Posted: 18 January 2025 9:30 pm
Team: SMSF Life Insurance
3 minute read

Table of Contents

• Introduction to SMSF Property Insurance
• Why SMSF Property Insurance is Essential
• Key Features of SMSF Property Insurance
• Who Needs SMSF Property Insurance?
• Benefits of SMSF Property Insurance
• Types of Risks Covered
• How to Choose the Right Policy for Your SMSF
• Common Mistakes to Avoid
• How SMSF Property Insurance Works
• How Much Does SMSF Property Insurance Cost?
• SMSF Property Insurance and Tax Deductions
• Frequently Asked Questions
• Compare SMSF Property Insurance Policies

SMSF (Self-Managed Super Funds) property insurance is a specialized form of insurance tailored to protect properties owned through an SMSF. These properties, whether residential or commercial, represent significant investments for fund members and play a crucial role in securing their financial future. SMSF property insurance provides coverage against risks that could jeopardize these assets, such as natural disasters, vandalism, or liability claims.

What is SMSF Audit Protection Insurance?

SMSF Audit Protection Insurance is a specialized policy designed to cover the costs associated with an audit or investigation of your SMSF by the ATO. These costs can include accounting, legal, and professional fees incurred during the process. Unlike general insurance, audit protection is not about covering penalties or tax liabilities; it specifically helps trustees manage the financial and emotional toll of compliance audits. Some of the key features include (but are not limited to);

• Coverage for the professional fees – which might include accountants, lawyers and SMSF specialists
• Support during audits by the ATO, reviews and or investigations
• Applicable to past and current tax years

Common misconceptions about SMSF Audit Protection insurance

There are generally two (2) major misconceptions which are as follows:

• It’s not a penalty waiver: Audit protection insurance doesn’t cover fines or unpaid tax amounts.
• It doesn’t replace compliance: Trustees still need to maintain SMSF compliance to avoid penalties.

Why do SMSFs need audit protection insurance?

1. Increasing Audit Risks
The ATO has intensified its focus on SMSFs in recent years, particularly in areas like early release schemes, incorrect asset valuations, and compliance breaches. Random audits are also common, regardless of a fund’s compliance history.

2. High Costs of Audits
An SMSF audit can cost thousands of dollars, even if no errors are found. Costs can include: Accounting fees to provide documents and explanations Legal advice to clarify compliance issues Consultancy fees for specialized SMSF assistance

Real-Life Scenario – Imagine your SMSF is selected for a random audit. Even if your fund is fully compliant, you could still face professional fees of $5,000–$10,000 to satisfy the ATO’s requirements. Audit protection insurance would cover these unexpected expenses, allowing you to focus on your investments.

Benefits of SMSF Audit Protection Insurance

1. Financial Security
Audit costs can escalate quickly. This insurance ensures that professional fees are covered, reducing the financial strain on your SMSF.

2. Peace of Mind
Knowing you’re protected against the costs of an audit lets you focus on managing your fund confidently.

3. Compliance Support
The insurance often provides access to professionals who can guide you through the audit process, ensuring your SMSF remains compliant.

What does SMSF Audit protection insurance cover?

While coverage varies between providers, most policies include:

• ATO Audits: Professional fees incurred during an ATO investigation.
• Legal Advice: Assistance with interpreting and responding to compliance queries.
• Accounting Fees: Costs for preparing and submitting required documents.
• Consulting Services: Specialist advice on complex compliance issues.

Exclusions to the audit protection insurance:

• Fines or penalties imposed by the ATO
• Tax liabilities
• Fraud or intentional non-compliance

Who should consider SMSF audit protection insurance?

Audit protection insurance is particularly valuable for:

• SMSFs with complex structures or significant assets
• Trustees who prefer professional assistance during audits
• Funds with a history of compliance issues or discrepancies

IMPORTANT NOTE: Even if your SMSF is fully compliant, the potential costs of a random audit make this type of insurance something to potentially consider.

How to choose the right SMSF audit protection insurance

When selecting an insurance policy, consider the following factors:

• Premiums: Ensure the cost fits your SMSF’s budget.
• Coverage Limits: Verify the maximum amount the insurer will cover per audit.
• Provider Reputation: Choose a provider with a strong track record in the SMSF market.
• Exclusions: Read the policy details carefully to understand what isn’t covered.

HOT TIP: Ask your accountant or financial advisor for recommendations, as they often work with trusted insurance providers. Or use our comparison tool at no charge

Cost of SMSF audit protection insurance

The cost of audit protection insurance can vary greatly. It is not uncommon for the cost of the insurance to range anywhere from $200 to $500 annually. Things that may impact the cost to you include the overall complexity of your SMSF, the level of coverage you might require and the provider’s actual pricing structure.

These might seem like an additional expense that is tacked on, however, it is a drop in the ocean when you compare to the potential costs audits may cost you – which can run into thousands of dollars

SMSF audit protection insurance vs other risk mitigation strategies

1. High Compliance Standards
   Maintaining accurate records and adhering to ATO guidelines reduces the likelihood of compliance breaches but doesn’t eliminate the risk of random audits.
2. . Professional SMSF Management
   Engaging a professional SMSF administrator can enhance compliance but won’t cover the costs of an audit.
3. Audit Protection Insurance
   Combining audit protection insurance with strong compliance practices provides the most comprehensive risk management strategy.

Steps to get started

Assess Your Needs: Determine the level of coverage your SMSF requires based on its size and complexity.
Research Providers: Compare policies from reputable insurers specializing in SMSFs.
Consult Experts: Seek advice from your accountant or financial advisor.
Purchase a Policy: Once you’ve chosen a provider, ensure your policy is tailored to your SMSF’s needs.
Maintain Compliance: Continue adhering to ATO regulations to minimize the risk of audits..

Common Questions About SMSF Life Insurance

Compare SMSF Property Insurance Policies

NOTE: This information is general in nature and does not take into account your personal circumstances.