Since the Australian Taxation Office (ATO) is focusing its efforts on tax compliance to reduce the $8.7 billion gap between the expected collections from individual taxpayers and the taxes that have been collected, it becomes more important to obtain chartered accountant insurance for protection. The number of audits that will be initiated by ATO are expected to increase.
Based on ATO’s study of individual tax returns, it was found out that 72% contained errors from incorrect claims for work-related expenses to rental property expenses and failure to report cash wages. It is easier for ATO to cross-check info from different sources to recognize the breaches through sophisticated data-matching technology.
Accountants can expect an increasing number of queries regarding tax returns. According to Craig Laughton, Executive General Manager of Policy, Advocacy and Public Practice at CPA Australia, the cost incurred in responding to a tax audit or government compliance investigation will become a controversial issue between an accounting practice and its clients.
The audit process is time consuming because of the time required to make preparations to respond to audit findings. Having an appropriate tax audit insurance coverage will cover the costs associated to the tax audit. However, accountants must be alert because there are pseudo tax audit protection services being offered.
On the surface, it would appear that pseudo insurance is a cost effective solution but underneath it all, the accountant may be paying for a service that has no insurance backing. It is important to check what the insurance policy covers and what it doesn’t. Instead of an audit risk being transferred to an insurance firm, they are only self-insuring because there is no associated external insurance cover.
Accounting practices that do not have proper insurance may find themselves at a disadvantage because the associated costs of responding to a tax audit can be substantial.
It is definitely worth having chartered accountant insurance that will cover the professional fees resulting from an official audit, enquiry, investigation, review or examination instigated by Inland Revenue or New Zealand Government Authority. Once there is insurance, the risks are transferred to the insurer that will pay for the total costs of responding to a tax audit.