In 2022 Tax Tips

Taxation in Australia & the Moral Compass

There are many different taxation systems worldwide, and each has its benefits and drawbacks. In this post, we’ll look at the Australian system of taxation and how it impacts both individuals and businesses. We’ll also explore how morality is used as a compass to determine tax rates and exemptions.

One of the most important aspects of living in a democratic society is taxation. It’s how we fund the public goods and services that we all need and use. But how do we decide what taxes to levy and how much to collect? In this blog post, we’ll explore some of the considerations that go into tax policy in Australia and ask whether our current system is fair and ethical.

Every country has a different taxing its citizens, and Australia is no different. In this post, we look at the Australian tax system and how it works. We also explore how taxation can be seen as a moral issue, with some people arguing that it’s wrong to take money from people against their will. Finally, we offer our thoughts on whether or not taxation is fair in Australia.

We all have to deal with taxes, but few people understand well. Australia has a complex tax system, and it can be difficult to know what you’re liable for and how much you should be paying. In this blog post, we’ll take a look at the basics of Australian taxation and explore how our tax system reflects our moral values as a nation. We’ll also discuss some of the current debates around taxes in Australia and offer our thoughts on why taxation is so important.

If you’re like most people, the phrase ‘taxation in Australia‘ probably doesn’t evoke strong feelings one way or another. But what if I told you that taxation is one of the most morally charged topics in our society? It’s a topic that can raise all sorts of questions about right and wrong, fairness and equality. 

In this blog post, we’ll take a closer look at taxation in Australia – what it is, how it works, and where people tend to disagree about its morality. By better understanding taxation, we can hopefully come to a better understanding of our own moral compass when it comes to this complex issue.

Taxation in Australia can be confusing. But it’s important to remember that our taxes fund critical government services that we rely on, from healthcare and education to infrastructure and social assistance. So how do we make sure our tax system is fair and ethical? That’s where the moral compass comes in.

When it comes to taxation in Australia, there is no doubt that the system is complex. But what are the moral considerations behind our tax laws? This question is explored in a recent article by University of New South Wales (UNSW) law professor Andrew Leigh. 

Leigh’s article examines the idea of ‘tax morality’ and asks whether taxpayers must pay more taxes when they can afford to do so. This is an important question to consider in light of recent scandals involving high-profile Australians using tax avoidance schemes.

Every so often, taxation and morality crop up in Australia. Recently, there was a lot of heated debate about whether or not to introduce a new tax on high-income earners. This got me thinking about the morality of taxation and where people’s opinions on the matter come from. 

We wanted to explore this topic further and ask people what they think about taxation in Australia – is it fair? Do we need more taxes? Or fewer taxes? And why do we think this way? After all, Taxation is an essential part of society – without it, our economy would collapse! So let’s take a closer look at taxation in Australia, and see if we can find some answers to these questions.

Let’s get started!

The Moral Compass

The Moral Compass program on the ABC focused on taxation in Australia. A lot of the discussion revolved around tax planning and tax evasion.

Airing as part of the discussion was a replay of Kerry Packer fronting a Government Senate Inquiry into the Print Media where he made the comments:

“I don’t know anybody that doesn’t minimise their tax,” Mr Packer growled as he stirred his delicate parliamentary china cup of tea with a teaspoon. “I’m not evading tax in any way, shape or form. 

Of course, I’m minimising my tax. If anybody in this country doesn’t minimise their tax, they want their head read. As a government, I can tell you you’re not spending it that well that we should be paying extra.”

Professor Fred Hilmer also commented on what Bill Gates had to say last year:

“I am happy to pay the tax, but unless all competitors are treated equally by the tax system for me to make voluntary tax payments, would I think to prejudice the success of Microsoft”.

One of the questions you have to ask is why the legislation is so long and complicated, and who does this serve? Part of the answer lies in the very people who the Government alleges are taking unfair/ethical advantage. But a large part of the problem is that the government’s legislation, not corporate Australia’s, allows companies to pay little or no tax relative to their profits.

We would all like to see legislation that is simply effective and applied to have regard to the long term future of this country rather than shoring up the political chances of the government of the day at the next election. Likewise, the opposition government has a role in supporting positive outcomes for all Australians and not being negative to all proposals.

The taxation system is not a social welfare system but rather a system designed to raise sufficient taxes to enable a government to undertake its long strategies for the country.  

