In 2021 Tax Tips

Moral Compass and Taxation in Australia

It is common knowledge that the tax system in Australia is one of the most complicated in the world. Paying taxes, however, is a vital component of being a responsible and productive member of society, and despite the fact that many individuals find the complexities of our tax system to be intimidating, it is crucial to keep this in mind.

What does your sense of right and wrong tell you about the way taxes are handled in Australia? Do you believe that every person, regardless of how much money they make, should pay the same percentage of their income in taxes? Or do you believe that people who have the financial means to pay more should be expected to pay more of a contribution?

When considering tax policy, many people ask themselves the issues listed above, but there is no single response that is definitively correct or incorrect. However, prior to making a decision, it is essential to carefully analyze all of the ramifications that various tax systems have.

It is our civic responsibility to contribute to the government of Australia through the payment of taxes. But what happens when individuals have the impression that the tax system is unfair? Where can we go to have our concerns heard, and by whom? And maybe, most significantly, how do we locate our moral compass when it comes to issues pertaining to taxation?

In this article, I will explore some of the complications that are associated with the taxation system in Australia and provide you with some pointers on where you can get information about how your money is being spent as well as where you can find it.

In Australia, we have a method of taxation that is founded on our sense of right and wrong in the world. The provision of public goods and services is made possible through the collection of taxes from residents by the government.

This encompasses everything from the military and the physical infrastructure to medical care and educational programs. So tell me, how do you believe other countries’ tax systems stack up against ours? And how exactly does our morality factor into the equation?

Everyone has an internal moral compass that they use to navigate their way through life. This moral compass helps us make choices and take acts that are congruent with our sense of what ought to be done and what ought to be avoided, respectively.

But what are the repercussions of this moral compass coming into conflict with the law? Specifically, in regard to the system of taxation used in Australia? How do our individual worldviews influence the manner in which we pay our taxes or even our decision as to whether or not we pay them at all? Let’s take a more in-depth look at this complicated problem, shall we?

There are a few things that you need to be aware of in relation to the taxation system that is used in Australia. The first issue is that the provision of public services in Australia is mainly reliant on financial contributions from taxpayers.

This indicates that you should prepare yourself to pay taxes on virtually all of your earnings and purchases. However, the government allows for a wide variety of tax breaks in the form of deductions and exemptions, which can assist minimize the amount of income that is subject to taxation.

Do you find that you can’t make up your mind about how you feel about the taxes system in Australia? You’re not alone! The taxation system in Australia can be difficult to understand, and it is not always clear what the money raised by our taxes is used toward.

In this article, we will discuss Australia’s tax system as well as how your taxes contribute to the funding of vital programs and services in our nation. Both topics will be covered in a blog post. In addition, we will offer some advice on how to make the most of your tax return and explain how to locate your internal moral compass when it comes to the filing of your taxes.

The majority of individuals have the same opinion, which is that paying taxes is a necessary evil. After all, we can’t provide vital public services like education and healthcare without the revenue that taxes provide. But how does one determine the appropriate amount of tax to pay?

And what do you do if your internal moral compass tells you that you ought to pay a higher amount of tax than what the government is requesting? The unfortunate reality is that there is no single correct response to this question in Australia; rather, the appropriate response will vary depending on the specifics of your situation.

In this article, we will discuss some of the considerations that go into determining the amount of tax that an individual in Australia ought to pay. Additionally, some of the arguments for and against paying a higher amount of tax than what the government has requested will be discussed here.

Let’s get started!

The APESB Standards and How They Should Influence Your Practice

Members of CPA Australia have a responsibility to act in a manner that is in the public interest. As a result, you are obligated to conduct all of your interactions in accordance with the essential values of professionalism, which include integrity, objectivity, professional competence, due care, confidentiality, and professional behavior.

APESB is a national body that has been operating independently since its founding in 2006. Members of CPA Australia, Chartered Accountants Australia and New Zealand (CA ANZ), and the Institute of Public Accountants (IPA) are required to abide by the code of ethics and professional standards that have been established by this organization.

Do Professionals Have a Moral Compass, and If So, How Much Does It Affect Their Decisions?

The establishment of the Tax Bar Association within the Victorian Bar is illustrative of the leading position that the bar plays as an integral component of the larger legal community and serves as an indication of this. The Australian Taxation Office (ATO) is excited about the prospect of working closely with the Association and the individuals that make up the Association.

We both have a deep respect for the primacy of the rule of law, making this kind of connection extremely significant. It is the rule of law, in the end, that protects people’s rights, which provides our civilization with an ethical and competitive advantage over other nations in which it does not hold sway.

