The ATO paid $2 billion to a TikTok scam. Now its AI is reading the receipts on your tax return

The Australian Taxation Office is running artificial intelligence over tax returns as millions of Australians lodge them this tax time, and its own published documents show the systems reach much further than the gentle nudges it described this week. The office has built AI that reads the receipts behind deduction claims and ranks them for auditors, it matches returns against hundreds of millions of third party records a year, and it can override figures you change in your own return.

ATO assistant commissioner Anita Challen told The Australian today that much of what people assume is AI is the office's older data matching, and that the machine learning it does run is there to help people lodge correctly.

"Where we do use AI as machine learning is to spot patterns and help people get it right," Ms Challen said. "For example, if a claim looks a bit unusual compared to similar taxpayers, we might send a prompt asking you to check it before you lodge."

Chartered Accountants ANZ group executive Geraldine Magarey told the same paper the technology now catches a share sale left off a return, unusually high deductions, and income that doesn't match what third parties report.

"The era of the creative tax return is largely behind us," Ms Magarey said. "Dodgy claims still happen, but the odds of one slipping through are far lower than they used to be."

The ATO's own AI transparency statement, updated on 27 July, goes further than either of them. It says the office's data and analytics program "makes it easier for taxpayers to comply and harder not to", and it lists compliance and fraud detection, law enforcement, intelligence and security among the domains where AI is already working. Every myID account is scanned and risk scored by AI, and the prompts inside myTax fire when your claim doesn't match "other taxpayers with similar attributes".

Andrew Watson says an AI assistant sorts the receipts and tells auditors where to look first

The clearest account of how far the systems go came from the ATO itself, in a speech deputy commissioner and chief data officer Andrew Watson gave to the Australian Government Data Summit in Canberra on 22 April. The ATO now runs AI that scans receipts, invoices and other documents supplied to back up work expense claims, pairs each document with the deduction it supports, and puts them in a suggested order for an auditor to assess.

"Rather than staff having to sort through a randomly organised digital shoebox, they have an AI assistant that organises and prioritises documents, saving time and making it easier for them to assess the claims," Mr Watson said, adding that the tool "asks for feedback and continuously learns from how it did".

Mr Watson said the validity of deduction claims is still determined by auditors, and he called the ATO's data holdings "a national asset". He told the summit that Microsoft Copilot was rolled out across the office's staff during 2025, that its executive has prioritised 7 enterprise AI use cases covering case profiling, triage of taxpayer requests and drafting of position papers, and that "Agentic AI is the next frontier". Agentic AI means systems that carry out tasks on their own rather than waiting for a person's instruction at each step.

Your bank, your employer and your crypto exchange all report in, and prefill can be forced back

The data feeding those models is set out on the ATO's data matching page. More than 600 million transactions are reported to the office every year by banks, employers, motor vehicle registries, state title offices, share registries, online selling platforms, sharing economy platforms, AUSTRAC and cryptocurrency exchanges. That information is matched against your return when you lodge it and again after your assessment, and it's the source of the more than 100 million pieces of information the office prefills into returns each year.

The same page states plainly that the office can overrule what you type into your own return.

"If you change pre-filled data when you lodge your tax return, we may adjust it back if we have a high level of confidence in the information we've received," the ATO says.

Crypto investors sit under the heaviest version of this. Under a data matching program registered with the privacy regulator, exchanges hand the ATO purchase and sale records covering an estimated 700,000 to 1.2 million individuals and entities every financial year, and the office keeps that data for 7 years, 2 years longer than most of its other programs. Chartered Accountants ANZ says 1 in 3 Australians now own digital assets, so a disposal you forgot about is very likely already sitting in the office's systems as a capital gains event.

The auditor general rated the ATO's AI governance only partly effective

The confidence the ATO projects about its AI isn't shared by its auditor. The Australian National Audit Office examined AI governance at the tax office and concluded in a February 2025 report that the ATO had only "partly effective" arrangements for adopting the technology. The audit found the office hadn't established AI specific risk management, and 74% of the AI models it had in production had no completed data ethics assessment, despite the ATO having a data ethics framework that calls for them. The ANAO made 7 recommendations and the ATO accepted every one.

Canberra is also tightening the law around this. From 10 December this year, amendments to the Privacy Act will force agencies and companies that use personal information in automated decision making to disclose in their privacy policies what information is used and what kinds of decisions are automated, and the privacy watchdog consulted on its guidance for the new rules in June.

Up to 150 ATO staff were investigated over the GST scam the office took a year to stop

The ATO's record on catching fraud with technology carries one expensive and recent exception. Between April 2022 and June 2023, more than 57,000 people invented fake businesses and lodged fictitious activity statements in a scheme promoted openly on TikTok, and the ATO paid out about $2 billion in GST refunds before it brought the fraud under control, according to the ANAO. The Commonwealth Fraud Prevention Centre records that as many as 150 of the office's own staff came under investigation for suspected involvement.

The office called its response Operation Protego, and courts were still sentencing participants as recently as April this year. The ATO's account of the episode says it has "sophisticated risk models" and works with banks and law enforcement to detect fraud, which is the same claim now being made for the AI that reviews individual deductions.

You can claim your AI subscription, and the ATO has spelled out the records it wants

The technology cuts the other way on your return too, because taxpayers are claiming AI as a deduction in numbers nobody saw two years ago. Accountants told The Australian in July that paid subscriptions for tools such as ChatGPT Plus and Claude Pro have become one of the fastest growing deductions since lodgment opened on 1 July, as AI spreads through Australian workplaces. Subscriptions run between $30 and $300 a month, so a full year's claim can reach into the thousands.

"Two years ago these deductions were non-existent," Mr Taxman founder Adrian Raftery said, calling the rise "easily the most noticeable spike" of the season.

An ATO spokeswoman told The Australian the rules for claiming it: you must have paid for the subscription yourself without reimbursement, it must be used for your job duties rather than personal interest, and you can only claim the work share of the cost. To back the claim, keep the receipts or invoices, a usage log or diary showing how much of the use was for work, and examples of work tasks you completed with the tool.

The rest of the checklist follows from what the office has already told us its systems look at.

• Declare every source of income, because most of it is already reported to the ATO before you lodge. Ms Challen's list covers all jobs including casual and cash work, government payments, sharing economy and crowdfunding income, foreign income, bank interest, rent, dividends and distributions from partnerships and trusts.
• If you worked from home, the fixed rate for the year ended 30 June 2026 is 70c an hour, and it needs a record of hours kept as you went, such as a diary or timesheets. The rate already covers internet, phone, electricity, gas and stationery, so those can't be claimed again separately.
• Declare crypto disposals before the ATO's letter arrives, because your exchange has already reported the trade.
• Don't overwrite prefilled figures unless you hold records proving yours are right, since the office says it may change them back.
• The subscription itself is deductible when your records support it, but don't let the tool prepare your return.

CPA Australia tax lead Jenny Wong put the last point bluntly when warning taxpayers off using AI for tax advice.

"They don't understand your individual circumstances, and they don't replace professional advice," Ms Wong said. "If you rely on incorrect information and your tax return is wrong, you are the one accountable."

The ATO's transparency statement closes on a commitment that will now be tested against the December disclosure laws and the ANAO's follow up work: "Decision making that adversely impacts taxpayers' rights will always be made by a human." Taxpayers keep a right of review of the office's decisions, and the statement says that right applies regardless of the technology used to help make them.

This article is general information, not tax or financial advice, and it doesn't take your personal circumstances into account. For advice on your own situation, talk to a registered tax agent or the ATO before acting on anything here.