I am often asked about audit insurance that some firms market to all clients. One of the benefits of EBM rental policies is the cover for audit fees relating to a tax audit / enquiry. Its available ($1,000 cover) on LL policies except the shortstay policy.
@Paul@PFI , I've heard that roughly 7% of returns are audited, what percent of your firms clients would you say receive a full on audit from the ato. Ie not just a "we cross checked your data with another organisation and it seems you forgot to include interest from cba, if you do nothing we will amend your tax payable to include the interest" Any major corrections/challenges from the ATO that come to mind? On a slightly different note, but still a government organisation conducting investigation....3 years after claiming the FHOG in Victoria, my Accountant received a letter from the SRO which questioned my eligibility for the FHOG due to me also declaring rental income for the property within the first 12 months. The Accountant forwarded the letter to me and I handled the SRO's queries directly, which involved answering questions via phone, forwarding copies of utility bills in my name for the 12 month period following settlement. I had a granny flat arrangement, so whilst I still occupied the property as my PPOR I also received rental income which I declared hence causing a red flag for SRO to investigate. I checked with SRO prior to claiming and they said as long as you live there for 12mths within 12 mths of settlement, we don't care if you rent out other parts of the property. So I was eligible, claimed it and the investigation 3 years later also said I was eligible. Even though you believe you have done the right thing, it can be an anxious time when you are being investigated
I cant say I have ever had a IP client targetted for a full blown audit who was an existing client. I would either have a problem client or do something wrong to get to that point. Enquiries that never eventuate to an audit from time to time are common and the art is in how you manage that part. eg I NEVER embellish or lie for a client. I find the facts and then answer questions. If I dont I can be accused of misleading the ATO and its not good for a tax adviser. And they just dig deeper. I get enquiries from ATO time to time but when well managed and handled correctly the ATO staffer is satisfied and thats it. Also how I present it - I used to audit a bit and know what ATO are sniffing around for most times. They want to see the property exists, that the client approach is diligent and when I need it I have all the supporting records from the client. I will discuss with client first to discover any things they need to disclose so I can diminish penalties if its a issue. Ask for their records and re-check the return based on these. The big risks for property are from errors, omissions and mistakes. We try to help guide clients with preparation so they dont get to that point. But I cant also accept all clients tell me all the truth so I have to be guarded with how I report back to the ATO too. I represent the client not the ATO and dont want to make a problem worse...I have to improve it even if all I can do is get reduced penalties. I would rather spend time explaining to a client who added a new roof to a IP why it is or isnt a repair and be diligent that it wont bite them later. But I wont lodge a return I know is wrong. Or check maybe a large deduction for a gift...We may ask for the receipt prior to lodging if its large so we know it is deductible and not a auction item or not a deductible gift !! I keep that info on file and its routine to just get client OK and give the info to ATO. A very simple and short exercise. Matter closed. I have had several come to me with issues with the ATO. Usually though blind ignorance or reckless indifference. The best outcomes are those who DONT talk to ATO but engage me to do it promptly. The worst thing you can do is admit to a error thinking they have nothing to hide. They say stupid things to the ATO and dig a huge hole. 7% - I wouldnt think so. Maybe there is a firm out there who are uber dodgy and they have 20% + I dont know. Those ommitted interest etc ones are usually OK - Automated and sometimes ATO just say - Dont do it again and thats it. I have noted a increase in CGT enquiries re late lodgers. If you have a large CGT event dont lodge late is my tip. The ATO seem to have a correlation between late lodgement for property CGT and it being wrong. Its surprising how they can estimate the CGT on these issues....Often scarily close. When I mean late I mean 30June 2016 lodged after 30 June 2017.
Don't forget that there are multiple levels of "audit" from a simple "please justify your claims" letter - to a "please explain this inconsistency" - right up to a full blown "show us everything you've ever done and prove it all". Sometimes they'll target a specific industry or sector and send form letters or questionnaires to people to try and encourage compliance and catch the obvious problems. Other times they'll target people making certain types of claims and ask them to justify it. I wouldn't imagine that anywhere near 7% get a full audit - there's simply not enough days in a year to be auditing that many people every year, but if you include the other simple things the ATO asks people to clarify or justify, I could imagine the number overall is possibly that high.
And there are firms that get focussed audit attention. This was VERY evident with hybrid trusts. Specific firms had s264 notices issued and ATO had their client lists. Sample or 100% audit and targets. Even if they changed tax agent the ATO had them in focus.
Our son was audited (Checked?). From memory he got a letter then a couple of phone calls. All information verified and ATO approved all deductions. He reckoned it was not at all unpleasant, treated courteously at all times. Marg
Accountants market audit shield but why? to protect you or to get a healthy clip of commission? If an accountant markets it, ask, whats in it for them? why are you paying a CA/CPA firm to lodge your return and need to fork out for insurance? Cheers Ivan
I have to agree. It is a commissioned product. That seems to only compensate the tax adviser for their client issue. The client cannot seek independent advice and claim that cost. The biggest concerns I have are that: - They must market it to all clients, even those with no perceived risks - The insurer offers to handle that communication and this can expose a privacy risk
