No one wants a tax audit, and no matter how careful or experienced you are, audits or reviews of tax returns are sometimes unavoidable.

This is where Tax Audit Insurance comes in, as it covers a business for specified costs in responding to an audit by the ATO, and any State tax authority (eg., Payroll Tax).

Targets

The most likely group are businesses with a turnover between $1m to $3m.   The ATO has also said after two years of relaxed conditions, that extra, tighter controls will be implemented.   That includes a focus on fraud and tax evasion, as well as checks on BAS and FBT.

If it is just BAS, the ATO usually audits a Quarter, and if found to be incorrect, it may extend to the whole year, and even on to income tax and FBT.   The cost can be high, depending on the extent and complexity of the review.

How to be a Target

You're careful with your records.   We're careful with tax returns.   No reason to expect a problem.   But, have you left something out?   Is your vehicle log book up to date?   Do you have a luxury vehicle (over $60,000)?   Are BAS lodged and paid on time, no corrections made? Do tax returns match tax office Benchmarks?   Do you engage sub-contractors (and pay Super for individuals)?

Most audits occur out of the blue, with no notice or time to check.   Specific information is demanded immediately, you also should make your own checks in case there are other concerns to be addressed.   Demands on your time and ours, and of course costs, are usually considerable.

The Outcome

We hope you consider the option to cover yourself for these costs.   We don't like audits either, it doesn't build a strong relationship with clients.   We send out Newsletters warning of ATO or legislation changes (for example, in the next 60 days; FBT and private use of vehicles, Trust distributions before year end, Superannuation, Professional profit sharing, loans by companies to owners, claiming for use of holiday homes, sham not-for-profit entities, CGT and asset sales).

Benefits

For a small investment (hundreds) you avoid the costs (sometimes in the thousands) and a lot of the stress of dealing with a statutory authority who is out to obtain money from you, extra tax, penalties and interest.

It is possible to purchase cover through a commercial policy, although there may be conditions and exclusions.   We recommend Accountancy Insurance, their policy covers costs up to a set limit and cover begins as soon as you pay.   In the event of a claim, we only need to notify them.

So please read the offer carefully when you receive it, and call us if you're not sure and need clarification.

Claims Activity 2022

These were the most common audit activity areas for the six months to 31 December 2022:

           BAS                                                                                   9%

          Employer Obligations (PAYG, Super, FBT)                       12%

          Data Matching (Omitted income, Expenses)                    4%

          Income Tax (Business)                                                    18%

          Income Tax (Personal Returns)                                         9%

          Rental Property                                                                 5%

          Payroll Tax                                                                       13%

          Workcover                                                                         5%

          Land Tax                                                                            4%