2027, losses on these properties can only be offset against rental income, not salary. This applies to the 2026-27 return, not the 2025-26 return, but investors affected should begin planning now. Our rental property tax return guide covers both the current rules and the incoming changes.

3. Cryptocurrency and Digital Assets

The ATO estimates that between 500,000 and one million Australians hold cryptocurrency. It is collecting bulk records from cryptocurrency exchanges (designated service providers) covering purchase and sale data, wallet addresses, and transaction histories. This data is matched against individual tax returns to identify undeclared gains or losses.

What the ATO expects to see declared:

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  CGT on disposals: selling crypto, exchanging one crypto for another, and using crypto to purchase goods or services are all disposal events that trigger a CGT calculation.
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  Staking and DeFi income: rewards from staking, yield farming, and DeFi liquidity provision are assessed as income at the time they are received, at the AUD value on the date of receipt.
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  Airdrops: ordinary income if received in return for services; CGT asset on disposal if acquired through a fork.
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  NFT transactions: buying, selling, and creating NFTs can have both income tax and CGT consequences depending on the nature of the activity.

The ATO’s position is that very few crypto activities are tax-free. Even if you reinvested all gains and never withdrew to fiat currency, each exchange between crypto assets is a taxable event. For specialist cryptocurrency tax advice, see our cryptocurrency tax services in Adelaide.

4. Sharing Economy and Gig Income

Uber, Airbnb, Airtasker, Fiverr, Deliveroo, DoorDash, and similar platforms now report income data directly to the ATO. This data-matching means there is no effective gap between what you earned through a platform and what the ATO knows you earned. Undeclared platform income is one of the most reliably detected forms of underreporting.

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  Rideshare and delivery: all income from Uber, DiDi, Ola, Deliveroo, and similar services is taxable business income, regardless of how few hours you drive or deliver.
• 
  Task-based work: Airtasker, Fiverr, and similar platforms. Occasional task income still must be declared.
• 
  Short-term property rental: Airbnb, Stayz, and holiday letting. Platform income data is matched against rental schedules.
• 
  Etsy and online selling: the ATO receives data from online marketplaces. Casual selling of new goods for profit is income; selling personal items is generally not.

If you earned any income through these platforms and did not receive a payment summary or ABN-based invoice trail, the platform is likely already reporting your income to the ATO.

5. Unreported Income and Foreign Income

The ATO’s data matching program now extends internationally through tax information exchange agreements with over 100 jurisdictions. Foreign income from employment, investments, pensions, and business activity must be declared in Australian tax returns by Australian residents, regardless of whether tax was paid in the country where the income was earned.

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  Foreign employment income: wages and salary from overseas employers, including income earned while working abroad on a temporary basis.
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  Foreign investment income: dividends, interest, and rental income from overseas accounts and properties.
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  Foreign pensions: pensions received from foreign governments or super schemes are generally assessable income in Australia
• 
  Offshore bank accounts: the ATO participates in the Common Reporting Standard (CRS), under which foreign banks automatically report Australian residents’ account balances and interest to the ATO.

Multiple jobs from different employers are another common omission. All employment income from all employers during the year must be declared, even if the second job only lasted a few weeks or paid a small amount.

6. Vehicle and Car Expense Claims

The ATO scrutinises vehicle claims closely, particularly the cents-per-kilometre method. The 2025-26 rate is 88 cents per kilometre for up to 5,000 km of work-related travel. Specific red flags:

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  Automatic maximum claims: taxpayers who claim exactly 5,000 km every year, regardless of their actual travel, are a consistent ATO focus. The ATO matches vehicle claims against the nature of the taxpayer’s occupation and the distance patterns of their employer records.
• 
  Commuting counted as work travel: the trip from home to your regular workplace is not deductible, even if you start work at home before you leave. Only travel between workplaces or to sites other than your regular place of work qualifies.
• 
  Logbook method without a logbook: claiming a high business-use percentage without a current, valid logbook (maintained for a minimum 12-week period within the last 5 years) fails substantiation.

7. Early Lodgment Errors

This is not a deduction issue; it is a lodgment timing issue. Taxpayers who lodge in the first days of July before all pre-fill data is loaded into myTax are the most likely to submit returns with missing income. The ATO receives data progressively from employers, banks, Centrelink, and health funds throughout July and into August. The ATO recommends waiting until your income statement shows "Tax ready" in myGov before lodging.

