As a general insurance broker or accountant, it makes sense to offer your clients tax audit insurance, particularly in light of the Australian Tax Office’s (ATO) aggressive ramping up of audit efforts, activities, and personnel.
This mammoth task to close the growing $9 billion income tax gap has prompted general insurance brokers, accountants and other professional service providers to seek a partnership with the right tax audit insurance provider.
In the new Covid-19 environment, where many Australians substantially depend on government schemes and welfare initiatives, the ATO is readying itself to audit unheard numbers of businesses and individuals. Some reports suggest that up to 25% of taxpayers will receive an audit.
These professional fees can very quickly balloon without a contingency plan in place. As a result of improved data-matching capabilities, the ATO is now incredibly efficient in identifying anomalies and potential breaches.
Keep in mind that the majority of individual tax returns will have at least one error. The types of mistakes vary, but of the roughly 70% that include inconsistencies, more than half of these relate to rental-property deductions, work-related claims, SMSFs, and misreporting within the cash economy.
The key takeaway here is that the number of reviews, queries, investigations, and ultimately audits will increase substantially. General insurance brokers and accountants should be ready to protect their clients with the right provider.
The costs of responding to an official audit may start as low as a couple of thousand dollars depending on the complexity of the audit and which other professionals must respond appropriately, e.g., a tax lawyer. Being unprepared for this kind of scenario can lead to a breakdown of the client relationship. In one potential situation, the accountant loses out by wearing these costs (out of fear that they’ll lose the fee-paying client altogether). In the other, the client pays and is caught off guard by “bill shock” sewing seeds of distrust or resentment into the relationship. In reality, these accountants were only doing their job at their billable rates.
In summary, having adequate tax audit insurance in place goes a long way. It is becoming a ‘must-have’ add-on particularly for accountants and their portfolios.
