Should I Take Up The Audit Insurance Offered By My Accountant?
Are you an Australian taxpayer who has been sent an invoice / offer for audit insurance by your accountant? Are you confused as whether you should opt in for this audit insurance, or whether it’s compulsory? It's a decision many individuals and businesses face, especially when tax regulations are continually evolving, and audits are a looming possibility. But is it worth the investment? Let's dive into the details to help you make an informed choice. Also have a read of our blog summarising two case studies about recent ATO audits we’ve assisted our clients through.
Understanding Audit Insurance
First things first, what exactly is audit insurance? It's a type of insurance policy designed to cover the costs associated with professional fees incurred during an audit, investigation, or review by government agencies such as the Australian Taxation Office (ATO), the Office of State Revenue (OSR), WorkCover and more. These fees can quickly accumulate, especially if the audit is complex or drawn-out, even if you are completely “in the right”.
The Benefits
Financial Protection
The main benefit of audit insurance is financial protection. Facing an audit can be a daunting prospect to undertake yourself, and the expenses involved in having a professional assist you can be significant. Audit insurance can cover the costs of hiring professional accountants or tax advisers to represent you during the audit process, ensuring that you have expert support without worrying about the bill.
Peace of Mind
Knowing that you're covered by audit insurance can provide peace of mind. Instead of stressing over the potential costs of an audit, you can focus on running your business or managing your personal finances, knowing that you have insurance to fall back on if needed.
Access to Expert Advice
Audit insurance often comes with access to expert advice from professionals who specialize in tax and accounting matters. This can be invaluable during an audit, as it ensures that you have knowledgeable support every step of the way.
Factors to Consider
Cost vs. Benefit
One of the primary considerations when deciding whether to opt in for audit insurance is the cost versus the potential benefit. Like any insurance policy, audit insurance comes with a premium, and you'll need to weigh this against the likelihood of facing an audit and the potential costs involved. Remember that the cost of the audit insurance policy is generally able to be claimed as a tax deduction in the year it was paid.
Likelihood of Audit
Consider your individual circumstances and the likelihood of facing an audit. Certain factors, such as running a business or claiming unusual deductions, may increase your risk of being audited. If you fall into a high-risk category, audit insurance may be a wise investment.
Existing Coverage
Before purchasing audit insurance, check whether you already have coverage through other means. For example, some business insurance policies may include audit insurance as part of their coverage. Similarly, individuals may have legal expenses insurance that could cover audit-related costs. If you have audit insurance through another general policy, check what it covers to decide if the coverage is comprehensive enough for your needs.
Conclusion
Ultimately, the decision to take up audit insurance offered by your accountant is a personal one that depends on your individual circumstances and risk tolerance. While it can provide valuable financial protection and peace of mind, it's essential to weigh the costs against the potential benefits and consider alternative sources of coverage.
Before making a decision, take the time to discuss your options with your accountant. They can provide valuable insights based on your specific situation and help you make an informed choice that aligns with your needs and preferences.
In the end, whether you choose to invest in audit insurance or not, staying informed and proactive about your tax and financial affairs is key to minimising the risk of audits and ensuring compliance with relevant regulations. When working with the Aegis team, we ask many questions and insist on various substantiation, to ensure that you are in the best position to respond to an audit, should you be one of the “chosen”.
The below pie chart has been provided to us by our audit shield insurance provider, “Accountancy Insurance”.
