The ATO issues hundreds of thousands of activity statement reviews each year. Unlike a full audit, an activity statement review is typically focused on a specific claim — a GST credit that looks unusual, a GST-free classification that doesn't match the ATO's data, or a BAS figure that differs significantly from prior periods. For most clients, it's a manageable process. For clients with disorganised records, it can be painful.
As a bookkeeper, understanding what triggers reviews, what the ATO will ask for, and how to help clients prepare is part of delivering a professional service. Here's what you need to know.
What Triggers an Activity Statement Review?
The ATO uses a combination of risk models, data-matching, and analytical tools to identify BAS claims that warrant a closer look.
Large or unusual GST credit claims. A business that reports $50,000 in GST-free sales one quarter then claims $30,000 in input tax credits is going to attract attention. The ATO expects GST credits to be roughly proportional to the taxable purchases of the business.
New business with immediate large refund claims. A business that registers for GST and immediately claims a large refund for capital acquisitions is a known fraud risk pattern — and legitimate businesses are caught up in the review process as a result.
Significant variation from prior periods. A business that consistently reports around $8,000 of net GST per quarter and then lodges a quarter showing a $40,000 refund will be questioned, even if the variation is entirely legitimate (for example, a large equipment purchase).
Industry-specific patterns. Some industries have higher rates of non-compliance historically, and the ATO applies higher scrutiny to businesses in those sectors.
Data-matching discrepancies. The ATO receives data from banks, property registries, payment platforms (Stripe, PayPal, Square), and government agencies. If the revenue reported on a BAS doesn't match what the ATO's data sources show, it triggers a review.
What the ATO Will Ask For
In a typical activity statement review, the ATO will contact the client (or their registered agent) requesting supporting documentation for one or more specific claims. Common requests include:
For input tax credits claimed:
- Tax invoices for the purchases underlying the credit claims
- Evidence that the supplier is registered for GST (can be verified via ABN Lookup)
- Evidence that the purchases relate to taxable business activity (not private or exempt use)
For GST-free or input-taxed sales classifications:
- Documentation showing why the sale was classified as GST-free or input-taxed
- For exports: customs documentation, shipping records, evidence the goods left Australia
- For food: product classifications or invoices showing the items sold
For large one-off transactions:
- Contracts, purchase agreements, or settlement statements
- Evidence of delivery or receipt of the goods or services
For new businesses with refund claims:
- Business plan, evidence of business activity, supplier contracts, or customer agreements
- Evidence the business is genuinely operating and the claims are legitimate
How Good Bookkeeping Records Make This Manageable
The difference between a review that resolves in two weeks and one that drags on for three months is almost entirely a function of record quality. When the bookkeeper can pull up a complete, reconciled transaction list with supporting tax invoices attached, the ATO's questions can be answered quickly.
Key record-keeping practices that protect clients in a review:
Retain all tax invoices, not just the totals. The ATO wants to see the underlying invoice for significant GST credit claims. A bank statement showing a $2,200 debit to a supplier doesn't prove the purchase included GST — the tax invoice does.
Match invoices to transactions in the reconciliation. For significant purchases, the invoice should be linkable to the reconciled bank transaction. This is where digital document management (attaching invoices to reconciled transactions) pays off.
Document the GST treatment of unusual items. If a client makes a GST-free sale for a reason that isn't obvious, note it in the records at the time — not retrospectively. An export sale should have the shipping documentation in the file.
Keep records for at least five years. The ATO can review BAS claims up to four years back under the standard amendment period (seven years in cases of fraud). Records should be retained accordingly.
How to Respond to a Review
If a client receives an ATO review request, the registered agent (usually the accountant or BAS agent) should handle the communication. Clients should not respond to ATO queries directly without consulting their agent.
The response should:
- Be prompt (ATO letters typically have a 28-day response window)
- Provide exactly what was requested — no more, no less
- Be supported by complete documentation
- Not volunteer information beyond the scope of the review
If the ATO's review reveals an error — a claim that was made incorrectly — it is almost always better to acknowledge it proactively rather than defend an incorrect position. The ATO is more lenient on genuine mistakes disclosed promptly than on errors discovered during an audit.
When a Review Escalates to an Audit
Most activity statement reviews resolve without escalation. If the ATO is satisfied with the documentation, they close the review and confirm the BAS as lodged (or amend it with the client's agreement if an error was found).
Escalation to a full audit typically occurs when:
- The documentation doesn't support the claims made
- The ATO identifies patterns suggesting systemic non-compliance
- The client is non-cooperative or slow to respond
- The review uncovers issues beyond the original question
A full audit has significantly broader scope — it may cover multiple years and multiple tax types. Prevention through good records and accurate lodgements is far less costly than managing an audit after the fact.
Proactive Measures for High-Risk Clients
For clients whose BAS figures are likely to attract attention — seasonal businesses with large quarterly variations, businesses with significant GST-free supplies, or new businesses with early capital investment — consider proactively documenting the unusual features of each quarter at lodgement time.
A brief note in the client file (or in the correspondence with their accountant) explaining why Q3 shows a large GST refund due to equipment purchases, with the relevant invoice attached, means that if the ATO asks the same question in three months, the answer is already prepared.