Safeguarding your practice: The importance of tax audit insurance for accountants
It’s imperative for accountants to consider the potential impact of tax audits on their practices and clients. The Australian Taxation Office (ATO) and State Revenue Offices (SROs) have intensified their compliance activities, targeting key areas such as work-related expenses, rental property deductions, payroll tax, and land tax. Engaging in an audit or review can be both time-consuming and costly, underscoring the need for robust protection mechanisms like tax audit insurance.
The escalating scope of audit activity
The ATO conducts thousands of audits and compliance checks each year. In fact, it makes more than two million adjustments annually[1] to individual income tax returns alone through data-matching and review programs. While many of these are automated or resolved with low-touch interactions, more complex matters often escalate to formal reviews, audits, and debt recovery action.
Similarly, State Revenue Offices have ramped up audit activity in recent years. In New South Wales, Victoria, and Queensland, businesses are experiencing increased scrutiny over payroll tax groupings, contractor arrangements, and landholder duty obligations. The focus on cross-jurisdictional data sharing and technology-driven audits means even minor discrepancies can trigger significant reviews.
The ATO’s current focus areas include[2]:
- Work-related expenses: Ensuring claims are reasonable and appropriately substantiated.
- Rental property deductions: Identifying errors in income and deduction reporting.
- Income reporting: Matching income declared with third-party data (e.g. banks, employers, crypto exchanges).
- Trust distributions and professional firm profits: Targeting tax planning structures used by high-income individuals.
These developments highlight the heightened risk of audit across a broad base of taxpayers, from individuals to SMEs and family groups.
The financial implications of a tax audit
The costs of responding to an audit can escalate quickly. Professional fees for tax agents, accountants, legal counsel, and valuation experts can run into thousands—or even tens of thousands—of dollars, depending on the complexity of the matter.
While the ATO allows deductions for managing tax affairs, these do not provide relief at the time the expense is incurred and do little to cushion the cash flow impact on practices or clients caught up in time-intensive reviews.
The role of tax audit insurance
Tax audit insurance provides vital protection by covering the professional fees incurred when responding to official audits, reviews, or investigations by the ATO or SROs. It ensures clients can respond comprehensively and professionally without being deterred by cost concerns, and that practitioners are appropriately resourced to manage risk and compliance.
Marsh and AuditCover
Marsh offers insurance solutions tailored to the needs of public practitioners, including professional indemnity and tax audit insurance.
Marsh has partnered with AuditCover to provide accountants with access to a dedicated tax audit insurance solution. AuditCover offers fair and flexible policies, automated onboarding and renewals, and clear coverage that aims to help firms protect their clients from audit risks without administrative burden.
Why accountants should consider tax audit insurance
- Mitigates financial risk of professional fees during an audit or review.
- Saves time and stress by providing a clear process and support framework.
- Demonstrates value to clients by proactively managing tax risk
- Builds firm efficiency with digital onboarding and coverage integration.
In summary
With tax authorities increasing compliance activity and expanding audit focus areas, public practitioners should ensure they are adequately protected for the year ahead. Through Marsh’s partnership with AuditCover, members can access an endorsed solution that supports them and their clients with certainty in times of uncertainty. Now is the time to ensure your firm and your clients are covered.
Find out more
References
[1] https://www.abc.net.au/news/2019-09-27/ato-audit-warnings-potential-fines-taxpayer-claims/11552238
[2] https://www.ato.gov.au/businesses-and-organisations/corporate-tax-measures-and-assurance/privately-owned-and-wealthy-groups/what-attracts-our-attention/areas-of-focus-2024-25