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Demand for tax audit insurance among small businesses is rising as the Australian Taxation Office increases scrutiny of several sectors, according to BizCover. The insurer linked the increase to compliance attention on building and construction, cleaning, and professional services.
Figures from the insurance comparison platform show a 36% rise in new customers buying tax audit cover from FY24 to FY25, followed by a 64% increase from FY25 to FY26. It also reported a 21.8% year-on-year jump in businesses taking out the cover as warnings about ATO scrutiny spread among small business owners.
The increase suggests growing concern about the cost of responding to an ATO review or audit, even when no wrongdoing is found. Those costs can include accountants' fees and other professional charges associated with gathering records and responding to queries.
ATO figures cited by BizCover show the tax office conducts about 2 million reviews and audits each year of businesses and individuals. These checks look for omitted or underreported income, incorrect or overstated deductions, discrepancies in contractor income, and misuse of small-business tax concessions.
Not every review becomes a full audit, but even minor inconsistencies can attract attention. The ATO can generally audit a small business for up to four years, increasing the paperwork and professional support needed once a case is opened.
Ricky Prasad, Chief Financial Officer at BizCover, said smaller firms often underestimate the direct cost of tax compliance. "Many small business owners underestimate the real cost of responding to ATO compliance checks, which can add up to thousands of dollars in unexpected professional fees even before a single issue is resolved," Prasad said.
Building and construction, cleaning, and professional services have been identified as sectors likely to face greater compliance attention. That comes as many small firms are already under pressure from rising operating costs and tighter cash flow.
Audit focus
One focus area is income reporting. The ATO uses data matching to identify contractors and businesses that may have incorrectly reported or omitted income, including payments and GST-related amounts, BizCover said.
Another is deductions. Unusual claims, work-related expenses that do not meet the rules, and home office deductions can all attract closer examination. Small businesses also need to track changes affecting tax concessions such as the Instant Asset Write-Off.
The tax office is also making wider use of data matching, analytics, and artificial intelligence to identify behaviour outside expected patterns, according to BizCover. That increases the chances of anomalies being detected earlier, particularly in sectors with complex contractor arrangements or fluctuating expenses.
Prasad said tax time often exposes issues that have built up during the year. "At the end of the financial year, small businesses should consider how to manage the financial impact of compliance checks. It's also important to remember that the ATO can generally audit a small business for up to four years," he said.
Insurance products aimed at tax audits do not cover unpaid tax liabilities or penalties, but are designed to cover the professional costs of responding to an audit or investigation. For smaller operators, that distinction matters because the immediate burden is often the cost of hiring accountants to prepare files, review historical records, and manage correspondence.
Customers who chose to pay monthly typically paid AUD $41.90 for tax audit insurance in FY26, according to BizCover. The company offers cover limits of up to AUD $50,000 through selected insurers.
Small business pressure
Growth in tax audit cover also reflects broader caution among small businesses as compliance requirements become more data-driven. Owners in service industries often rely on external accountants and bookkeepers, which can increase costs when the ATO requests detailed supporting documents spanning several years.
Prasad said the purpose of the insurance is to soften that financial hit, not avoid obligations.
"The aim is not to avoid tax obligations, but to reduce the financial impact when issues arise," he said. "Tax time is when everything is reconciled, and that's often when issues come to light. Audits can be time-consuming and costly because they require significant time and paperwork to address properly, with accountants often reviewing several years of records. Those professional fees can add up quickly."
BizCover says it serves more than 300,000 businesses, and that one in 10 insured Australian businesses uses its platform to compare and buy cover online.