The ATO's 2026 Hit List: Data Matching, Side Hustles and Dodgy AI Advice

The ATO has stopped waiting for you to make a mistake. It now uses data matching, artificial intelligence and third-party reporting to find errors before most people even realise they have made one. And this year it added a new warning to the list: do not get your tax advice from a chatbot.

The pre-fill data has settled and most people are now thinking about lodging, so here is the ATO's hit list for Tax Time 2026.

What the ATO already knows about you

The topics on the watch list have not changed. The scale has. The Tax Office says plainly that it is no longer relying on taxpayers to get it right, and it receives data from employers, banks, share registries, government agencies, crypto exchanges and digital platforms. Income, investments, rental transactions, trust distributions and gig economy earnings are all cross-checked before you even open your return. The old logic of it is only small, nobody will notice does not work anymore.

The two areas under the microscope

The ATO has named two focus areas this year: work-related deductions, and omitted income. More than ten million Australians claim work-related deductions annually, and most errors are honest misunderstandings. But the ATO has warned anyone tempted to round their numbers up not to assume an inflated claim will fly under the radar.

The claims drawing attention are private costs dressed up as work costs. Everyday clothing, meal deliveries, gifts, childcare, and anything with only a loose connection to the job. People rarely get into trouble over one big claim. It is usually a collection of small ones that do not stack up.

Every claim has to clear the same three tests. You paid for it yourself and were not reimbursed. It relates directly to earning your income. And you have a record to prove it. All three, not two out of three.

Claiming too little is a problem too

There is a myth that the ATO only wants you to claim less. Not so, and the Tax Office said as much this year. Plenty of people underclaim because they do not know what is available for their occupation. The ATO's own examples include guard dog costs for security workers, sun protection for fitness professionals training clients outdoors, and professional-grade tools for tradies and beauty professionals. If you have never checked the guide for your line of work, start there.

Working from home is now 70 cents an hour

The fixed rate rose to 70 cents for every hour you worked from home, up from 67 cents. That rate bundles electricity and gas, home and mobile internet, phone usage, stationery and computer consumables. Which brings us to the mistake the ATO says it sees constantly: claiming the fixed rate, then claiming your phone and internet separately on top. You cannot. They are already inside the 70 cents.

You can still separately claim the decline in value of equipment such as your laptop, desk and chair, repairs to those items, and cleaning if you have a dedicated home office. The records are where most people come unstuck. The ATO wants your actual hours kept as you go, in a diary, timesheet or roster, not a number you work backwards to the night before you lodge. And if you are an employee, you generally cannot claim occupancy costs such as rent, mortgage interest or council rates.

Your side hustle is not invisible

Under the sharing economy reporting rules, platforms send your earnings straight to the ATO. Ride share and food delivery, short-term accommodation such as Airbnb and Stayz, Airtasker, Etsy and plenty of others. There is no minimum threshold at all. If your Etsy store made $300 last year, it is still assessable income. In most cases the ATO has the number before you lodge, which turns your return into a matching exercise rather than a disclosure.

What about the defence that it is a hobby, not a business? It is a real distinction, but no dollar figure flips you from one to the other. The ATO looks at whether you intend to make a profit, whether the activity is regular and repeated, whether you operate in a business-like way with pricing and records, whether you advertise, and the scale of it. If it is a business, you generally need an ABN. There is a real sting if you do not have one, because a business paying you without an ABN may have to withhold 47 per cent.

Rental properties and crypto

The ATO's random enquiry program found nine out of ten returns reporting rental income contained at least one error, and most of those people had used a registered tax agent. The usual culprits are apportioning interest, telling a repair from a capital improvement, and borrowing expenses. Holiday homes and mixed-use properties are new on the list, with the ATO looking harder at places claimed as available for rent that the owner also uses.

Crypto is the most misunderstood item on the list. The assumption is that nothing is taxable until you cash out into Australian dollars, and that is not how it works. Swapping one crypto for another is a disposal and a capital gains event, even though no dollars hit your bank account. Staking rewards are income, and the ATO receives exchange data extensively.

Do not get your tax advice from a chatbot

This one is new for 2026. The ATO has warned specifically about people taking tax advice from artificial intelligence, placing it alongside finfluencers, social media tips and advice from a mate at a barbecue. The concern is that AI draws from a broad and inconsistent range of sources, so it may be quoting tax law from another country or a rule that changed three years ago.

It is not that AI is banned. It is that you stay accountable for whatever ends up on your return, no matter where the advice came from. The reliable sources are the ATO website, the ATO app, or a registered tax professional who is on the hook for the answer.

The $1,000 deduction everyone is asking about

Here is the most important sentence in this article. The $1,000 instant deduction does not apply to the tax return you are lodging right now. It starts from the 2026-27 income year and first appears on the return you lodge from July 2027.

When it arrives, it is a standard deduction of up to $1,000 for work-related expenses without receipts, applied automatically if you are eligible. It covers Australian residents earning assessable labour income such as salary and wages, director fees, termination payments and parental leave pay. It does not apply to business or dividend income, so sole traders miss out on this one.

The part that trips people up is that it is not on top of your normal claims. Your standard deduction is reduced by the work-related expenses you actually claim, so treat it as a floor rather than a bonus. If your real expenses exceed $1,000 you claim the real amount and need records for the whole lot. Union fees and professional association memberships are the two exceptions that sit outside it.

What to do before you lodge

Declare everything, including every job, platform, bit of bank interest and dividend, and assume the ATO already has the number. Claim what you are entitled to and no more. Fix your records now rather than next June, using the myDeductions tool in the ATO app. And if you think you have overclaimed in a previous year, lodge an amendment rather than sitting on it, because coming forward voluntarily always puts you in a better position.

One date to keep in mind. If you lodge your own return it is due by 31 October. With a registered tax agent you generally get much longer, often into the following May, but you need to be on that agent's books before 31 October to get the extension.

Get it right the first time

The ATO already has the numbers. The job is making sure yours match.

If you would like the team to look at yours, whether that is this year's return or amending an earlier one, book a consultation with our team. Our Perth tax accountants work with individuals and small businesses right across Australia, and you can listen to the full episode on The Aevum Accounting Podcast.

Prefer to listen? We covered this in The ATO's 2026 Hit List: Data Matching, Side Hustles and Dodgy AI Advice, episode 52 of the Aevum Accounting Podcast.

The information in this article is general in nature and does not take your personal circumstances into account. Tax laws are complex and change often. For advice tailored to your situation, speak to a qualified professional at Aevum Accounting.