Tax Audit Insurance

Find out what tax audit insurance is and compare instant online quotes through Savvy. 

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, updated on July 17th, 2023       

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Every year, the Australian Taxation Office conducts an audit of more than 120,000 small businesses, meaning all businesses can expect to be audited once every three years on average. Such audits can be time-consuming and are dreaded by most small businesses, as they take up the valuable time of accounts staff or necessitate hiring an additional accountant or bookkeeper.  

However, you can cover your business against this cost by taking out tax audit insurance. Compare a range of quotes for tax audit insurance here with Savvy so your business is covered when you get the call. Considering your options with us will help you choose the best insurer. Sort out the cover your business needs today.

What is tax audit insurance?

Tax audit insurance is a form of business insurance which covers you for unexpected costs associated with responding to a compliance audit, or the audit of a tax return you’ve lodged with the Australian Taxation Office. Such audits can be conducted by the ATO up to a maximum of five years from the date you lodged your tax return.

Audits can involve hours of sifting through receipts and filling in forms and often require employing a tax agent, accountant or bookkeeper to provide the financial information requested. These additional costs are covered by tax audit insurance.  

In past years, the ATO mainly targeted big businesses for audits, but increasingly now small and medium-sized businesses are being audited. For this reason, tax audit insurance is becoming more popular. 

By answering a few questions about your business, you can have a range of instant quotes for tax audit insurance right here with Savvy. Our quick and convenient service means you can compare quotes online from some of Australia’s most respected insurers. Alternatively, you can also include tax audit coverage as part of your bundled business insurance package to help your business save on insurance overall.

What does tax audit insurance cover?

This insurance covers the costs associated with responding to an audit request. This can involve employing a tax agent, accountant or another financial professional to assist you with your audit response. 

It isn’t only tax returns that can be subject to a compliance audit. Tax audit insurance can also cover your business for the following issues:  

  1. BAS and GST claims 
  2. Tax withholding amounts 
  3. Superannuation deductions 
  4. JobKeeper allowances 
  5. Stimulus package applications  
  6. Cash flow boosts delivered to businesses as credits by the Australian government due to COVID-19 

For example, a personal and fitness trainer was informed she was subject to an ATO audit. She was required to produce three years’ worth of income statements and, at the end of the three-month process, was presented with a $6,500 bill from her accountant. Her audit insurance covered this cost.  

If you’re subsequently charged with an offence following the audit, there may be additional costs incurred to hire a lawyer to defend yourself or your company against any allegations. All such professional fees may be covered by tax audit insurance. 

What does tax audit insurance not cover?

Some of the areas not covered by tax audit insurance include: 

  1. the cost of your time taken to respond to the audit 
  2. the cost of your employees’ time and wages 
  3. the cost of any lost opportunities or reduced income as a result of responding to the audit 
  4. any fines or additional taxes imposed as a result of the audit 

Therefore, if you do receive the dreaded phone call or letter from the ATO saying you are going to be audited, it makes sense to employ professionals to assist your business to respond to audit requirements, as their fees will be covered by your insurance. 

For example, a business in Darwin received a phone call from the ATO saying that some of its casual employees had complained about too much tax being withheld from their wages. The owner was required to produce documentation for the past two years showing all wages paid to all casual workers, with details of tax withheld, and had to employ a tax agent for three weeks to assemble all this data. Luckily, they had tax audit cover included as part of their small business insurance package, so this covered the entire cost of hiring the tax agent. 

How much will tax audit insurance cost my business?

This will depend on what level of cover you choose to take out, with most insurers offering cover ranging from $10,000 to $50,000. The following factors will also influence the level of coverage you may need: 

  • The size of your business 
  • The turnover of your business 
  • How many people you employ 
  • How many business locations you have 
  • The complexity of your business structure 

Naturally, the more complex your business structure and the larger your company is, the more costly a potential audit could be and the higher the level of cover you may need.  

In determining what level of cover is appropriate for your particular situation, consider how much it could cost you to comply with audit requirements. Professional fees for accountants can be anywhere from $300 an hour upwards, depending on the level of professional assistance you’ll require, so they can quickly add up if you require many hours of work to comply with audit requirements.

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More of your questions about tax audit insurance

If I run a small business or am a sole trader, can I still get audited?

Yes – all companies, large and small, can be the subject of a tax or compliance audit. The tax office also audits private individuals, charities, self-managed super funds, trusts and churches. 

Is it compulsory to comply with an audit request from the ATO?

Yes – it’s compulsory to comply with audit requirements, and not doing so can result in charges being laid. The ATO has extensive powers under Australian law, including: 

  • Notice powers – which require you to give the information or produce the documents requested 
  • Access powers – which gives the ATO full and free access to homes, offices, filing cabinets, books, records and computers. Failure to allow free access or an attempt to block access can result in charges being laid 
If I have to call on my audit insurance, can I claim the cost of the excess as a business expense?

Yes – the cost of both your business insurance premiums and any excess you have to pay if you make a claim are tax-deductible in your next year’s tax return. 

Is audit insurance usually included in a business insurance package?

This type of insurance is often included as an optional extra in a general insurance package, so you can usually choose whether to take out this cover or not. 

Can I claim on my audit insurance every time I get audited?

Yes – if you have current tax audit insurance and are informed you’re going to be subject to an audit, you can claim any costs incurred for professional fees on your insurance policy. 

If I make a claim on my audit insurance, will my premiums go up?

This will depend on whether you have a no-claims bonus that is applied to your insurance policy. If you do have to make a claim, you will lose any no-claims bonus which is applied to your policy, which may increase the cost of your insurance.  

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