Importance of taking up insurance cover for tax audit

In Australia, the law permits the Australian Tax Office (ATO) to randomly select any business enterprise or other types of organizations and conduct a special tax audit of accounts. Normally, on the basis of the tax returns and accounts submitted, the ATO identifies the business enterprise for random audit. However, for this random audit, you will have to bear the expenses of audit fee and other charges, if any. Normally, the audit charges are considerably higher and these naturally affect your profit margin. In such a situation, you may contact any audit insurance company and take out a tax audit insurance policy.

Services of professionals

Once, your business enterprise comes on the scanner, the ATO will descend on your office without prior information. During the course of audit, the ATO may require you to present all the books of accounts and other relevant records. The ATO may even conduct an enquiry on various aspects of accounting and taxes that are shown in your annual accounts and tax returns. If you or your staff members are not fully conversant with the tax and other related laws, then you may have to avail the services of an attorney and chartered accountant to provide suitable clarification to the issues raised by the ATO. In fact, in some cases you may also have to avail the services of actuaries or cost accountants to help you provide suitable clarification to the ATO. For all these services, you will have to pay for the services of these professionals.

Unforeseen expenditure

Apart from these, in some cases, the ATO may also direct you to recast your accounts. In such cases, you may also request your staff to work for extra hours so that the recasting of accounts is completed within the time stipulated by the ATO. Therefore, as you can see all these involve a considerable expenditure. At the same time, this being an unforeseen expenditure you would not have made any budget provision towards the tax audit by an ATO.  In order to meet such contingencies you may look for an audit insurance company and take out the tax audit policy.

Expenses covered under insurance policy

Normally, the insurance policy for tax audit will cover expenses on payments made to professionals like the attorneys, cost accountants and so on. It will also include expenses on audit charges paid to the ATO. However, the insurance policy will not include fines paid to tax authorities.

Estimate the insurance cover required

The expenses on tax audit are normally dependent on the time by the ATO to complete the random audit. The longer the duration, the higher will be the expenditure on tax audit. Of course, it may be very difficult to evaluate the time normally required by the ATO to complete the random tax audit. At the same time, this becomes a crucial issue while taking up tax audit insurance from any reputed audit insurance company. In such cases, it is ideal that you may consult your chartered accountant to make a fair estimation of the insurance cover required for your business enterprise. As a matter of fact, hundreds of business enterprises and other organizations have been benefited by the tax audit insurance cover.

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