Freedom of Information documents show ATO management has warned staff falsifying their working hours or slacking off could be considered fraud.
"You might have seen it before," the all-staff memo starts.
"A colleague makes a habit of taking long lunches; or regularly leaves early; or spends the first hour at work eating breakfast and reading the paper … or all of the above.
"Maybe they just lose track of time, or are careless rather than acting deliberately. Maybe there are indeed reasonable explanations.
"Or perhaps your suspicions are correct and they're simply not recording their working hours appropriately."
The ATO memo, sent in December, went on to say staff had an obligation to report possible fraud to investigators, who would check if that long lunch break was authorised.
It noted staff may feel uncomfortable dobbing in their colleagues, and it offered assurances their reports would be treated as confidential.
"When a report is made, it will be looking into but it doesn't prejudge the outcome," the memo said.
"If there are reasonable explanations, these will be identified. If there aren't, appropriate action will be taken.
"[This] has resulted in sanctions under the code of conduct, a requirement to work off the hours inappropriately claimed, and a record of the matter being placed on the person's record."
The memo also showed an attempt to monitor flex-time in the public service — when staff take leave based on overtime.
The crackdown on working hours was not unique to the tax office, which has been urging compliance for many years.
Many government agencies have been trying to improve workplace flexibility, acknowledging it can improve productivity and workplace culture.
Australia Services Union tax branch secretary Jeff Lapidos said the ATO's memo undermined that effort.
"It is completely unproductive," he told the ABC.
"Instead of relying on managers having a good relationship with their staff … it relies on staff dobbing in people they don't like," Mr Lapidos said.
"It goes against the culture that I thought the tax office was trying to develop of staff working together to help administer the tax system."
Mr Lapidos said staff would often have no idea whether their colleagues had approved their absence with the boss.
"You're jealous because someone else is away from work, you don't know why and are not in a position to find out why, and because you don't like it you dob them in." Mr Lapidos said.
An ATO spokeswoman told the ABC the vast majority of staff were entering their hours correctly.
"Integrity is everyone's business and we continually raise awareness of integrity matters with staff," she said.
"The ATO has an enduring focus on delivering communication and education initiatives to ensure staff are aware of their obligations.
"We encourage all our staff to raise any workplace concerns with their manager. This includes irregular work patterns of colleagues."