Mark Carnegie, a Venture Capitalist and Philanthropist, made the point that “the tax system should be a simple system with no loopholes”. I agree with and believe it would go a long way to resolve many current issues.

If we believe as a country that certain people within our society need care, then the funding of that care should be dealt with through legislation outside the taxation legislation. The inclusion of social issues within the taxation legislation leads to many of the complexities that allow the alleged avoidance in the first place.

And until such time as Parliament maker the effort to simplify the tax regime, these issues will remain, and Kerry Packer’s comments are still as relevant today as they were 24 years ago. 

This is not an issue just for the Government of the day because without by-partisan cooperation by all members of Parliament looking to the long-term benefit of Australia, this will not be achieved, and we will be making the same comments in another 25 years.

APESB Professional And Ethical Requirements

1. APES 215 Forensic Accounting Services

1. Objective

APES 215 Forensic Accounting Services sets out mandatory requirements and guidance for members who provide forensic accounting services.

2. Scope and application

APES 215 took effect on 1 July 2009 and was revised in December 2013 and December 2015. The revised standard is effective for engagements or assignments commencing on or after 1 April 2016. 

The Standard requires members in Australia to adhere to its mandatory requirements when they perform forensic accounting services. Likewise, members outside of Australia must follow the mandatory requirements of APES 215 unless they are prevented from doing so by local laws or regulations.

There may be instances where professional activities, when commenced, are not forensic accounting services but later become such services. The standard requirements must be followed from the time an activity becomes a forensic accounting service. 

Similarly, a forensic accounting service that is not an expert witness service may later become an expert witness service. When this occurs, the requirements of the expert witness service of the standard must be applied from that time onwards.

3. Fundamental responsibilities of members

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APES 215 requires members to observe and comply with their public interest obligations when providing forensic accounting services. 

The Standard also reminds members of their professional obligations established under APES 110 Code of Ethics for Professional Accountants (Code) in respect of:

  • Section 100 – introduction and fundamental principles
  • Section 110 – integrity
  • Section 120 – objectivity
  • Section 130 – professional competence and due care
  • Section 140 – confidentiality
  • Section 220 – conflict of interest
  • Section 280 – objectivity – all services

APES 215 imposes an obligation to members to comply with the independence definition when they provide forensic accounting services that require independence or when they purport to be independent. Section 290 – Independence of the Code when a forensic accounting service is an assurance engagement.

4. Expert witness service

APES 215 imposes mandatory obligations on members who provide expert witness services. It also requires members who provide expert witness services, subject to any legal requirements or restrictions, to communicate several elements in any report.

APES 215 reminds members that in providing an expert witness service, their paramount duty is to the Court and that they need to assist the Court in an objective and unbiased manner. A member must make it clear to the Court when a matter falls outside the member’s expertise and has a duty not to advocate for a party.

The information that a member needs to communicate in an expert witness report is a mandatory requirement of the standard, and includes among other elements:

  • oral or written instructions received
  • limitation on the scope of work performed
  • whether any opinions, findings or conclusions are not based on the member’s specialised knowledge
  • any relationships the member or the member’s firm or the member’s employer has with any of the parties to the proceedings that may compromise compliance with the fundamental principles of the Code or the member’s paramount duty to the Court and any appropriate safeguards implemented
  • the significant facts and assumptions upon which opinions or other evidence is based
  • any restrictions on the use of the report
  • a statement that the expert witness service was conducted following the Standard.

Refer to the standard for information concerning:

  • scope and application
  • definitions
  • fundamental responsibilities of members
  • professional engagement matters
  • expert witness services
  • false or misleading information and changes in opinion
  • quality control
  • professional fees
  • facts, assumptions and opinions
  • decision tree to determine the type of forensic accounting service
  • examples of forensic accounting services

2. APES 225 Valuation Services

1. Objective

APES 225 Valuation Services sets out mandatory requirements and guidance for members who provide valuation services. Accordingly, the primary professional obligations imposed by this standard are to mandate the valuation reporting and documentation requirements.

2. Scope and application

APES 225 took effect on 1 January 2009 and was revised in May 2012, December 2015 and March 2018. The revised standard is effective for valuation engagements or assignments commencing on or after 1 July 2018. 

It requires members in Australia to adhere to its mandatory requirements when they perform a valuation engagement or assignment. For members outside of Australia, the scope of the Standard must be followed as long as local laws and regulations are not contravened.

