What is audit insurance?
What is audit insurance?
Audit Insurance covers a business in the event that it receives a random audit from the Australian Tax Office. It covers the costs of professional fees incurred during the preparation for the audit from accountants, lawyers, bookkeepers and any others advisors required during the audit process.
How much is audit insurance and what is covered?
Typically, audit insurance can cost from as little as $100 per year, depending on the size and needs of the business and covers the following:
- Professional fees E.g. accountants, lawyers, bookkeepers and other advisers such as actuaries, valuers, etc.
- Expenses incurred during audit (usually between $10,000 – $20,000)
For example Audit Shield insurance helped a company save companies save $8801 in fees for an tax assessment on $1553 of payroll tax errors when they were investigated by the ATO.
Did you know?
The ATO receives approximately 2 million business tax returns and 12 million individual returns each year. Out of these, on average around 350,000 tax returns are identified^* as containing errors against the ATO’s data matching systems which identify the lodgment with a red flag for potential auditing.
On 3 May 2016, the government announced the ‘Tax integrity package – increasing administrative penalties for significant global entities’ measure and has proposed an increase in audit funding for the years of 2016 to 2020. *
The ATO has an anticipated target of $3.7 billion in gross revenue over these years as a result.^ So what does this mean for you and your business? We suspect an increase in audit activity for all individual, business and SMSF lodged returns over the coming years.
Why should I get Audit insurance?
Being audited can also be time consuming and incur expensive fees for your business. Not only will be asked to provide extensive records and receipts of past transactions, you will most likely need the expertise and services of a qualified accountant to collate the records required for the ATO.
No business can know when the ATO will strike with a tax assessment request. The unexpected nature of an audit means possible damage to your business’s reputation, financial ramifications and is strong reason you should consider being protected by audit insurance – no matter how careful your books are being looked after.
What can happen when you don’t have audit insurance?
A lot of people don’t realise this but in Australian tax legislation, in an audit context you are treated as guilty until proven innocent. If the ATO convince themselves of a state of affairs, they simply raise an appropriate tax assessment and a reverse-onus then applies to you to disprove them.
Four years ago a client of ours was offered audit insurance but did not take the offer up. The same year he received attention from the ATO in respect to a sizeable gift he received, paid to him from the business bank account of an overseas relative. The ATO are notified whenever sizeable sums of money come into the country and they promptly asked a multitude of questions. Against our advice the client ignored them and they later sent him a tax assessment (inclusive of penalties and interest) just shy of a six figure sum.
After many months of work, Oak Accountants were successful in attaining the ATO to reverse their decision. We even applied for and received compensation because the ATO’s approach had shortcomings which had been to our client’s detriment.
Was this preventable?
Yes. If our client had taken out an audit insurance policy for less that $100 per year, all costs incurred during the audit process would have been covered not to mention total peace of mind.
Speak to one of our trusted Accountants today to arrange your audit insurance policy today.
(03) 9859 8791 or email firstname.lastname@example.org
Valkyrie Private Wealth Management Pty Ltd ABN 78 126 751 335, trading as Oak Financial Planning is an Authorised Representative and Credit Representative of AMP Financial Planning Pty Limited, Australian Financial Services Licence and Australian Credit Licensee, 322283 (AFSL), 374627 (ACL).
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