As mentioned in our email, we have recently had an increasing number of Clients (in particular new Clients) asking us if we offer Tax Audit Insurance.
At the same time, we have seen a genuine increase in compliance and audit activity from the ATO. This includes the biggest audit any of us have seen (which our Client passed with flying colours, but not before incurring literally thousands and thousands of dollars in costs to manage the process)!
Accordingly we have finally decided to offer Tax Audit Insurance to the CapitalQ Community.
What is Tax Audit Insurance?
In short, this is a form of insurance that covers (most) of the professional fees incurred as a result of an official enquiry, review, investigation or even full blown audit instigated by the Australian Taxation Office (ATO) and/or other government revenue agencies should such an event occur (this includes the Office of State Revenue, mainly in relation to Payroll Tax, and Workcover, in relation to Workers Compensation).
How long has it been around?
While not necessarily a common policy people sought out, Tax Audit Insurance has existed for some time for Clients to purchase directly with an insurer. We have also heard of occasions where such cover is sometimes provided as an add-on to other insurances (please check your insurance before deciding to proceed with our offer).
However some years back a new version of the product was introduced into the market that could be offered via Accountants to their Clients.
We have previously investigated the idea, but as we did not wish to be perceived as attempting to “sell” anything to our Clients, and because we saw very little activity from the ATO at the time which might require such cover, we opted not to proceed.
Many other Accountants out there did however decide to start offering it to their Clients, in particular over the past five or more years, and this allowed us to sit back and see how things panned out.
The good news is the feedback from other Accountants and their Clients (many of whom are now part of the CapitalQ Community) is that the cover has been very well received by taxpayers and it has provided very welcome relief for many of them.
So why have we changed our mind and decided to start offering such insurance now?
Mainly, because more and more Clients have asked for it. In particular a lot of these are Clients who have joined the CapitalQ Community from other Accountants where it was offered.
One such Client who is in an industry were a lot of audit activity occurs said he couldn’t imagine running his business without it, partly to cover the costs of constant enquiries, but also because it gives him the chance to fight back when the ATO are being unreasonably aggressive (see more below).
The other important reason is we have seen a genuine increase in activity, most specifically from the ATO.
While we have heard for years that they are receiving ever increasing funding from the Federal Government to allow them to undertake more and more compliance activity, we have really only started to notice it, beyond a few small matters each year, over the past 18 to 24 months. And feedback we have received from other Accountants is that the increase has been even more real for them and their Clients. This includes a friend who recently received a letter from the ATO advising that 100 of their Clients had been selected for review! So we feel it is important we give our Clients the chance to put in place some protection, in case the increased activity finds its way to them.
What is the product chosen to be offered by CapitalQ?
We have researched the market and we have decided to utilise the Audit Shield service provided by Accountancy Insurance.
The way the product works is that we hold Tax Audit Insurance in our business name, then, for those Clients who wish to also be covered for Tax Audit Insurance, we can include them and their entities in our policy.
The policy is therefore a group policy and it is underwritten by AAI Limited (trading as Vero Insurance), and it is the group nature that helps keep the cost of the cover affordable while providing coverage over a broad number of scenarios.
So what is actually covered?
Generally, should the ATO, the Office of State Revenue, WorkCover or some other government revenue agency –
- make an enquiry (including a simple phone call with some brief questions),
- commence a review,
- commence an investigation, or
- commence an audit
of a Tax Return, Activity Statement or just about any other lodged document or form of the insured Client, then …
The professional fees (including those that may be charged by CapitalQ, and should it be required those charged by any specialists and/or solicitors and the like whom we advise you to have assist in the matter) will be covered under the insurance, with no excess payable, up to the insured limit.
What is not covered?
If you incur costs as a result of not lodging your obligations, those costs are not covered (ie. you need to have lodged and then the cost arises as a result of investigations into what you have lodged).
If as a result of the enquiries you are found to have underpaid your tax or other obligation and are required to make such additional payment of tax or similar expense, then the insurance DOES NOT cover the extra tax or similar expense (largely because if this is the finding, you were legally obligated to pay it in the first place).
Any penalties or interest also applied to you ARE NOT covered.
The professional fees also WILL NOT be covered if, as a result of the investigation, you are found to have acted reckless and/or fraudulently (ie. if you deliberately underpaid tax or other obligation knowing you had little if any argument to defend your position and actions and the government body makes such a determination).
Professional fees you incur if you are no longer a Client of CapitalQ or if you incur them outside of our advice and service are also NOT covered.
Professional cost that exceed your insured limit.
What are the key benefits?
