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Professional indemnity insurance for tax (financial) advisers

Professional indemnity insurance for tax (financial) advisers

Professional indemnity (PI) insurance is a consumer protection mechanism to compensate your clients in the event they suffer loss due to an act, error or omission as a result of tax (financial) advice services you provide.

You must maintain PI insurance that meets our requirements during your period of registration as a tax (financial) adviser. 

If you fail to maintain PI insurance that meets our requirements, you will not be meeting an ongoing registration requirement and will be in breach of the Code of Professional Conduct (Code). This can result in termination of your registration.
 

Key differences between TPB and ASIC requirements

Implementing a staged approach to requirements

Do you need to have your own PI insurance policy?

Summary of minimum PI insurance requirements

Notify us of your PI insurance details

Key differences between TPB and ASIC requirements

Our PI insurance requirements are generally consistent with the Australian Securities and Investments Commission’s (ASIC’s) requirements for Australian financial services (AFS) licensees. However, there are two key differences:

  1. we require PI insurance coverage to include tax advice. ASIC’s requirements do not extend to tax advice
  2. our PI insurance requirements apply to all representatives who are registered with us (including authorised representatives) and not just AFS licensees.

Implementing a staged approach

Until 31 December 2016:

  • Your current PI insurance policy can continue even if it does not meet our requirements until 31 December 2016.
  • If your current policy expires during 2016, the renewed policy must meet our requirements.
  • If you are taking out a new policy during 2016, it must meet our requirements.

From 1 January 2017:

  • You must have PI insurance that meets our requirements.

Do you need to have your own PI insurance policy?

If you charge a fee or receive a reward for the provision of tax (financial) advice services, you will need to have a PI insurance policy or cover that meets our requirements.

If you do not charge a fee or receive a reward (for example, you are an employee or contractor) you will not need to have your own PI insurance policy in order to meet our requirements. However, if you are an employee or contractor, you will be required to provide us with the name of your employer or principal and their registration number.

Regardless of whether you charge a fee or receive a reward, you have to notify us of how you meet our PI insurance requirements.

Summary of minimum PI insurance requirements

You need to maintain a policy or have cover that meets your needs as well as our requirements.

Amount of cover
 

Tier

Turnover of your business

(excluding GST)

Minimum aggregate amount of cover*

(inclusive of legal and defence costs)

1 $2,000,000 or less $2,000,000
2 Over $2,000,000 Equal to actual or expected revenue from tax (financial) advice services (up to a maximum of $20,000,000)

*Please note that what is an appropriate amount of cover for you may in fact be more than what is set as the minimum requirement.

Scope of cover

The policy must include civil liability arising from any act, error or omission in the provision of tax (financial) advice services.

Legal/defence costs

The policy must provide legal and defence costs ‘in addition’ to the minimum limit or the level of cover must be sufficiently increased to take into account these costs.

Persons covered

The policy must cover:

  • you (or the tax (financial) adviser taking out the policy)
  • directors, principals, partners, representatives and employees who provide tax (financial) advice services on behalf of you (or the tax (financial) adviser taking out the policy)
  • contractors, if they do not have their own PI insurance cover, then you (or the tax (financial) adviser taking out the policy) must have cover that includes the work of contractors for which you (or the tax (financial) adviser) are liable
  • any other individuals or entities that provide tax agent services on behalf of you (or the tax (financial) adviser taking out the policy).

Exclusions

The policy must not have the effect of excluding cover for the work of contractors if the result is that there is no cover for the tax (financial) advice services that are provided to the client.

Further, if exclusions in a PI insurance policy undermine the policy objective or remove a minimum requirement, the cover will not be adequate.

Excess/deductibles

You must undertake an assessment of your financial situation and ensure that the excess is not set at a level which you cannot meet.

Insurance provider

PI insurance cover must be provided by:

  • an APRA approved insurer
  • an insurer who is not APRA approved but otherwise permitted to provide insurance in Australia under the Insurance Act 1973
  • an unauthorised foreign insurer if they are providing insurance in accordance with Part 2 of the Insurance Regulations 2002, or
  • other insurance providers as approved by us.
     

Retroactive cover

Your policy must provide retroactive cover. This means your new policy must cover you to the earlier of:

  • the retroactive date specified in the current PI insurance policy you are renewing, or
  • the start date of your first PI insurance policy if you have had a series of continuous policies.

For further information about our PI insurance requirements, please refer to Professional indemnity insurance requirements for tax (financial) advisers TPB(EP) 05/2014.

Notify us of your PI insurance details

You must advise us how you meet our PI insurance requirements within 14 days of receiving notification of your registration, unless you have already provided this information in your online application form. You need to provide us the details of your PI insurance policy or cover, or the details of the registered tax practitioner who holds a PI insurance policy that covers you.

To advise us of your PI insurance arrangements:

  • visit www.tpb.gov.au/myprofile
  • enter your Username (your registration number) and Password and sign in
  • select PI INSURANCE from the left hand side menu and update your details.

You must also update your details whenever there is a change in your policy, including every time the policy is renewed.

Further information