It has been claimed that if we agree that society suitably arranges itself in a way to assure harmony and survival, then we may accept that rules (laws) designed to foster harmony have a moral compass.

There are, of course, various personal viewpoints that can be held regarding what this might mean to a specific person. However, in terms of their obligations, professionals are simply those who comply with the legal and ethical standards that have been established by the profession to which they belong and which are observed by members of the profession who have a high repute and are competent.

Professional And Ethical Requirements Set By The APESB

1. APES 110 Code of Ethics for Professional Accountants

The Accounting Professional and Ethical Standards Board is the body that is responsible for publishing the APES 110 Code of Ethics for Professional Accountants (APESB).

CPA Australia, along with Chartered Accountants in Australia and New Zealand, was the driving force for the establishment of the independent organisation known as APESB in 2006. (then the Institute of Chartered Accountants in Australia).

All three of these organizations are members of the APESB: CPA Australia, Chartered Accountants ANZ, and the Institute of Public Accountants. Members of CPA Australia and the other two accounting bodies in Australia are held to the professional and ethical standards developed by the APESB, which are issued in the public interest. These standards apply to members of CPA Australia.

The Code was modelled after the Code of Ethics for Professional Accountants, which was developed and published by the International Ethics Standards Board for Accountants (IESBA), which is a part of the International Federation of Accountants (IFAC). The prefix AUST is used in the Code for any additional definitions or paragraphs that pertain to Australia.

Members who practice anywhere in the world, whether in Australia or abroad, are required to abide by the Code unless local laws or regulations prohibit them from doing so. The members are expected to apply the obligations contained in the Code in a manner that is not only governed by the words of the Code but also by the spirit of the Code.

hands working with office items

2. APES 205 Conformity with Accounting Standards

1. Objective

Conformity with Accounting Standards, which is covered in APES 205, lays out the mandatory standards and provides members with guidance.

When preparing general purpose financial statements or special purpose financial statements, members are required to comply with the relevant financial reporting framework applicable to their relevant jurisdiction. This applies whether they are auditing, reviewing, or compiling the financial statements.

2. The scope and the relevant contexts

APES 205 entered into force on July 1, 2008, and was most recently updated in October 2015. Members who are located outside of Australia are required to comply with the financial reporting framework that is applicable to the relevant jurisdiction unless they are preparing financial statements in accordance with the Australian financial reporting framework. The revised standard went into effect on January 1, 2016, and requires members in Australia to adhere to its mandatory requirements. Members who are located outside of Australia must also comply with the financial reporting framework that is applicable to the relevant jurisdiction.

3. The fundamental obligations of the members

When members are preparing, presenting, auditing, reviewing, or compiling financial statements, APES 205 mandates that they observe and comply with their obligations related to the public interest. Members are responsible for ensuring that they fulfill all of their professional obligations, which are outlined in Section 130: Professional Competence and Due Care of the APES 110 Code of Ethics for Professional Accountants.

According to the Standard, members are required to possess the appropriate professional knowledge and skills; alternatively, if they do not possess the essential expertise, they are required to hire the services of an external person who is suitably qualified.

4. The responsibilities of members in relation to the idea of a Reporting Entity

Members are directed to Statement of Accounting Concepts SAC 1 Definition of the Reporting Entity and Framework for the Preparation and Presentation of Financial Statements by APES 205.

In accordance with these guidelines, certain situations will determine whether or not a business is designated a reporting entity. The members of the group who are responsible for preparing the financial statements of the reporting companies are expected to prepare financial statements for general purposes.

5. The obligations of members with regard to financial statements that are prepared for general purposes

When members prepare, present, audit, review, or compile general purpose financial statements that purport to comply with the Australian Financial Reporting Framework, they are required by APES 205 to take all reasonable steps to comply with Australian accounting standards. This requirement applies whether the members are preparing the statements for themselves or for another entity.

In the event that members are unable to ensure that general purpose financial statements are prepared in accordance with Australian accounting standards, they are required to take reasonable steps to guarantee that suitable disclosures are provided within the financial statements.

Members are required to disclose this fact as the reason for departing from the Australian accounting standards in the general purpose financial statements whenever legislation, ministerial directives, or other forms of government authority require a departure from the Australian accounting standards.

6. The responsibilities of members in regard to financial statements used for a particular purpose

Members have a professional obligation to ensure that the following matters are revealed if they are responsible for the preparation of special-purpose financial statements:

  • that the financial statements are financial statements prepared specifically for this purpose;
  • the reason behind the preparation of the financial statements for a certain purpose;
  • the crucial decisions made on the accounting policies used.

