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Professional Indemnity Insurance for Tax and BAS Agents

Written by

Shaun McGowan

When you provide Tax or BAS Agency services your clients are relying on you to keep their financial records in good order and to prepare and file income and activity statements on their behalf with the tax authorities. You may also provide advice on compliance with tax legislation. If you make a mistake, such as understating their income or miscalculating the amount of GST payable, they could face serious consequences including reputational damage, interest charges and potentially severe financial penalties.

To register as a Tax or BAS agent you have to have certain qualifications and experience – which means that your clients have the legal right to rely on your expertise and advice. If you make a mistake that leads to financial loss for them, they can sue you for compensation. They may claim:

  • You made an error in their financial records
  • You gave them incorrect advice about how to comply with tax laws
  • You miscalculated their tax payments
  • You did not complete your work on time, leading to late payment penalties

Even if your client provides you with incorrect or incomplete records you may still be at risk of a negligence claim.

Why do Tax and BAS Agents need professional indemnity insurance?

To legally offer your services as a Tax or BAS agent you have to register with the Australian Government’s Tax Practitioners Board. One of the requirements of registration under the Tax Agent Services Act 2009 is that you set up and maintain ‘adequate’ professional indemnity insurance. The level required is dictated by the turnover of your business and the minimum cover you will need is is as follows:

Turnover: Up to $75,000 $75,001 - $500,000 Over $500,000

Minimum cover: $250,000 $500,000 $1,000,000

What does professional indemnity insurance cover?

You may already have public liability insurance, but this will only protect you for any physical damage you may cause to another person or their property. Your professional indemnity insurance will protect you if one of your clients suffers a financial loss because of an error you make, or as a result of following your advice.

Your PII policy will pay for any damages that are awarded against you, up to the limit in your policy. It will also cover your legal costs if you need to defend yourself a negligence claim, whether or not the claim is accurate.

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How much is professional indemnity insurance for Tax and BAS agents?

Your professional indemnity insurance premium will be based on a number of factors, including:

  • Your turnover
  • The amount of cover you wish to take out
  • Where your practice is located (you will pay different levels of stamp duty in different states)
  • The kind of services you provide
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Professional indemnity insurance case study

An SME with 18 employees hired an individual BAS Agent to advise them on calculating superannuation guarantee payments for their employees, and to prepare and file their BAS statements. The BAS Agent made a serious calculation error in one of the quarterly activity statements, which resulted in the company making a substantial GST underpayment.

When the error was discovered the company sued the BAS Agent for the costs of responding to an audit by the Australian Tax Office and for the penalties and general interest that they were charged on the unpaid tax.

Damages of $35,000 were awarded against the BAS Agent. His professional indemnity insurance covered these plus his legal costs of $15,000.

List of Tax and BAS Agency services that need professional indemnity insurance

Anyone acting as a Tax or BAS agent is required to have professional indemnity insurance as a condition of registration. If you intend to provide and charge for any of the following services you will need to register with the Tax Practitioners Board and purchase adequate PII.

  • Bookkeeping
  • Preparing and filing Business Activity Statements
  • Processing financial transactions
  • Designing and implementing BAS compliance systems
  • Advising on compliance with GST law
  • Advising on compliance with other tax laws
  • Calculating Superannuation Guarantee Charge payments
  • Advising on Superannuation Guarantee - Charge requirements

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About the Author

Shaun McGowan from money.com.au

Shaun

McGowan

Shaun McGowan

Shaun is the founder of Money.com.au and is determined to help people pay as little as possible for financial products. Through education and building world class technology. Previously Shaun co-founded CarLoans.com.au and Lend.

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