Hi, today I received a letter from my accountant (whom I have used for many years to prepare my tax return). I am just a wage earner, with simple tax return. Has anyone heard of ATO audit insurance before? Is it worth taking out such insurance? (There are so many insurances: Life insurance, income protection insurance, credit card insurance etc etc ). I would greatly appreciate advices/opinions on this. Thank you.
My Accountant Asked Me to Buy ATO Audit Insurance
TheMatrix on 18/07/2016 - 16:19
Comments
This is just another product that accountants can earn a commission on and is a very common recommendation. As you know, even if you prepare a tax return using an accountant you are ultimately responsible for the return.
As a general wage earner with simple tax returns, it is unlikely you will be audited and if so, if everything is in order, there will be no problems. I think you will find that all of the accountant's clients received the same letter.
I don't believe this kind of insurance is worth the cost, for you.
I think if an accountant is not disclosing this commission to the client they are being unethical.
The Professional bodies need to address this.
From H & R Block
As an H&R Block client, should you be audited on work we have done, we'll help you respond to all ATO enquiries and accompany you to audits to explain how your return was prepared - at no extra cost to you.
One of the reasons you go to an accountant is to make sure your return is compliant. H & R deal with returns similar to yours and so stands behind them. Your accountant most likely deals with more complex returns and is really offering the insurance to them. It can cost companies heaps for compliance.
thank all for your inputs/advices. Mine charge $125/year. @Sweet3St: I could phone my accountant for advice but he probably say I should buy it…haha. @Baysew: I like the way H&R Block treat their clients….
i advise anyone not to use H&R Block though…
Unless you're running a size-able active business, its probably not of value to you.
These insurances cover accounting and consultants fees for attending to compliance audits/reviews of the tax office, and depending on the policy, state revenue office (payroll tax), worksafe premium audits, etc. Business owners probably best to speak to their insurance broker about it - odds are they will source it cheaper than your accountant will have provided to them.
That said, the premium on these products offer incredible value for money in the event of an audit, with little premium adjustment subsequent to claims.
For a wage earner with simple return, what does an audit involved?…the tax office would ask you to produce a receipt that you claimed as a work related expense deduction 2 years ago… and you provide the receipt…. Can the accountant provide a lot of additional benefit in this case? I have never been audited before, so I don't know exactly what it entail or how much the whole process would cost (the insurance stated it cover for up to $10,000).
As a former tax accountant, I can tell you that there is no need for you to sign up for the insurance. The reason why you received the letter is that the accounting firm is required by insurance company to send this letter to its existing clients and future clients (At least that was the case for my previous firm). It is one way earning extra revenue for an accounting firm.
thank you @tduncan21.
To be honest, if my accountant sent me that I'd be looking for a new one.
My thoughts exactly.
I was a bit disappointed with his service lately… I have been with him for many years and I sometimes rely on him to tell me, in his professional opinion, what financial services/insurances(?) do I REALLY need, since he knows my financial situation quite well… well these days I supposed everyone try to earn an extra buck with all these add on sales….. The letter seem to be one of those generic mass mailing letter.
But do you have volcano insurance?
Lol…. The only insurances I have so far are home, car and health insurances….. but one day if we ever move to Japan, volcano/earth quakes insurance may be a good idea as long as it does not cost that much lol
lol….lol
Omg i can't believe This is a thing!!!
If you're paying a tax agent to do your tax return they should be doing it right the first time so that if you did get audited you'd have a nice little envelope with your tax return, working papers and receipts. Boom. Done. No issue. If you're nothing more than an employee your tax affairs are simple AF. Your agent should be explaining every deduction to you so you understand what you're claiming..and signing. And unless you're being super dodgy in your return, the ATO will help you through the audit. If youre being legit (or at least relatively legit) you don't need a tax agent to help you through an audit.
Audit insurance. Omg lol.
I really think they should teach tax basics in school like part of Commerce classes.
One last thing since it is tax time afterall.
Using a tax agent does not protect you from penalties if you get audited and they find bogus claims. You are liable for any tax + penalty + interest. Only if you can prove you gave your agent all the info and s/he didn't act with reasonable care can you try to claim safe harbour (relief from penalty). But if the agent is reckless or intentionally dodgy then you're still liable to penalty.
Audit does not imply a mistake was detected. A random audit can be initiated to confirm a return is accurate. It does not necessarily inidicate that the Agent is unprofessional or incompetent.
Well the ATO doesn't do random audits. They use risk engines/risk rules to pick up returns. But other than that you are correct. Just because you are picked for audit,doesn't mean something is wrong or the agent is bad. However, if your agent is worth their paycheck and your affairs are simple, you should be able to handle a simple individuals audit yourself with the help of the ATO auditor.