According to APES 205, members who are unable to ensure proper disclosure of departures from Australian accounting standards should discuss the matter with an appropriate level of management and document the results of these discussions. This is required in the event that members are unable to ensure proper disclosure of departures from Australian accounting standards.

7. Members in public practice

When performing an audit, review, or compilation engagement of general purpose or special purpose financial statements, members are required by APES 205 to take reasonable steps to ensure that their clients have complied with Australian accounting standards. This requirement applies whether the engagement is for general purpose or special purpose financial statements.

Members who are in public practice and who have been engaged to provide audit, review, or compilation services have a professional obligation to consider relevant Australian auditing standards applicable to audit or review engagements or professional standards applicable to compilation engagements when they are unable to ensure that clients have complied with the applicable financial reporting framework. This obligation applies whether the members are unable to ensure that clients have complied with the applicable financial reporting framework or not.

3. Conformity with Auditing and Assurance Standards, APES 210

1. Objective

The APES 210 Conformity with Auditing and Assurance Standards provides members with statutory obligations as well as guidance. When carrying out assurance assignments or engagements, members are expected to do so in a manner that is compliant with auditing and assurance standards.

2. The scope and the relevant contexts

APES 210 was initially published on September 30, 2008, and subsequently amended in November 2011 and again in October 2015. The members in Australia are required to adhere to the standard’s mandatory requirements as of the first of the year 2016 when the updated standard became effective.

The extent of the standard must be adhered to by members working in countries other than Australia, provided that doing so does not violate the laws and regulations of the nation in which they are doing business.

For the purposes of APES 210, a member in business who is engaged in work, including honorary work that is within the scope of an assurance engagement, is considered to be a member in public practice.

As a direct consequence of this, members in this position are obligated to comply with auditing and assurance standards whenever they carry out assurance activities (for example, audits of a local charity or social club).

3. Fundamental responsibilities of members

When carrying out an assurance assignment or engagement, members are required by APES 210 to observe and comply with the public interest requirements that are associated with their membership. In regard to the following topics, members are required to uphold the professional obligations outlined in the APES 110 Code of Ethics for Professional Accountants:

  • Section 130 – Professional Competence and Due Care
  • Section 290 – Independence Audit and Review Engagements
  • Section 291 – Independence – Other Assurance Engagements

4. Auditing and assurance standards

Members are required to conform to auditing and assurance standards in order to maintain APES 210 membership. The only time this rule can be broken is if a specific piece of legislation or another kind of government power stipulates that such criteria must be deviated from. In the event that an exit is necessary due to the circumstances, the member is obligated to mention this information in their report.

5. Guidelines for auditing and quality assurance

Auditing and assurance guidelines that has been released by the AUASB should be followed by members.

4. APES 220 Taxation Services

1. Objective

APES 220 Taxation Services sets out mandatory requirements and guidance for members who provide taxation services.

2. Scope and application

The first version of APES 220 went into effect on July 1, 2008, and subsequent versions were amended in March 2011, October 2015, and July 2018.

When rendering taxation services, members in Australia are obligated to comply with the updated standard’s mandatory standards as of the first of October 2018, the date on which it became effective. The extent of the Standard must be adhered to by members outside of Australia, provided that the members do not violate any of the applicable local laws or regulations.

3. Fundamental responsibilities of members

When it comes to delivering taxation services, members are required by APES 220 to observe and comply with their obligations relating to the public interest.

The Standard also serves to remind members of the professional obligations that were established for them as a result of the APES 110 Code of Ethics for Professional Accountants (the Code) with regard to the following:

  • The Objectivity Provision of Section 120.
  • Professional Competence and Due Care are outlined in Section 130.
  • Confidentiality is addressed in Section 140.

APES 220 requires members who provide taxation services to ensure that their personal tax obligations and the tax obligations of any associated entities are properly discharged. This requirement is in line with the fundamental principles of integrity and professional behaviour and was put in place to ensure that members adhere to these principles.

4. The compilation of tax returns and their submission to the relevant revenue agencies

According to the provisions of APES 220, a member is required to prepare and file returns and any other pertinent documents with a revenue authority in accordance with the information provided by a client or employer, as well as their instructions and the applicable taxation law.

