Running a business in Australia today involves more than just delivering to customers or sending out products. It also involves dealing with an increasingly complex web of taxation legislation. The Australian Taxation Office (ATO) has been ramping up its compliance activity in recent years, using sophisticated data-matching and analytics capabilities to uncover discrepancies. This has made ATO audits a real and growing threat to organizations of all sizes. That’s why protecting yourself with tax audit insurance has become a smart business decision.
What is Tax Audit Insurance?
Tax audit insurance covers the professional fees incurred when responding to audits, enquiries, investigations, or reviews initiated by the ATO or other government agencies.It reimburses the cost of:
- Accounting fees
- Bookkeeping support
- Legal representation
- Valuation services
- Expert reports
Interestingly, tax audit insurance does not cover any of the tax liabilities themselves, but it ensures that the hefty costs of defending your case are not an unpleasant surprise.
Why ATO Audits Are Increasing
Several factors have contributed to the rise in ATO audit activity:
- More government funding for tax compliance programs
- The use of sophisticated data-matching software
- Cross-checking information from banks, property transactions, payroll providers, and government agencies
Industries that have a high dependence on cash transactions, such as hospitality, construction, and health care, are particularly under the ATO’s radar. Even small discrepancies, such as irregular GST reporting or deductions not corresponding to reported income, can lead to a costly audit. When audit protection is active, businesses can mitigate the financial costs levied by such unexpected audits.
How Tax Audit Insurance Protects You
An audit response is time-consuming. Unless you have small business audit insurance, you could be facing thousands — or even tens of thousands — of dollars in professional costs. Having a cover in place allows your business to:
- Defend your position with expert assistance
- Avoid unexpected financial shocks
- Concentrate on business continuity during an audit period
Audit protection for small businesses allows your accountant and advisors to work diligently on your behalf without the concern of the cost burden, ensuring the best possible outcome.
Is Tax Audit Insurance Tax Deductible?
For policyholders of AuditCover, the premium for tax audit insurance is tax-deductible as a business expense. This makes it an even more appealing proposition for proactive business owners. Always check with your tax advisor for confirmation according to your situation.
Real-Life Example
Case Study:
ABC Constructions, a small building company based in Brisbane, was subject to a GST audit after inconsistencies were flagged between their BAS and income tax lodgements. Over six months, they incurred $6,500 in accountant and legal fees. Thankfully, their AuditCover policy covered all professional costs, allowing them to focus on resolving the issues without added financial strain.
Final Thoughts:
Having audit protection is not just a precaution; it’s a proactive investment. Tax audit coverage from AuditCover ensures that your business stays protected from the financial risk of ATO audits, allowing you to focus on what matters most—growing your business.
👉 Request a demo today to see how AuditCover can provide your business with the essential protection it needs from unexpected audit costs.