Tax audit insurance: what it covers and who carries it
Cover for the professional fees of responding to an audit or review by a revenue authority.
This is usually a section inside a business pack, not a policy sold on its own. Which sections a policy includes is shown on its schedule, and insurers group and name them differently. Business pack insurance
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In short
- Tax audit insurance pays the professional fees of responding to an audit, review or investigation by a revenue authority.
- It funds the accountant’s time, not any tax, penalty or interest found to be owing.
- It is commonly offered by accounting practices to their own clients.
Tax audit cover addresses a narrow and predictable cost: being asked to substantiate a return. The tax itself is never insured, and neither are penalties. What is insured is the work of answering.
The value is proportionate to how complex the affairs are, because an audit of a simple position is cheap to answer and an audit of a complex one is not.
Also called: tax audit insurance, audit fees cover, accountancy fees cover
What triggers the cover
Policies typically respond to an official audit, review, enquiry or investigation of returns already lodged, across income tax, activity statements, payroll tax, superannuation guarantee and workers compensation wage audits depending on the wording.
Because it responds to lodged returns, the cover generally has to be in place before the notice arrives.
What it never pays
Any tax found owing, and any penalty or interest, sit with the taxpayer. Insurance cannot fund a liability to a revenue authority created by the taxpayer’s own position.
That boundary is what keeps the product simple, and it is worth stating plainly because the name invites the opposite assumption.
What people get wrong about it
The first error is expecting the policy to pay a tax bill.
The second is buying it after receiving an audit notice, when cover usually needs to predate the notice.
The third is assuming it covers any adviser, when policies often specify the accountant whose fees are covered.
Questions
- Does it pay the tax if the audit finds I owe money?
- No. It funds the professional fees of responding. Tax, penalties and interest remain the taxpayer’s liability.
- Can I take it out after I get an audit letter?
- Generally not for that audit. Cover usually needs to be in force before the notice, which is why it tends to be arranged at the same time as the annual work.
Occupations that commonly carry it
Ordered by how central this cover is to each occupation in the graph. A pattern in the data, not a statement that any business is required to hold it.
- Accountants — Preparation of accounts, tax returns and advice for businesses and individuals.
- Bookkeepers — Day-to-day transaction processing, payroll and activity statement preparation.
- Building inspectors — Pre-purchase, stage and defect inspections, reporting on the condition of a building.
- Surveyors — Cadastral and construction setting-out surveys, and the plans that depend on them.
- Business consultants — Advice to owners on operations, growth and process, priced on the advice itself.
- Management consultants — Strategy, organisational and change advice to larger clients under formal engagements.
- Architects — Registered architectural design, documentation and contract administration.
- Consulting engineers — Structural, civil and services engineering design and certification.
- Draftspersons — Technical drawing and documentation for building and manufacturing work.
- Quantity surveyors — Cost planning, measurement and progress certification on construction projects.
- Project managers — Client-side management of projects, programmes and delivery teams.
- Town planners — Planning advice, applications and submissions to consent authorities.
- Building designers — Residential and light commercial design outside the registered architect pathway.
- Mortgage brokers — Credit assistance and loan placement under a credit licence or as a representative.
- Financial planners — Personal financial advice provided under an Australian financial services licence.
- Lawyers — Legal advice and representation delivered by an admitted practitioner.
- Conveyancers — Licensed transfer of property title and the trust accounting that goes with it.
- HR consultants — Employment advice, policy and investigations for employer clients.
- Translators and interpreters — Translation and interpreting services where an error changes the meaning of a document.
- Virtual assistants — Remote administrative and support services delivered under contract.
- Travel agents — Booking and packaging of travel, holding client money ahead of departure.
Sources
- Moneysmart (ASIC) — General guidance on business insurance from the regulator’s consumer site. A starting point, not a definition of this cover.