5. Tax strategies and arrangements

A member is required by APES 220 to provide a client or employer with sufficient information to ensure that the client or employer is fully informed of the details of any proposed tax scheme or arrangement as well as the current and future ramifications of the proposed tax scheme or arrangement when it is appropriate to do so and taking into consideration the member’s scope of work.

It is forbidden for members to deliberately or recklessly be linked with documents or accounting entries that inaccurately depict transactions. Members are obligated to refrain from promoting tax schemes and arrangements in situations where it is not reasonably plausible that the applicable tax benefit can be obtained in accordance with the provisions of Taxation Law.

6. Estimates

According to APES 220, the use of estimates is strictly prohibited unless doing so would be acceptable and commonly recognized or if exact data could not be obtained. If the member believes that the estimates they are providing are not reasonable, they are obligated to inform the client or employer of the potential risks and repercussions associated with employing estimates.

7. Information that is either erroneous or misleading

According to APES 220, members are not allowed to give a taxation service to a customer or employer if the service is based on information that is either grossly deceptive or materially incorrect. In addition, a member is not allowed to intentionally or recklessly make a statement or cause others to make a statement that is false or misleading in a substantial way due to the content of the statement or an omission in the statement, nor is the member allowed to induce others to make such a statement.

8. Participation in professional activities is important

In order to comply with the requirements of APES 305 Terms of Engagement, members in public practice are required to document and disseminate their terms of engagement. Members who are in public practice are additionally required to comply with the provisions of Section 210 of the Code for Professional Appointments.

For details regarding the following, please refer to the standard:

  • preparing and submitting tax returns to the appropriate revenue authorities
  • tax strategies and arrangements
  • confidentiality
  • competency in the profession and a responsible attitude
  • professional engagement matters
  • client monies
  • definitions
  • objectivity
  • professional fees
  • estimates
  • information that is both inaccurate and misleading
  • documentation.

5. APES 305 Terms of Engagement

woman green pullover uses calculator

1. Objective

Members in public practice are required to document and communicate the terms of engagement with their clients in accordance with the requirements of APES 305 Terms of Engagement. A general outline of what should be included in an engagement document is here for your perusal.

2. Scope and application

APES 305 entered into force in December 2007, and subsequent revisions took place in June 2009, July 2013, and October 2015.

Members in public practice in Australia are required to comply with the revised standard’s mandatory standards as of the first of the year 2016, which is when the standard went into effect for engagements starting on or after that date.

For members who are located outside of Australia, the scope of APES 305 must be adhered to, provided that the members do not violate any of the applicable local laws or regulations.

3. Terms of engagement for professional services

Members who are in public practice are required to document the terms of engagement and disclose them to their clients. On the other hand, the engagement document need not be in the form of a letter—this is only the preferred format. Other techniques of expressing and documenting the rules of engagement that are permissible include the use of a handout, pamphlet, or leaflet, as well as electronic communication.

4. General contents of an engagement document

In APES 305, the general contents of an engagement document are dissected, and members in public practice are given pointers on the kinds of things they might think about including in an engagement document. The following items are important to keep in mind, and while they are outlined below, they are subject to change in order to accommodate specific client needs and the unique dynamics of each engagement:

  • motivation for the engagement;
  • goals to be accomplished during the engagement;
  • dimensions of the participation;
  • engagement output;
  • responsibilities of the member, the client, and any third parties that may be involved;
  • participation of other members in professional activities in public;
  • fees and billing agreements;
  • legal possession of the documents;
  • acknowledgment from the customer that they have read and comprehended the terms of the engagement document.

5. Recurring engagements

A member in public practice who has recurrent engagements may choose not to transmit an engagement document for those engagements each year, unless there is a significant change in the following circumstances:

  • The client has an incorrect understanding of the goals and parameters of the partnership;
  • any major deviations from the original plan for the engagement;
  • any major modifications to the conditions of an engagement or the professional services that are to be supplied;
  • a relatively recent shift in the management or ownership of the customer;
  • a material shift in either the character or the scale of the client’s enterprise;
  • any substantial modifications to the applicable professional standards or accounting, auditing, or assurance standards;
  • any modifications to the restrictions imposed by laws or regulations.

6. Limitation of liability scheme

It is necessary for a member in public practice who is taking part in a limitation of liability scheme to be conversant with the professional standards legislation that is applicable and the requirements that are associated with it. Additionally, APES 305 requires that a member in public practice who is a participant in such a scheme is obligated to inform the client that the member’s liability may be minimized if the member is in compliance with the requirements of the scheme.

For details regarding the following, please refer to the standard:

  • definitions
  • conformity with international pronouncements
  • features of a recurring engagement
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