Tax Audit Insurance in Australia offers financial protection to businesses facing audits by the Australian Tax Office (ATO). We cover the important elements in this guide.
Why Tax Audit Insurance?
Big enterprises and the wealthy are no longer the only groups targeted by tax audits. The ATO may examine and probe small to medium-sized businesses, SMSFs, people who own rental properties, and trust arrangements.
Particularly, taxpayers who possess bitcoin assets and those who have a high amount of work-related deductions may be targeted for examination. Benchmarks are another tool the ATO uses to focus on the “cash economy” and find companies that do not report all of their revenue. Being non-compliant in these areas increases the likelihood of an audit.
While ATO audits about personal or corporate returns are the most frequent, compliance audits—especially those concerning payroll tax obligations—are increasingly growing more frequent.
If you or a related entity is chosen for examination, the audit or inquiry procedure may take a long time.
Let’s define Tax Audit Insurance
One can get tax audit insurance for themselves, their business, their self-managed super fund (SMSF), or the directors of their company.
The professional fees of your accountant or advisor in supporting you in responding to an audit, inquiry, investigation, review, or examination of returns filed with the Australian Taxation Office (ATO) or other government revenue authorities may be covered by this insurance, depending on the policy’s scope.
The likelihood of a review has increased since government agencies are comparing the disclosures you made in your filed tax returns to those of other taxpayers or benchmarks through the use of data matching, artificial intelligence, and even social media.
For instance, the ATO can find companies (registered for STP) that haven’t fulfilled their PAYG and SG payment obligations by using Single Touch Payroll (STP). This makes it easier to cross-check compliance, which increases audit activity.
In the event that the ATO or other government revenue agencies decide to carry out one of these audits or reviews of filed returns or financial compliance duties, there may be a significant financial and resource commitment involved in answering their inquiries.
As a result, by paying for the associated professional fees and expenditures, the tax audit insurance policy is made to shield you and your company (or SMSF) against unforeseen expenses spent in responding to the review or audit.
Entities Eligible for Coverage
Different insurers (or brokers) provide different tax audit insurance policies. Nonetheless, the following are covered by certain standard policies:
- business audit only;
- business and directors audit;
- individual cover (for insured parties that are not a corporation);
- self-managed superannuation fund cover.
Additional coverage for things like investigative cover and other such goods may also be included in the specific policy.
To find out which coverage and policy could be appropriate for your situation, consult your advisor or broker.
Common Tax Regulations Covered by Tax Audit Insurance
An insurance policy against tax audits may cover a variety of laws and regulations. Among them are:
- Income Tax Assessment Act 1936 (Cth);
- Income Tax Assessment Act 1997 (Cth);
- Taxation Administration Act 1953 (Cth);
- Fringe Benefits Tax Assessment Act 1986 (Cth);
- A New Tax System (Goods and Services Tax) Act 1999 (Cth);
- Superannuation Guarantee (Administration) Act 1992 (Cth);
- Termination Payments Tax (Assessment and Collection Act) 1997 (Cth); or
- any legislation of an Australian State or Territory relating to payroll tax.
The professional expenses connected to specific kinds of audits and reviews may also be covered by your policy, including:
- BAS/GST Compliance
- Capital gains tax
- Borrowing rules (LRBAs)
- FBT
- Income, Land and Payroll Tax
- Record Keeping
- Self-Managed Superannuation Funds and SIS contraventions
- Superannuation Guarantee and Compliance
- Workers Compensation / WorkCover
Retrospective protection, which covers already filed returns, and specialist fee coverage, which covers the costs of any additional outside experts like tax attorneys or consultants, are also included in certain policies.
Important Consideration to Note…
Make sure you get guidance and thoroughly go over the coverage’s inclusions and exclusions before obtaining a tax audit insurance policy. Items that tax audit insurance policies typically do not cover include:
- Any fines or penalties assessed, as well as any payments due by a revised notice of assessment or adjustment. For instance, any additional taxes, duties, or similar payments are included in this.
- Documents pertaining to applications, evaluations, or reviews of grants, entitlements, or government benefits, as well as any action involving a review pertinent to your preservation of industry status (such as membership or license compliance).
- Expenses for work done that ought to have been done before the audit activity (like unfinished business).
- Audit activities for which notice was provided before the start of the cover;
- Problems with superannuation contribution excess.
If you’re interested in understanding the perks of tax audit insurance or need to discuss aspects like your business’s organisation, tax-related concerns, compliance duties, or audit and risk management strategies, the team at Fullstack Advisory is ready for a confidential conversation. Reach out today!