Let's not forget that a lot of audits are conducted due to tip offs also…and majority of tip offs come from friends or family unfortunately
If ATO audit insurance is one of the deductions, what if ATO does a preliminary check? Might seeing this trigger a fuller audit? :-)
As an accountant I feel very strongly against this. For two reasons, one it's commission based and anything commissioned based always had a hidden agenda. Secondly you are creating a need. I think people's comments above sum it up nicely. From my perspective if a client is highly organised with their receipts then the leg work involved is minimal. Even at a cost of 160 per hour for accountants time on the job I can't see value for money over the long term. Unless you're a high risk client…
On the other hand. If you are that way inclined and feel you need it. Shop around…for both insurance and a new accountant :P
I receive one of these letters every year and ignore it consistently.
However the ATO will target certain professions, particularly those who handle cash as their main income and those where it may be suggested that it is easier to conceal income. They are usually pretty open about who they target each year.
If you are in one of those target categories you may think it is a worthwhile investment.I also received one earlier but decided not to take it.This will be good for people who have business income/high deductions;
Speaking as an accountant, even if you were a business owner that insurance would not be worthwhile. It's simply another revenue stream for the accountant. In the event that you do get penalised by the ATO for claiming something you're not allowed to, that insurance won't cover the penalties you would have to pay. It's not worth it. People who purchase it are simply making their accountant that little bit richer at their expense.
Many people posted above that the Accountant will get commission. I just wonder how much commission s/he is going to get out of a $50-$120 policy? Compare to the cost of sending out the letters, time and stamp, is it really worthwhile?
Probably get a junior assistant to do a client data base "mail merge" using a template…., in my letter, it say automatically renew every year once I sign up.
The problem with these sort of marketing/sale letter is that it make you lose trust in your accountant advice…..
You miss the point entirely. There is usually an upfront commission that may be 50-100% of the first years premium. Then trailing commission is paid each and every year. Even if its only $5 per policy. If the guy sells 100 policies thats $500 every year for jam plus any upfront commissions.
Firstly what does it cover? If its just your accountants fees in case you get audited and you are just a wage earner then probably not. If it covers you for errors and omissions that may be subject to fines then that depends if you think there may be some in your tax returns. At the end of the day all accountants are conservative and will make such recommendations just to cover themselves. And yes, they probably make a commission from it as well.
Only cover accountant professional fee for attending to the audit… Error/omissions/fines etc are not covered.
This sounds like an insurance that has a built in 'legally justifiable' reason NEVER TO PAY OUT !
How much are people paying their accountants to do their tax return?
I pay $175 each for my wife and my returns. We have simple finances, but it gives me peace of mind and he always gives me free advice (to a point) if I call up asking about something about how to structure a loan, plan for the future or whatever. So it's worth every cent for me.
If you do e-tax, you can save the reply and exasperation etc… I'm curious what the going rates out there are for those who choose to use an accountant :)
$350 for me. See him about 20-30 min per year for the return. If I ring him up for advice, he charged on top, @ $350/ hour.
Would you say your tax is easy medium or
complex?Very easy, I could have easily do it myself, but out of a sense of loyalty to him, I keep going back to him. He has industry specific knowledge that I occasionally consult him (not related to my tax return).
Interesting….I also received a notice from the accountants requesting 450 dollars per year for audit insurance. It doesn't disclose any commissions. Given they have tried tocharge 7k per quarter for a simple company and I am doing everything through xero you would think the insurance would at least me complementary:P
I wonder who I could report this to…Do your accountants tell you in advance what fees they will/can charge?
No, and I have not asked him yet. I think it is part of “add on” sale to make extra cash as I am pretty sure he get an on going commission from the insurance company.
Yes, you would think they need to disclose the commission. As if they don't make enough as it is. What do other people pay for a company and individual tax return, payg summaries and end of financial year BAS?
Hey Lilbee, as an accountant it is hard to say how much we would charge for your work without seeing what is involved, but assuming your work is not very complex and only involves what you describe, we would likely charge in the order of $3,000 - $5,000 for the year.
I can't imagine how they can justify $28,000 for the year. If their average charge-out rate is $300 per hour, that is over 90 hours of work they are charging you for, or 3 full days work per quarter. And in reality, the person actually doing most of the work probably only has a charge out rate of $150 per hour. Your Xero file would need to be a horrific mess to justify that kind of time. If that's the case, you'd be better off getting a bookkeeper.
Otherwise, I can only assume your turnover and profits are substantial….
I have voluntarily taken this up, but I run a business. It was pretty cheap I recall, $50 a year? It just covers you for your accounting expenses if the ATO decide to audit you. If you have a simple return, I wouldn't worry, you can chase up any extra documentation for the ATO yourself if the worst happens. Your accountant has probably sent the same advice to all his clients. Why not phone your accountant?