iscoverA tax lawyer has urged accountants to be vigilant after a recent slew of covert ATO audits have resulted in out-of-the-blue garnishee notices for business taxpayers.
Beware of covert tax audits, tax lawyer says
10 November 2025
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10 minute read
Andrew Giorgi, a tax lawyer at Perth law firm Smailes Krawitz, said he had observed a recent trend of “covert” ATO audits, where business taxpayers received garnishee notices the same day they were made aware that the ATO was auditing them.
“Recently, we have noticed multiple ATO audits giving rise to dramatic and unanticipated outcomes for business taxpayers,” Giorgi wrote on LinkedIn.
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The covert audits typically followed a similar formula, he observed. The ATO would commence an audit of a business taxpayer without notifying them, raise liabilities, form an opinion regarding culpability for penalty assessments, finalise the audit and notify the taxpayer at the same time as applying a garnishee notice to their bank account.
“The way these play out is the taxpayer will not be aware that they're subject to compliance activity by the tax office. And then at some point they'll be notified by way of a letter that there's been an audit completed,” Giorgi told Accountants Daily.
“That letter will often coincide with the garnishee notice.”
This “covert” audit approach was unusual, he said, and typically reserved for rare scenarios in which taxpayers were suspected of being flight risks.
According to the Inspector-General of Taxation, covert audits “may be undertaken for a number of reasons including where there are connections to organised crime or fraud, or where notification to the taxpayer may risk dissipation of assets before the conclusion of the audit, thereby rendering any assessment moot.”
Giorgi said he had observed heightened ATO activity in recent years, likely to recover the ‘large collectible tax debt book’ that currently exists. The ATO’s 2022–23 tax gap analysis estimated the tax gap to be roughly $58.2 billion, with almost half ($27.2 billion) attributable to small businesses.
“In my opinion we are seeing heightened activity. We are seeing more use of garnishee notices, director penalty notices, court processes to recover debts,” he said.
“And that is certainly heightened from the COVID era, but it might not be particularly heightened compared to some of the trends we saw prior to COVID.”
He said these situations could be difficult for business taxpayers to grapple with, as they often give them little time to prepare and could create cash flow issues.
“Generally, it causes a large degree of stress to the taxpayer, it's quite a shock. And if that [bank] account's gone from being quite healthy and being used to pay employees, contractors, suppliers, day to day expenses. If that's been emptied, there can naturally be a large degree of stress,” he said.
“Not just the stress, it does lead to a cash flow issue. Even for companies that are doing well, if a bank account is emptied, that leads to issues in terms of paying invoices and otherwise. I mean, typically - excluding these scenarios - garnishee notices are used when other attempts to collect the tax debt have failed.”
Giorgio added that findings from covert audits typically had a higher risk of being found incorrect upon objection, as they did not involve the usual exchange of information where the ATO sought data from the taxpayer.
“In a usual scenario that all happens at the review of the audit stage, there's an exchange of information between the ATO and the taxpayer and the ATO then makes a decision. If the ATO doesn't have that exchange, it just makes a decision which could be quite conservative as the amount of tax owed.”
“When the ATO conducts an audit without the taxpayer engaging, they might simply not have all the information or data available to assess the tax. They are acting perhaps reasonably and appropriately, but they're only getting as close as they can to the estimated amount of tax.”
Because of this, Giorgi noted that there was typically a large prospect that substantial amounts of the ATO’s assessment would be overturned when it was disputed, as the ATO did not have all the relevant data when it raised the audit.
He added that this approach was quite severe and could have a dramatic effect on business operations
“What I would say is generally speaking, a same day covert audit is quite a severe approach,” Giorgi said.
“And one would think that it might be appropriate in cases where the ATO understands that there's flight risk or there's a risk that the assets might dissipate or that they're really concerned about the behaviour.
“But unfortunately, when you act for a taxpayer, you don't necessarily know the ATO's motivations.”
To minimise the risk of a same day audit, Giorgi suggested accountants should engage as early as possible with the ATO if they noticed cash flow issues or a potential problem with legal interpretations.
“Early engagement is key. Get to the ATO before they can get to you and you're generally in the best possible position,” Giorgi said.
“In the examples I've seen, engagement with the ATO and explaining the circumstances you're in can often lead to a withdrawal of the garnishee.”
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