Tax compliance is just part of the job when you’re running a small business in Australia. But even if you’re doing your best to stay on the right side of the ATO, audits can still happen—and often when you least expect them. That’s where tax audit insurance comes in. It’s not just about covering costs—it’s about peace of mind when the ATO audit starts asking questions.
Why Are Small Businesses Being Audited More?
The ATO has been turning up the heat on small businesses in recent years. In fact, ATO data shows that small businesses now account for more than 65% of all audit activity. So what’s driving the increase?
A few key factors:
- Many small businesses still deal heavily in cash, which raises red flags
- The ATO audit team is now matching data across systems faster and more precisely than ever
- New compliance efforts are honing in on GST and PAYG reporting
Even simple errors—like overstating a GST credit or claiming a deduction without full documentation—can trigger a full-blown review. It’s not always about wrongdoing. Sometimes it’s just bad luck.
How Affordable is Tax Audit Insurance?
Here’s the good news: tax audit insurance is probably cheaper than you think. A common misconception is that it’s a pricey, “big business” expense. But in reality, annual premiums often cost less than a few hours of your accountant’s time. Given that audit-related fees can amount to thousands, the value is evident. It’s similar to purchasing an umbrella in advance of a storm; you may not require it immediately, but you’ll appreciate having it when the clouds arrive.
What Does Tax Audit Insurance Cover?
Responding appropriately to the ATO requires both time and financial resources. Tax audit insurance helps you manage that burden by covering:
- Accounting and bookkeeping work
- Legal advice and tax agent fees
- Preparation of documents and formal responses
- All back-and-forth communication with the ATO
It means you can respond thoroughly without second-guessing every invoice. Your focus stays on running your business—not juggling audit costs.
Industries at Higher Risk
Some sectors just attract more scrutiny—whether due to transaction volume, complexity, or cash handling. If you operate in one of these industries, your ATO audit risk is naturally higher:
- Hospitality (especially restaurants, cafes, and bars)
- Construction and trades
- Allied health (physios, dentists, GPs)
- Retail and e-commerce businesses
It doesn’t mean you’re doing anything wrong—it just means you’re more likely to be reviewed. Audit protection helps you stay protected if and when that happens.
Real-World Example
Case Study: Some inconsistencies in a boutique construction firm’s GST reporting prompted a BAS audit. The ATO requested three years’ worth of records, resulting in a lengthy process and $4,750 in professional fees. Thanks to their AuditCover policy, every dollar was reimbursed—no hit to their budget, no disruption to business.
If you’re running a small business, don’t wait for the audit notice to start thinking about audit protection. Get a quick quote from AuditCover and stay one step ahead.