Receiving a notification that the ATO is auditing your business’ taxes is stressful enough without having to worry about the professional fees involved in responding to it. The cost of accountants and tax advisers can mount quickly, regardless of whether any discrepancies end up appearing. That’s where tax audit insurance can come in handy, protecting businesses from a costly exercise that’s difficult to predict and impossible to avoid once it’s started.
What is tax audit insurance?
Tax audit insurance is a type of business insurance policy that covers the professional fees incurred when the ATO audits, reviews or investigates your tax affairs. The usual coverage amounts can range from $10,000 to $50,000, which you can adjust based on your business’ needs and situation. Some of the covered costs typically include:
- Accountant and tax agent fees for responding to the audit
- BAS agent fees where applicable
- Legal representation fees where a dispute escalates
- Costs associated with record retrieval and documentation
Being audited doesn't imply wrongdoing; some audits are random, while others are triggered by risk factors such as unusually high deductions, discrepancies between declared income and lifestyle indicators, or industries the ATO has flagged for closer scrutiny. However, the fees involved in responding can add up to several thousand dollars, even if your original return was correct.
What does tax audit insurance not cover?
It's also important to understand what isn’t covered under a tax audit insurance policy before taking one out:
- Any tax found to be owing: if the audit results in an amended assessment, the additional tax owed is your responsibility, regardless of whether you hold audit insurance.
- ATO penalties, interest and fines: charges imposed by the ATO as a result of the audit aren’t covered under any tax audit insurance policy.
- Audits initiated before the policy was taken out: cover only applies to audits and reviews that are initiated after the policy is in place. If you've already received notification of an audit, it's too late to insure against its associated costs.
- Fraudulent or criminal conduct: professional fees arising from audits related to deliberate tax evasion, fraud or other criminal activity are excluded from cover.
- Your time and salary: the time you or your employees spend gathering records, responding to requests and liaising with your accountant isn’t covered.
- Lost business opportunities: any revenue lost or opportunities missed as a result of the time and disruption an audit causes are outside the scope of cover.
Which businesses need tax audit insurance?
Any business can be audited, but some are more likely to attract ATO attention than others. Here are some situations and businesses that may carry a higher audit risk:
- Cash-based and high-turnover industries: hospitality, construction, trades and retail businesses that handle significant volumes of cash are among the ATO's most closely scrutinised sectors. Discrepancies between reported income and industry benchmarks are a common audit trigger in these industries.
- Businesses with complex structures: companies operating through trusts or multiple entities face greater scrutiny due to the additional opportunities for income splitting and tax minimisation that these structures can present.
- Those with consistently high deductions relative to revenue: claiming deductions that are disproportionate to income, whether for vehicles, home offices, travel or entertainment, is a surefire way to attract a closer look from the ATO.
- Businesses that have previously been audited: a prior audit, particularly one that resulted in an amended assessment, increases the likelihood of future reviews.
- Self-managed super funds: SMSFs are subject to their own ATO compliance program and face regular scrutiny around contribution rules, investment strategies and related-party transactions.
- Rapidly growing businesses or those with irregular income: sudden changes in revenue, profit margins or expense patterns can flag as anomalies in ATO data matching and prompt further investigation.
- Sole traders: it's worth noting that the ATO audits sole traders and small businesses as readily as larger companies. Operating as an individual rather than a corporate entity provides no protection against audit risk.
How much does tax audit insurance cost?
Tax audit insurance premiums are typically on the lower end of the scale in terms of cost. You can see the breakdown of average policy premiums through our business insurance partner, BizCover, across different industries here:
| Industry | Average monthly premium |
|---|---|
| Marketing consultancy | $20 |
| Lawyers/solicitors | $24 |
| Accounting service | $25 |
| Alteration/renovation construction | $28 |
| Electrical services | $28 |
| Property development (house construction) | $28 |
| Clothing retailing | $30 |
| Restaurant operation | $30 |
| IT services | $31 |
| Savings bank operation | $31 |
| Average premiums obtained via BizCover historical data on 28 April 2026. | |
However, there’s a range of factors that can influence the cost of your policy, including:
- Business size and turnover: larger businesses with higher revenue generally pay more, as their tax affairs are more complex and the potential professional fee exposure is greater.
- Industry risk profile: businesses in industries the ATO scrutinises more closely, such as construction, hospitality and trades, may attract higher premiums.
- Level of cover selected: most insurers offer a range of cover limits. Choosing a higher maximum payout will increase the premium.
- Your business’ claims history: if your business has a history of insurance claims, especially those relating to tax audits, you’re likely to pay more for coverage.
Case study: tax audit insurance in practice
Gavin runs a small plumbing business in Sydney. He receives an ATO notification advising that it’s been selected for a GST audit covering the previous two financial years. The ATO requests records of all income and expenses for the relevant period, including bank statements, invoices and BAS lodgements.
Gavin engages his accountant to manage the process. Over the following four months, the accountant compiles the requested records, prepares written responses to two rounds of ATO queries and attends two formal meetings with the ATO on his behalf. The total bill his accountant gives him at the end of the process adds up to $8,500.
Fortunately, Gavin holds a tax audit insurance policy with a $500 excess and a cover limit of $20,000. His insurer covers the full accountant bill, minus the excess, so his out-of-pocket cost for the entire audit process is $500 instead of $8,500. The audit itself results in no amendment to his business's tax position, but without the insurance, his accountant’s work would’ve been an unavoidable expense regardless of the outcome.
Is tax audit insurance worth it?
Whether tax audit coverage is worth it for your business ultimately comes down to your circumstances. It’s true that any business can be audited at any time and premiums are usually quite affordable, so there’s no doubt it can deliver value and peace of mind to plenty of owners. As the above case study demonstrates, a single audit can generate a bill that dwarfs several years of premiums combined.
The case for cover is strongest if any of the following apply to you:
- You run a business or operate as a sole trader, particularly in an industry the ATO scrutinises closely
- Your tax return involves multiple income streams, significant deductions, trust distributions or investment properties
- You’re a trustee of a self-managed super fund
- You have previously been audited or received a query from the ATO
The one situation where cover is less compelling is a very small, simple business with minimal deductions, a single income stream and no prior ATO attention. If your tax affairs are straightforward and your audit risk is genuinely low, it's worth weighing the premium against your realistic exposure before committing.
