Written by Tax audit insurance is a form of business insurance which covers you for unexpected costs associated with responding to a compliance audit, or the audit of a tax return you’ve lodged with the Australian Taxation Office. Such audits can be conducted by the ATO up to a maximum of five years from the date you lodged your tax return.
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What does tax audit insurance cover?
This insurance covers the costs associated with responding to an audit request. This can involve employing a tax agent, accountant or another financial professional to assist you with your audit response.Â
It isn’t only tax returns that can be subject to a compliance audit. Tax audit insurance can also cover your business for the following issues: Â
- BAS and GST claimsÂ
- Tax withholding amountsÂ
- Superannuation deductionsÂ
- JobKeeper allowancesÂ
- Stimulus package applications Â
- Cash flow boosts delivered to businesses as credits by the Australian government due to COVID-19Â
For example, a personal and fitness trainer was informed she was subject to an ATO audit. She was required to produce three years’ worth of income statements and, at the end of the three-month process, was presented with a $6,500 bill from her accountant. Her audit insurance covered this cost. Â
If you’re subsequently charged with an offence following the audit, there may be additional costs incurred to hire a lawyer to defend yourself or your company against any allegations. All such professional fees may be covered by tax audit insurance.Â
What does tax audit insurance not cover?
Some of the areas not covered by tax audit insurance include:Â
- the cost of your time taken to respond to the auditÂ
- the cost of your employees’ time and wagesÂ
- the cost of any lost opportunities or reduced income as a result of responding to the auditÂ
- any fines or additional taxes imposed as a result of the auditÂ
Therefore, if you do receive the dreaded phone call or letter from the ATO saying you are going to be audited, it makes sense to employ professionals to assist your business to respond to audit requirements, as their fees will be covered by your insurance.Â
For example, a business in Darwin received a phone call from the ATO saying that some of its casual employees had complained about too much tax being withheld from their wages. The owner was required to produce documentation for the past two years showing all wages paid to all casual workers, with details of tax withheld, and had to employ a tax agent for three weeks to assemble all this data. Luckily, they had tax audit cover included as part of their small business insurance package, so this covered the entire cost of hiring the tax agent.Â
How much will tax audit insurance cost my business?
This will depend on what level of cover you choose to take out, with most insurers offering cover ranging from $10,000 to $50,000. The following factors will also influence the level of coverage you may need:Â
- The size of your businessÂ
- The turnover of your businessÂ
- How many people you employÂ
- How many business locations you haveÂ
- The complexity of your business structureÂ
Naturally, the more complex your business structure and the larger your company is, the more costly a potential audit could be and the higher the level of cover you may need. Â
In determining what level of cover is appropriate for your particular situation, consider how much it could cost you to comply with audit requirements. Professional fees for accountants can be anywhere from $300 an hour upwards, depending on the level of professional assistance you’ll require, so they can quickly add up if you require many hours of work to comply with audit requirements.
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More of your questions about tax audit insurance
Yes – all companies, large and small, can be the subject of a tax or compliance audit. The tax office also audits private individuals, charities, self-managed super funds, trusts and churches.
Yes – the cost of both your business insurance premiums and any excess you have to pay if you make a claim are tax-deductible in your next year’s tax return.
This will depend on whether you have a no-claims bonus that is applied to your insurance policy. If you do have to make a claim, you will lose any no-claims bonus which is applied to your policy, which may increase the cost of your insurance.
Yes – it’s compulsory to comply with audit requirements, and not doing so can result in charges being laid. The ATO has extensive powers under Australian law, including:
- Notice powers – which require you to give the information or produce the documents requested
- Access powers – which gives the ATO full and free access to homes, offices, filing cabinets, books, records and computers. Failure to allow free access or an attempt to block access can result in charges being laid
Yes – if you have current tax audit insurance and are informed you’re going to be subject to an audit, you can claim any costs incurred for professional fees on your insurance policy.
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