Should I get auditor’s insurance?
Friday, February 2, 2007/
CPA Australia’s PAUL DRUM has the answers.
I am a director of several small businesses. My accountants are insisting that I take out audit insurance so I am covered if there is a tax audit. Should I? And for how much?
From: Di Gribble, Carlton
Paul Drum answers: Yes, it’s good to consider minimising risk by taking out audit insurance, but be careful: not all of the “review options” the tax office uses constitute a formal audit.
This means that even if you take out insurance to cover the cost of a possible tax audit, your insurance policy may not apply if the tax office conducts a review that is not considered an audit.
The tax office recently conducted a review of its compliance activities with the aim of providing clear guidance on what is regarded as an audit, but this information is yet to be made public. Further clarification will probably not be available until it issues a Miscellaneous Taxation Ruling on the topic.
Nevertheless, we do know that in 2005-06 the tax office conducted 880 micro-business audits relating to serious non-compliance and property transactions, and 1000 SME audits, with a particular focus on the building and construction industry and business loss issues.
This shows the risk of audit is real, especially for SMEs. If you decide to insure for it, make sure your policy gives you the cover you need.
What type of cover should I get?
Although products vary, the most common type of cover available will insure your business for professional fees incurred in connection with an audit by the tax office, state or territory revenue office or other body of your business’s financial or tax affairs.
In this context, a “business’s affairs” could relate to:
- Income tax.
- Fringe benefits tax.
- Capital gains tax.
- Payroll tax.
- Superannuation contributions tax.
“Professional fees” may include:
- Fees paid to tax agents, financial advisers, accountant or solicitors who are not your employees, for the preparation or evidence to be submitted to the auditor.
- Fees charged to you for preparation of evidence by your financial service provider(s).
- Overtime paid to employees to prepare for or represent you in any audit.
- Travelling and accommodation expenses incurred by you or your employees in order to attend an audit.
Your existing insurer may offer audit insurance as part of its general business or commercial cover package, but check the premiums available from other insurers to make sure you get the best deal.
Remember, the lack of clarity about what constitutes a tax audit means it is essential to be clear about the scope of any cover you take out. You should also consider whether it is possible to take other measures to mitigate risk associated with an audit or to claim compensation for any loss suffered.
Paul Drum is CPA Australia’s senior tax counsel. He is extensively involved with the ongoing tax reform agenda at policy, law and administration levels; representing members with federal and state governments and their committees and agencies, including the Australian Taxation Office.
Have a question? Ask our expert.
Email: [email protected].com.au
Disclaimer: The opinions given are personal opinion of the author only. As all situations are different and subject to different facts, you must seek your own independent advice prior to acting on any opinions written here.
Accounting software does not underpay staff — humans do Stacey Price Healthy Business Finances founder
Google has updated its search algorithm: Say hello to BERT Lucas Bikowski SEO Shark managing director
Five ways to mentally prepare for the brutal capital-raising process Stacey Fisher Minnow Designs co-owner
You are not your job: Four work-life balance tips to ease you into Christmas Jackie Rahilly Appoint co-founder
Ignoring your ‘obnoxious roommate’: What this founder learnt when she met Arianna Huffington Michelle Gallaher ShareRoot CEO