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Tax Audit Insurance
What is Tax Audit Insurance?
Tax audit insurance is an insurance policy that can protect individuals, or companies, or self-managed super funds (SMSFs), or company directors. The insurance policy provides financial assistance to pay up to the policy limits for professional fees of bookkeepers, accountants or advisors in responding to audits, inquiries, investigations, reviews, or examinations of tax returns by the Australian Taxation Office (ATO) or other revenue authorities.
As government authorities increasingly use data matching, artificial intelligence, and social media to compare tax return disclosures with other taxpayers or benchmarks, the likelihood of reviews has risen. Tools like Single Touch Payroll (STP) enable the ATO to identify businesses not meeting PAYG and SG payment requirements, leading to more audits.
If the ATO or other authorities audit or review your tax returns or financial compliance, the costs of responding can be significant. Tax audit insurance reimburses you for these professional fees and expenses up to the limits of the policy.
Why is Tax Audit Insurance Important?
Tax audits now target not only large businesses and the wealthy but also small to medium enterprises, SMSFs, and individuals with rental properties or trust structures. The ATO scrutinises taxpayers with cryptocurrency assets and those claiming excessive work-related deductions. It also uses benchmarks to identify businesses in the 'cash economy' that may not be declaring all their income, increasing the risk of audits for non-compliance.
Common audits focus on personal or business returns, and compliance audits, especially for payroll tax obligations, are becoming more frequent. If selected for review, the audit process can be time-consuming and costly, with professional fees rising based on the audit's scope and duration. Tax audit insurance helps cover these unexpected expenses.
A Word of Caution…
Before taking out a tax audit insurance policy, ensure you obtain advice and review the inclusions and exclusions of the policy carefully.