What does tax audit insurance actually cover?

Tax audit insurance covers the professional fees of accountants, bookkeepers, tax agents, and legal or financial advisers incurred when preparing for and responding to an official audit, review, or investigation by the Australian Taxation Office (ATO) or other state revenue authorities.

Does tax audit insurance pay for fines or unpaid taxes?

No. Tax audit insurance covers only the professional advisory and representation fees required to respond to the audit. It does not cover any unpaid taxes, interest charges, penalties, or fines imposed by the ATO or courts resulting from the audit.

Which government bodies and audit types are covered?

Most policies cover official audits and inquiries conducted by the ATO (including income tax, BAS/GST, fringe benefits tax, and superannuation guarantee audits), as well as state revenue offices (payroll tax and stamp duty), WorkCover, and other statutory regulatory authorities.

How much does tax audit insurance typically cost in Australia?

Premiums typically start from around $200 to $500 per year for small businesses for $10,000 to $20,000 in fee cover. The exact cost depends on your annual business turnover, industry risk profile, claims history, and chosen level of coverage.

What common red flags trigger an ATO audit?

The ATO uses sophisticated data-matching technology to detect anomalies. Common triggers include large fluctuations in business income or deductions from year to year, ongoing business losses, discrepancies between BAS and tax returns, non-compliant contractor payments, or operating outside typical industry financial benchmarks.

Do I need tax audit insurance if I already use an accountant?

Yes. While using a qualified accountant helps ensure your tax lodgements are accurate, an ATO audit can still happen at random or due to industry-wide reviews. When an audit occurs, your accountant must spend significant unbilled time collating documentation and liaising with the ATO, and those professional hourly fees are billed to you unless you hold tax audit insurance.

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.
As 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

Yes. While using a qualified accountant helps ensure your tax lodgements are accurate, an ATO audit can still happen at random or due to industry-wide reviews. When an audit occurs, your accountant must spend significant unbilled time collating documentation and liaising with the ATO, and those professional hourly fees are billed to you unless you hold tax audit insurance.

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Written by

Gary Ross Hunter

Journalist

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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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Gary Ross has written 554 Finder guides across topics including:

Health, home, life, car, pet and travel insurance
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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?