Yet preparation is far more vital than reaction.
There are a number of strong ways to prepare for, and indeed, prevent, a tax audit. Tax audit protection in the form of audit insurance is increasingly becoming a common risk management strategy.
Many businesses these days take out or upgrade existing insurance policies to include insurance in the event of a government audit (e.g. ATO, State Revenue Office or Workers Compensation Audit).
We provide an overview of how this works and the decision making processes behind selecting this type of insurance.
When you pay the insurance premium, your insurer covers the costs of defending your business in the event of a government audit. This costs can be significant since they generally include accountant fees and legal fees. In the face of an ATO tax audit, or an audit from another government body, you most likely will rely on these professionals to deal with the tax officer and defend any your position. Often it is the way these professions present your case that will ultimately determine the outcome of the investigation.
Importantly the insurance does not cover any assessed tax or penalties that may result as an outcome of the tax audit.
As mentioned, professional costs can be substantial during the course of a tax audit. The scope of a tax audit is uncontrollable. It changes according to the purvey of the government investigator. You won’t know how much or how long you will need to hire a tax accountant or lawyer. And this does not yet take into account potential tax audit penalties.
By paying a premium of $1,000 to $2,000, for example, you can protect against costs incurred during the course of the audit that may range between $20,000 and $30,000. While this does not cover potential tax audit penalties, tax audit insurance still provides a considerable saving.
This is a particularly strong option if your industry is generally subject to government agent scrutiny or if you are undertaking a transaction which may be contentious for tax purposes.
Conversely, if you feel that your activities are relatively risk free for tax purposes then the cost of tax audit insurance may not be worth the benefit.
It is also important to realise that there are situations when an insurer will not pay out your claim.
So it is vital that you meet all substantiation requirements as detailed in legislation. This makes it all the more important for you to hire the right tax accounting and legal assistance to get you through a tax audit, and also have the right business advisory team to help you prepare your business processes and documentation to prevent or mitigate the impact of an audit. Expert assistance is costly, before and during the course of a potential audit. This again points to the value of tax audit insurance to cover the costs incurred during a tax audit.
The expert team at Calibre has successfully defended the position of numerous businesses during the course of tax audits, and can help you select the right tax audit insurance for your company.
Important Disclaimer: Readers should not act solely on the basis of the material on this page. Items herein are general comments only and do not constitute or convey advice. Legislation and proposals of legislation are also subject to constant change. We therefore recommend that formal advice be sought before acting in any of the areas. This news article is issued as a guide to the readers. Calibre Business Advisory Pty Ltd and its associated entities disclaims any losses that may be incurred as a result of the reader undertaking any action based on this article.
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