Tax Audit Insurance and do I need it?

There are enough bad things happening in the world today that the headache of an audit by the tax office is the last thing we all need!

What is a tax audit?

Every year you lodge a tax return for you personally and/or for a business you might be involved in.  As tax agents, we prepare the tax returns based on information that is provided to us by you and this is then submitted to the Australian Taxation Office (ATO).  Through the tax return the ATO is notified of taxable income you and/or your business has earned over the year.

In Australia we have a self-assessment income tax system.  This means, the ATO expects the information you provide to the them is complete and accurate.  One way to check if what you have submitted to them is complete and accurate is through a tax audit.  These audits can vary from income tax audits, to superannuation guarantee audits, payroll tax audits, etc.

More specifically, the ATO states that they will conduct an audit where they consider a more in-depth examination of an issue is required.

This “more in depth examination” can be quite time consuming and costly.  From our point of view as tax agents, it is our least favorite work to do because of the time it takes to complete these audits and also because of the stress, disruption and cost burden it causes you the client.

What triggers a tax audit?

A few common triggers for an audit are listed below:

• not declaring your income – the ATO generally already has this information provided to them by your employer, banks and other institutions, however it is still your responsibility to ensure you declare all your employment and other income in your tax return;
• errors and inconsistencies;
• discrepancies in income and lifestyle;
• claiming deductions you shouldn’t be claiming;
• your information is extremely different compared to the benchmark rate for your specific occupation;
• overseas financial transactions;
• not paying the correct amount (or any) superannuation to your employees;
• for a business, inconsistencies in your GST, BAS and income tax;
• business continually running at a loss; and the list goes on.

How can having Tax Audit Insurance help?

Tax audit insurance is an insurance policy designed to help cover the costs you/and or your business incurs during the audit process.

Generally, the items covered by the insurance are:

• accountants fees
• tax agent fees
• other professionals fees – bookkeepers, financial advisors, lawyers, etc

Items generally not covered are:

• fines and penalties imposed by the ATO
• lost jobs/opportunities missed due to the tax audit

Tax audit insurance provides one less worry for you – knowing that at least some of the costs attributed to the audit will be covered.

Most of the time the tax audit will come through with a successful outcome, however unfortunately this does not take care of the financial burden this has placed on you and/or your business.

To find out more about how we can help you with tax audit insurance, please get in touch.