3. Fundamental responsibilities of members

APES 225 requires members to observe and comply with their public interest obligations when performing a valuation engagement or assignment. 

Further, they must comply with Section 100 – Introduction and Fundamental Principles of APES 110 Code of Ethics for Professional Accountants (the Code) and relevant law or regulation.

The Standard requires that members comply with their professional obligations established following the Code in respect of:

  • Section 100 – public interest
  • Section 130 – professional competence and due care
  • Section 140 – confidentiality
  • Section 210 – professional appointments
  • Section 220 – conflicts of interest
  • Section 280 – objectivity – all services.

Examples of what constitutes the provision of a valuation service

For a valuation service to existing the following three criteria must be satisfied:

  • the member must be engaged or assigned to perform a valuation
  • the member must determine an estimate of the value of a business, business ownership interest, security or intangible asset by applying valuation approaches, valuation methods and valuation procedures
  • the member must be engaged or assigned to provide a valuation report (written or oral).

Members are referred to Appendix 1 of APES 225, which provides a schematic overview of what constitutes a Valuation Service and 23 examples that illustrate what constitutes a valuation service and what is not a valuation service.

4. Professional engagement and other matters

APES 225 reminds members of their professional obligation to document and communicate the terms of engagement by APES 305 Terms of Engagement. 

Where a member engages services of a suitably qualified third party, the member cannot disclose the opinion or the name of that third party without their consent. The only exception is where there is a legal obligation of disclosure.

5. Reporting

APES 225 specifies the elements members need to include in a valuation report to a client or an employer. In most instances, members in public practice will issue written reports. 

However, the standard allows members in public practice to issue oral reports in certain circumstances. Where the valuation report is communicated orally, the public practice member needs to document the oral communication and why the valuation report was issued orally. 

In addition to the above, the standard also recommends members in public practice include additional information such as a summary of relevant financial and industry information in the valuation report.

Refer to the standard for information concerning:

  • definitions
  • the three types of valuation services
  • professional independence
  • use of a third-party expert
  • confidentiality
  • reporting requirements
  • documentation
  • use of a glossary of business valuation terms
  • professional fees.

3. APES 310 Client Monies

1. Objective

APES 310 Client Monies sets out mandatory requirements and guidance for members in public practice who deal with client monies or who act as an auditor of client monies.

2. Scope and application

APES 310 took effect in December 2010 and was revised several times; the latest was in November 2019. 

The revised standard, effective for engagements commencing on or after 1 January 2020, requires members in public practice in Australia to adhere to its mandatory requirements when they deal with client monies or act as an auditor of client monies. 

For members in public practice outside of Australia, the provisions of APES 310 must be followed as long as local laws and regulations are not contravened. 

For example, the standard does not apply where a public practice member acts as a trustee or under a power of attorney. In these circumstances, the member is not acting in a client relationship.

The Standard is divided into two parts:

  • Part A: professional obligations of a member in public practice who deals with client monies
  • Part B: professional obligations of an auditor of client monies.

3. APES 310 definition

Monies include:

  • cash
  • foreign currency
  • any negotiable instrument
  • any security, the title transferable by delivery (for example, bills of exchange and promissory notes), including delivery by electronic funds transfer.

Client monies mean any monies (in whatever form) coming into the control of a member in public practice or any of the member’s personnel which are the property of a client and includes monies to which the member or the member’s personnel have no present entitlement.

4. Part A obligations

businessman with financial concerns

Obligations include:

  • general principles to be followed
  • opening of trust accounts
  • dealing with client monies concerning holding, receiving and disbursement of client monies
  • documentation.

5. Part B obligations

Part B specifies the obligations of an auditor of a member’s compliance with the standard and includes an example of an audit report for this type of engagement. Client money auditors need to ensure compliance with APES 310 and relevant auditing and assurance standards and the Code.

6. Fundamental responsibilities of members

APES 310 requires members in public practice who deal with client monies or act as an auditor of client monies to comply with APES 110 Code of Ethics for Professional Accountants (the Code) in respect of:

  • Section 100 – Complying with the Code
  • Subsection 113 – Professional Competence and Due Care
  • Subsection 114 – Confidentiality
  • Section 310 – Conflicts of Interest.