You will need to make your own assessment of the appropriateness of such insurance for you and your family and your business and investment entities. Unfortunately as much as it frustrates us, under the laws of the land we are not permitted to make a recommendation to you whether to take the cover, or to not take the cover. We may only offer it to you and leave the decision to you.
However we can spell out some key facts –
- The cost of the cover will be deductible to all CapitalQ Clients who decide to take it up, there is some free tax advice ;). This means the actual cost to you could be as little as 53% (for those on the top tax rate) of the actual cash outlay, after you take into account the tax saving.
- The policy we have chosen covers among the broadest range of possible events in the market. The majority of enquiries received from the ATO or other agencies will be covered.
- There is no excess to pay when you make a claim, so there is nothing holding you back from making a claim no matter how small.
- The claim process is handled by us, so you don’t even need to at first pay our costs associated with an insured event and then attempt to claim them back from the insurer. We simply send our invoice directly to the insurer and they pay us directly avoiding any strain on your cash flow.
- As alluded to above, Clients who have joined the CapitalQ Community who have used such insurance in the past have told us that because the cost of fighting was covered under their policy at the time, they were able to push back much harder and not just give in. This resulted in a much better audit outcome, including at times the government agency choosing to walk away rather than incur more time and costs fighting.
- Your past returns and other lodged documents are automatically covered, including any lodged by yourself or by other Accountants or service providers.
- There are few expenses people hate paying more than those incurred in responding to and dealing with government department enquiries. This is because these costs usually arise through no fault or doing of the person involved (nor their Accountant) and yet they get hit with the bill and see nothing for it. This insurance removes the sick feeling in these circumstances.
How do you take up the insurance?
We will soon be sending emails to all CapitalQ Clients offering them to join our group Tax Audit Insurance known as Audit Shield. The email will include the invoice for your insurance premium which will be determined based on your affairs including income source, business activity and size and the like.
If you wish to accept the offer, simply pay the invoice, and your cover starts the next day!
Do you have to take out the insurance?
ABSOLUTELY NOT! It is entirely OPTIONAL!
If you have no interest in the cover that is totally fine. In this case you have two choices –
- Ignore our email – This is not our preferred option, but it is your prerogative. We will send only one reminder email which you may also ignore, and that being the case you will be considered to have rejected the offer. You will however be offered it again next year.
- Once the offer email is sent, let us know you are not interest – This is definitely our PREFERRED option. We realise it will take a small amount of time and we do apologise for this, but it means we won’t send you a reminder AND we won’t offer it to you again in the future. So a small amount of time spent upfront, helps avoid having to ignore our emails on the matter in the future.
Just to let you know, we estimate no more than 20% of Clients will take up the offer, so we totally expect most won’t be interested, and that is fine!
What do we get out of offering the insurance to our Clients?
We want to make sure our Clients know everything about the process and what is in it for us, so they can make an informed decision and so there is nothing to hide. So we believe there are four main things we get out of it –
- The premium most Clients pay will include a small fee to cover our administration costs relating to managing the insurance process. We can assure you, the amount we will receive is little incentive to make the offer, it just covers our time and costs to do so. (Please note that Salary and Wage Earner Clients will not be charged this fee to help keep the cost for them to the absolute minimum).
- If we offer the insurance to at least 80% of our Clients (which we will be doing), the insurer will not charge us to be covered (ie. If CapitalQ is audited we will be covered, but the insurer will have waived our premium for such coverage because we will be making this offer to all our Clients). The truth is this has little value, because if we got audited, we would deal with it ourselves, and we can’t invoice ourselves and try to claim it on insurance! The value might exist if we got in a big fight and we engaged solicitors to help us take it to court (which we suspect, or at least hope, is highly unlikely to ever happen).
- When audits and the like occur, our Clients hate paying us for our time to deal with it (which we understand). But of course when we incur that time assisting them, we nevertheless need to be paid for our work. So having this insurance in place helps improve our relationship with many of our Clients, avoiding having to charge them fees under what are often hugely frustrating circumstances.
- We get to keep many Clients who want the insurance happy by now offering it to them, and hopefully the rest of our Clients who hadn’t asked for it or who didn’t know it existed, will at least see that we are actively working to provide them with potential solutions to potential problems.
Want to know more?
Best person to talk to about our Tax Audit Insurance offering is our Director, Duncan Melbin. So please give our Office a call on 08 9228 7100 and he will be more than happy to talk you through the process and answer your queries and concerns.
You can also visit the Acccountancy Insurance and Audit Shield websites. They are, admittedly, directed more at Accountants and convincing them to offer the service to their Clients, but nevertheless it will provide some valuable information for you –
