Have you taken out Tax Audit Insurance?

Irrespective of how well your financial affairs are managed, you are not immune to being selected for an audit. With the ATO and other government agencies and business entities continuing to increase surveillance to ensure parties are compliant and meeting their obligations, the chances of being audited are now higher than ever.

Government Agencies generally accept lodged documents at face value but will randomly select any number for subsequent audit. They often target specific industry sectors and challenge individuals on various aspects of their lodged documents.

These ‘Documents’ can include, but are not limited to, Payroll Tax, Stamp Duty, Gaming Tax, Workers Compensation, Superannuation Contributions, Income Tax, BAS, FBT, CGT, Customs Duty, Fuel Rebate, etc.

In addition, Government Agencies undertake ‘compliance audits’. For example, the Office of State Revenue may undertake a ‘compliance audit’ to see if a business should be registered for Payroll Tax or the ATO may undertake a ‘compliance audit’ of a Self-Managed Super Fund.

Government Agencies also use a mix of data matching techniques including industry sector targeting; inter government agency shared data; data sourced from financial institutions and public companies as part of their selection process.

Over recent months we have noticed particular increased audit activity on Payroll Tax, with a focus on grouping and contractor payments.

Any audit process is time consuming and professional fees are incurred regardless of the outcome of the audit process. Professional fees associated with these audits depend on the type of audit and the number of periods being audited. They include extensive time spent preparing for the audit, as well as responding to the audit outcomes. Should we assist you with any audits, professional fees will be incurred and are not recoverable from the Government Agencies or business entities you are obligated to deal with. Depending on the audit outcome you may incur external fees including legal fees fighting the audit decision.

In response to the increased audit compliance approach being undertaken and the associated costs arising, we have established an Audit Insurance umbrella policy for our clients which is administered by the originators of the Audit Insurance product, Audit Services Pty Ltd, an unrelated, independent service provider.

The cost of the cover is tax deductible.

Whilst under no obligation to do so, we highly recommend that you consider Audit Insurance to assist you with the professional costs arising from tax audits.

Please note the insurance covers professional fees only, not the tax or penalties imposed as a result of the audit.

The cost of the audit insurance depends on the size of your business the number of entities covered and the amount of cover you choose to take.

As a guide:

  • An Investment Trust plus SMSF plus Personal Tax returns with $10,000 cover would cost $360 per annum. The same cover for $20,000 would be $520 per annum.
  • A typical operating business with a SMSF would cost around $510 per annum for $10,000 cover, $815 per annum for $20,000 cover and up to $2,835 per annum for $50,000 cover.

We would expect most clients to take cover for $10,000 to $20,000.

Please call your Allan Hall advisor if you would like more information or would like to discuss a policy that may be suitable for you.

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