The Cessna 210N - an aircraft not approved for intentional spinning - took off from Goolwa Airport, south of Adelaide, on February 6.
Twelve minutes into the flight, the single-engine plane entered a steep spiral and crashed into the ocean near the Murray River mouth.
The crash killed instructor Leo Howard, 53, from Morphett Vale, Tristan Scheffers, 18, of Freeling, and a 20-year-old Pasadena man.
The Australian Transport Safety Bureau said the instructor had a history of spin activity violations in the aircraft, from which he had previously successfully recovered before the spin fully developed.
"This likely gave the instructor the confidence to begin spins at progressively lower heights," ATSB chief commissioner Angus Mitchell said.
A witness used their mobile phone to record footage "presuming the aircraft was a 'stunt plane'", the report said.
"Given that the video evidence indicated the aircraft was recovering from the spin just prior to the collision, it was likely that it could have been recovered if the instructor had not lowered the entry height they were using."
The crash site was at a popular fishing spot where the Murray River meets the Southern Ocean.
One of the two younger men held a commercial pilot licence, while the other held a recreational pilot licence.
The flight was intended to give the commercial pilot experience in the Cessna under the supervision of an instructor.
The investigation found the commercial pilot likely mishandled the recovery during the early developing stage of the spin.
Mr Howard did not intervene in time to prevent the spin becoming fully developed and recover the aircraft, the report found.
His previous spin activity violations had not been reported to the aircraft operator or the Civil Aviation Safety Authority and, as a result, no action had been taken.
"Other pilots who knew about the unauthorised spins were reluctant to report them, including because they felt powerless to act or believed it was not their responsibility," Mr Mitchell said.
"This highlights the importance of designing and promoting reporting systems that recognise and address barriers to reporting unsafe flying practices."
