There is a lot of guesswork online about the ATO using artificial intelligence to catch people out. Some of it is exaggerated, and some of the numbers being repeated have no public source at all.
This guide sticks to what the ATO itself says in its AI transparency statement and data-matching pages, and what the Australian National Audit Office found when it audited the ATO use of AI. It applies to 2025-26 returns being lodged now and the 2026-27 year. We have removed unsourced claims and statistics from the earlier version of this article.
It is for individuals and small business owners who want to understand how their return is checked. If the ATO has already contacted you, read our guide on what to do when the ATO is reviewing your return.
Key takeaways
- The ATO says it uses AI for compliance and fraud detection, including risk models that flag returns for human review.
- It says decisions that adversely affect taxpayers will always be made by a human.
- The ANAO found that, as of May 2024, the ATO had 43 AI models in production and rated its AI arrangements partly effective.
- The ATO runs published data-matching programs, from ride sourcing to crypto assets.
- Tax time nudges in myTax prompt you when an amount differs from what is expected.
- Leaving out income or overclaiming can lead to a shortfall penalty from 25%.
What the ATO says about AI at a glance
| Area | What the ATO says |
|---|---|
| Definition | Machine learning, deep learning and generative AI; rules-based analytics are not counted as AI |
| Service delivery | Real-time prompts, payment reminders, the virtual assistant Alex |
| Compliance and fraud | Risk models that flag potential non-compliance or fraud for human review; identity crime alerts |
| Decisions | Adverse decisions always made by a human; review rights kept |
| Accountable official | Chief Data Officer |
| Statement updated | 27 July 2026 |
Source: ATO AI transparency statement and ANAO Report No. 26 of 2024-25, checked 9 October 2026.
Does the ATO use AI to check tax returns?
Yes, in a limited and stated way. The ATO AI transparency statement says it uses AI for analytics for insights, image processing, workplace productivity, and decision making and administrative action. In compliance and fraud detection, it lists reviewing large volumes of unstructured data, risk models that flag potential non-compliance or fraud for human review, and alerts on lodgments suspected of identity crime.
The ATO also says it does not count rules-based analytics, often simple if-then checks, as AI. Much of what people call AI checking is ordinary data matching, which the ATO has done for many years.
Are decisions made by a computer?
The ATO says decision making that adversely affects taxpayers will always be made by a human, that it maintains appropriate human oversight, and that your review rights apply regardless of the technology used. In practice, a system may flag your return, but an officer decides whether to contact you or change your assessment.
What are tax time nudges?
One example the ATO gives is tax time nudging. When you enter an amount in myTax that is different from what is expected, based on comparable taxpayers and your prior years, a prompt appears. You can review the amount and change it before lodging. Our article on ATO tax time warning letters explains nudges and letters in more detail.
A nudge is not an accusation. If your claim is correct and you have records, you can keep it. If you are unsure, check the evidence before you lodge.
What data does the ATO match against your return?
The ATO pre-fills returns with information from employers, super funds, government agencies, health funds, banks and share registries, plus anything you upload through myDeductions. Most organisations report by late July. The ATO says you should check pre-fill against your own records and, if data does not match, it may ask you to clarify.
Separately, the ATO runs data-matching programs, each with a published protocol. Examples include:
| Program | What it may reveal |
|---|---|
| Ride sourcing | Income from driving through ride-sourcing platforms |
| Sharing economy accommodation | Income from short-term rentals |
| Online selling | Sales through online marketplaces |
| Share transactions and crypto assets | Disposals that may give rise to capital gains |
| Rental bond, property management, real property transactions | Rental income and property sales |
| Motor vehicle registries and lifestyle assets | Assets that may not fit reported income |
The ATO says it follows the Privacy Act 1988, tax secrecy laws and the Australian Information Commissioner guidelines on data matching. If you trade crypto, our crypto tax guide covers reporting. Business owners should also read our post on GST audit triggers.
What did the ANAO find about ATO use of AI?
The Australian National Audit Office examined the ATO arrangements in Governance of Artificial Intelligence at the Australian Taxation Office, Auditor-General Report No. 26 of 2024-25. Its findings included:
- As of 14 May 2024 the ATO had 43 AI models in production, all built in-house.
