Is Professional Indemnity insurance mandatory for Australian accountants?

Professional Indemnity (PI) insurance is mandatory for accountants who hold a Public Practice Certificate with bodies like CPA Australia, CA ANZ, or the IPA. If you are an accountant working in-house or in commerce (industry), you generally do not need your own PI policy, as you are covered by your employer. However, all registered Tax and BAS agents must maintain PI cover to comply with TPB regulations.

What is run-off cover and why do retiring accountants need it?

Run-off cover protects you against claims made for professional errors after you have closed your practice or retired from the industry. It is necessary because professional indemnity insurance is 'claims-made' meaning you must have an active policy at the time a claim is lodged even if the work was performed several years prior.

Does accountancy insurance cover the costs of a tax audit for my clients?

No, standard professional indemnity insurance does not typically cover the professional fees of a tax audit, but you can purchase specific Tax Audit Insurance or 'Audit Shield' as an add-on. This cover helps pay for the costs of preparing for and responding to an audit or investigation by the Australian Taxation Office (ATO).

Are sub-contractors and outsourced staff covered by my professional indemnity policy?

No, sub-contractors and outsourced staff are generally not automatically covered under your policy and are typically required to maintain their own professional indemnity insurance. You should verify your policy wording to ensure your business is protected against vicarious liability for work performed on your behalf by third parties.

Does standard accountancy insurance protect against cyber attacks and data loss?

No, a standard business insurance policy for accountants does not usually provide comprehensive protection against cyber attacks or data breaches. Accountants should consider a dedicated Cyber Liability policy to cover costs related to data restoration, client notification and legal penalties following a digital security incident.

What is the minimum level of Professional Indemnity cover required by CA ANZ?

For CA ANZ members with a Certificate of Public Practice, the minimum cover is generally $2 million. Under the Professional Standards Scheme, this limit increases based on the firm's annual fee income. While CPA Australia's scheme caps at $75 million, CA ANZ members should verify their specific tier to ensure their liability is capped under the relevant state or territory legislation.

Tax Audit Insurance: Cover for sudden tax audits

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To combat tax evasion and ensure compliance with tax laws, the Australian Taxation Office (ATO) is increasing the number of random audits it conducts on businesses each year.
the costs involved in preparing for and undergoing an audit can be significant, tax audit insurance is something every business should consider for its insurance portfolio.

What types of risks could a business face regarding taxation?

Typical risks a business could face include:

Inconsistent records. If the information in your income tax returns, business activity statements, payroll tax or employee records doesn't reconcile, this may red flag an audit by the ATO.
Non-compliant contractor payments. Failing to deal correctly with sub-contractors' entitlements such as superannuation payments can also attract attention from the tax office.
Outstanding tax lodgements. Failing to lodge on time or being late with payments signals to the ATO that your business systems are not the best and may require closer examination.

The penalties for infringements of the tax laws can range from warnings and financial penalties (often with interest if committed over time) right up to criminal prosecution and possible jail time if found to be deliberately avoiding tax.

What is tax audit or accountancy insurance?

Tax audit insurance is a type of business insurance that covers you if your business is ever randomly audited by the Australian Taxation Office. It covers the costs of preparing for the audit, including the professional fees of those involved such as accountants, lawyers, bookkeepers and other advisers. It also covers any other expenses incurred during the audit process itself, such as locating and presenting further evidence as requested by the ATO.

The cost of tax audit insurance in Australia differs by state due to varying stamp duty rates, but a typical premium for $10,000 worth of cover would start from around $200 a year.

Examples of tax claims

The costs involved in an audit can be significant, as demonstrated by these two typical tax audit insurance claim examples:

BAS review claim. The ATO requested details substantiating two years worth of BAS returns. The cost of investigating and preparing this information was more than $3,000.
ATO audit claim. The ATO requested a full review of a business's income over a three-year period. The cost of the review was nearly $16,000.

What's covered and what isn't covered?

Tax audit insurance will typically cover all the costs involved with preparing for an audit and satisfying ATO requirements during the audit, including the professional fees of those involved.

Tax audit insurance does not cover any fines a business may receive as a result of an audit. It is purely to cover the expense of defending the investigation and has nothing at all to do with the outcome of that investigation.

Talk to a broker about tax audit and accountancy insurance

FAQs

Professional Indemnity (PI) insurance is mandatory for accountants who hold a Public Practice Certificate with bodies like CPA Australia, CA ANZ, or the IPA. If you are an accountant working in-house or in commerce (industry), you generally do not need your own PI policy, as you are covered by your employer. However, all registered Tax and BAS agents must maintain PI cover to comply with TPB regulations.
No, sub-contractors and outsourced staff are generally not automatically covered under your policy and are typically required to maintain their own professional indemnity insurance. You should verify your policy wording to ensure your business is protected against vicarious liability for work performed on your behalf by third parties.
For CA ANZ members with a Certificate of Public Practice, the minimum cover is generally $2 million. Under the Professional Standards Scheme, this limit increases based on the firm's annual fee income. While CPA Australia's scheme caps at $75 million, CA ANZ members should verify their specific tier to ensure their liability is capped under the relevant state or territory legislation.

Sources

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Written by

Gary Ross Hunter

Journalist

Gary Ross Hunter has over 6 years of expertise writing about insurance, including life, health, home, and car insurance. Having reviewed hundreds of product disclosure statements and published over 800 articles, he loves simplifying complex insurance topics for everyday readers. Gary has contributed to major outlets like Yahoo Finance, The Sydney Morning Herald, and news.com.au, and holds a Bachelor of Arts (Honours) in English Literature from the University of Glasgow, along with a Tier 2 General Advice certification, ensuring his work adheres to ASIC’s RG146 standards. See full bio

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Tax Audit and Accountancy Insurance

The costs of an unforeseen tax audit could be damaging if your business is unprepared.

Key takeaways

What types of risks could a business face regarding taxation?