Early July lodgments that miss pre-filled income are twice as likely to be flagged for correction. Fixing an already-lodged return delays your refund and can attract ATO attention that a clean return would not.

ATO Focus Areas for Small Businesses in 2025-26

1. Cash Economy

Businesses that operate with significant cash transactions remain a priority. The ATO uses industry benchmarks to identify businesses whose reported income is substantially below the median for their industry, location, and business size. Businesses in hospitality, construction, and personal services are specifically targeted. If your reported income is significantly below the ATO’s benchmark for your sector, expect scrutiny.

2. Division 7A Loans

Private company owners who take informal loans from the company, use company money for personal expenses, or fail to formalise Director loan agreements under Division 7A of the Income Tax Assessment Act 1936 remain a specific ATO focus. The 2025-26 Division 7A benchmark interest rate is 8.37%. Any informal loan from a company must be documented with a compliant loan agreement at or above this rate, or the amount is treated as an unfranked deemed dividend.

3. TPAR (Taxable Payments Annual Report)

Businesses in construction, cleaning, courier, road freight, IT services, security, labour hire, and several other industries are required to lodge a Taxable Payments Annual Report (TPAR) by 28 August each year. The TPAR reports all payments made to contractors with an ABN. The ATO cross-matches TPAR data against contractors’ lodged returns to identify contractors who are not declaring the income they received.

If you engage contractors and have not lodged TPAR, or if your TPAR is incomplete, this is an active ATO enforcement area. The ATO can impose penalties for failure to lodge TPAR.

4. GST Compliance and Refund Fraud

The ATO’s Operation Protego has specifically targeted GST refund fraud involving false or exaggerated invoicing, mismatched accounting methods, and fraudulent refund claims promoted through social media. The scheme resulted in multiple criminal prosecutions. The ATO is continuing to flag suspicious GST refund patterns, particularly where refund amounts are inconsistent with a business’s turnover profile.

How the ATO’s Data Matching Program Works

The ATO’s automated compliance system is built on pre-loaded data from hundreds of third-party sources. The following table shows the main sources the ATO uses to cross-check your lodged return.

How to Reduce Your Risk of ATO Review

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  Wait for 'Tax ready' in myGov: do not lodge until your income statement shows Tax ready and all pre-fill is confirmed. Mid-August is typically when most data is complete.
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  Keep contemporaneous records: whether for WFH hours, vehicle kilometres, or rental property expenses, records must be created at the time you incur the expense or perform the activity. Reconstructed records after the fact do not meet the ATO’s substantiation requirements.
• 
  Apply the private-use test to every deduction: for every expense you claim, ask whether it has any private use component. If it does, you must apportion the claim. Claiming 100% of a mixed-use expense is a common audit trigger.
• 
  Declare all income from all sources: the ATO’s data-matching program covers virtually every form of Australian-source income and an increasing range of foreign income. Omissions are detected reliably, not randomly.
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  Understand repairs vs capital improvements: for rental property owners, this distinction is the most frequently misapplied rule in the tax return. If you are unsure, ask your tax agent before you claim.
• 
  Do not claim without spending: the $300 no-receipt threshold requires you to have actually spent the money. The ATO specifically targets claims made at exactly the threshold level without genuine expenditure.
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  Lodge through a registered tax agent: returns lodged by registered agents have a significantly lower error rate than self-lodged returns. Your agent can apply their knowledge of ATO focus areas to review your deductions before lodgment.

How The Kalculators Can Help

Our registered tax agents work with individuals, rental property investors, cryptocurrency holders, and small business owners on tax returns that minimise ATO risk without leaving legitimate deductions unclaimed.

We review every deduction against the ATO’s current focus areas before lodging. We also have access to the extended agent deadline (typically 15 May 2027 instead of 2 November 2026), meaning you do not need to rush your return. If you have already lodged and are concerned about errors, our second look assessment service reviews your return and lodges an amendment to recover additional deductions or correct errors before the ATO raises them.

Call (08) 7480 2593, Monday to Friday, 9:00 AM to 6:00 PM. Offices at 182 Salisbury Highway, Salisbury; 315 Prospect Road, Blair Athol; and 280 Main South Road, Morphett Vale. Online services for Murray Bridge, Woodville, Melrose Park, Port Augusta, Prospect, and Brighton via info@thekalculators.com.au.