- As of August 2024, 32 of 43 models (74%) had no completed data ethics assessment, which the ATO framework required.
- Arrangements for governance, design and monitoring of AI were partly effective.
- The ANAO made seven recommendations and the ATO agreed to all of them.
The ATO transparency statement, updated in July 2026, says it has since released a standalone AI policy for staff and complies with the government AI policy. For a broader view of technology in practice, see our article on how AI is changing accounting in Australia.
Worked example: income missed from a return
Sam earns $70,000 in wages in 2025-26 and also drives for a ride-sourcing platform. He declares $8,000 of driving income but the platform data shows $12,000. The ATO runs a ride sourcing data-matching program, so the $4,000 gap is likely to be noticed.
Extra tax: Sam is in the 30% bracket for 2025-26, per the ATO resident tax rates, plus the 2% Medicare levy. $4,000 x 32% = $1,280.
If the ATO found the error and decided Sam failed to take reasonable care, the base penalty would be 25% of the shortfall: $1,280 x 25% = $320, plus interest.
If Sam amends first, he still pays the $1,280, but the penalty is generally reduced because he made a voluntary disclosure.
Rule of thumb: Assume the ATO already knows about any income paid to you through a bank, employer, platform or registry. Declare it all, and keep records for every deduction.
What should you do if the ATO contacts you?
Read the letter carefully and work out exactly what is being queried. Gather the records for that item and respond by the due date. If you find an error, an amendment is generally available for 2 years for most individuals, per the ATO time limits page.
Shortfall penalties are 25% for failing to take reasonable care, 50% for recklessness and 75% for intentional disregard, per the ATO penalties page. In 2026 the ATO said its focus areas include work-related deductions and omitted income, and that it uses data and analytics to identify over-claimed expenses and GST credits. The ATO also explains how its audits work, and our post on what triggers a tax audit covers common flags.
Common mistakes when the ATO has data on you
- Lodging before pre-fill is complete: most data arrives by late July.
- Accepting pre-fill without checking: third-party data can be wrong.
- Ignoring a myTax prompt: check the claim and your records before lodging.
- Leaving out platform or cash income: data-matching programs cover many platforms.
- Believing unsourced claims online: rely on what the ATO and ANAO publish.
FAQ about the ATO and AI
Does the ATO use AI to audit tax returns?
The ATO says it uses AI in compliance and fraud detection, including risk models that flag potential non-compliance or fraud for human review. It says decisions that adversely affect taxpayers will always be made by a human. So AI can help select returns for a closer look, but an ATO officer decides whether to adjust a return.
What data does the ATO match against my return?
The ATO pre-fills information from employers, super funds, government agencies, health funds, banks and share registries. It also runs published data-matching programs, including online selling, ride sourcing, sharing economy accommodation, share transactions, crypto assets, rental bonds and property transactions. Each program has a protocol explaining what data is collected and why.
What is a tax time nudge in myTax?
The ATO describes tax time nudging as prompts in myTax that appear when an amount you enter is different from what it expects, based on comparable taxpayers and your prior years. You can review the amount and change it before you lodge. A nudge is not an audit, but you should only keep a claim you can support with records.
Can the ATO computer systems get it wrong?
Yes. Pre-fill data comes from third parties and can contain errors, and the ANAO found in 2025 that the ATO had not completed data ethics assessments for most of its AI models. If you believe data is wrong, contact the organisation that reported it, keep your evidence, and use your review and objection rights.
What should I do if I left income out of my return?
Lodge an amendment as soon as you can. For most individuals, the amendment period is generally 2 years from the day after your notice of assessment. Telling the ATO about an error before it contacts you generally reduces any penalty. A registered tax agent can lodge the amendment for you.
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Talk to a registered tax agent
If the ATO has queried your return, Nanak Accountants can review the issue, prepare your response and lodge any amendment. Call 1300 626 258, book a 15-minute discovery meeting, see our tax audit assistance service or visit our home page.
This article is general information only and is not personal tax or legal advice. Figures and rules were checked against the ATO AI transparency statement, data matching, pre-fill, penalties and amendment pages, ATO media releases and ANAO Report No. 26 of 2024-25 on 9 October 2026. Rates and thresholds change, so confirm the current position before acting.