Professional obligations of a member in public practice who deals with client monies

Some of the general principles concerning dealing with client monies require a member to:

  • comply with Section 350 – Custody of Client Assets of the Code
  • only deal with client monies through a client bank account or a trust account and only by the client’s agreement and instructions
  • be accountable for all client monies and keep client monies separate from the member’s all other monies
  • implement appropriate internal controls and procedures in respect of the operation of trust accounts and client bank accounts
  • not obtain any benefit from dealing with client monies without prior written authorisation from the client
  • only charge professional fees in respect of dealing with client monies under Section 330 – Fees and Other Types of Remuneration of the Code
  • not receive or pay into or disburse out of a trust account or a client bank account, if the member believes, on reasonable grounds, that they were obtained from, or are to be used for, illegal activities or that dealing with the monies is otherwise unlawful
  • not be involved in any money laundering transactions or the utilisation of the proceeds of crime or terrorist financing.
  • comply with Section 360 Responding to Non-Compliance with Laws and Regulations (NOCLAR) of the Code where encounters or becomes aware of instances of non-compliance or suspected non-compliance with laws and regulations.

See APESB guidance on:

  • Example bank letter to open a trust account 
  • Professional accountants and trust account information sheet 

The obligations of APES 310 extend to more than to members operating trust accounts. The Standard applies where a member, or any of the member’s employees, can authorise a transaction of client monies which include:

  • holding, receiving or disbursing of client monies
  • being authorised to transact client monies
  • any monies coming into the member’s control to which the member has no present entitlement.

7. Audit of a member in public practice’s compliance with this standard

APES 310 extends the annual audit requirements to Members who hold, receive or disburse client monies to ensure strengthened client safeguards.

Members who opened trust accounts or obtained authority to transact in client monies after 1 July 2011 can choose the applicable year-end date within 12 months of the month-end following the opening of the trust account or obtaining the authority to transact. Once the year-end date is chosen, it cannot be changed without approval from CPA Australia.

Members who opened a trust account accounts or obtained authority to transact in client monies before 1 July 2011 must comply with the audit requirements of APES 310 within three months of the applicable year-end date, which is 31 March each year.

A member in public practice must ensure that the member’s compliance with the requirements of the Standard is audited annually within three months of the applicable year-end date and must appoint another member in public practice as auditor of client monies to perform the audit.

Members who stop dealing with client monies must ensure that compliance with APES 310 is audited within three months of ceasing.

Note: Different legislation applies to Members in Queensland.

8. Professional obligations of an auditor of a member in public practice’s compliance with this standard

A member in public practice who acts as an auditor of client monies is required to:

  • perform the applicable assurance engagement and prepare the auditor’s report following auditing and assurance standards
  • comply with Part B – Independence For Assurance Engagements Other Than Audit and Review Engagements of the Code
  • report any deficiency of client monies to the member’s professional body within five business days upon becoming aware of the deficiency
  • report to the member’s professional body within ten business days of becoming aware of any material failure by a member, uncorrected error reflected in a statement issued by a financial institution or circumstances where client monies have not been transacted or maintained under this standard
  • retain relevant working papers for at least seven years
  • consider notifying the auditee’s professional body when resigning from the position or being removed from their auditor role of client monies.

A copy of a modified auditor’s report must be forwarded by the auditor to the General Manager Professional Conduct at CPA Australia within 15 business days of completing the assurance (audit) engagement.

Although unmodified reports are not required to be lodged, they must be maintained and may be reviewed as part of the Best Practice Program.

Refer to the standard for information concerning:

  • definitions
  • public interest
  • professional competence and due care
  • confidentiality
  • opening a trust account
  • dealing with client monies
  • disbursement of client monies
  • documentation
  • conformity with international pronouncements

4. APES 315 Compilation of Financial Information

paperwork

1. Objective

APES 315 Compilation of Financial Information sets out mandatory requirements and guidance for members in public practice who undertake compilation engagements. The Standard also encourages application to engagements to compile non-financial information.

2. Scope and application

APES 315 took effect on 1 January 2010 and was revised in February 2015 and March 2017. It requires members in public practice in Australia to adhere to its mandatory requirements when they compile financial information. 

Members in public practise outside Australia must follow the requirements of APES 315 as long as local laws and regulations do not prevent them from doing so. The revised Standard applies to engagements commencing on or after 1 July 2017.

Activities that fall outside the scope of the standard include preparation of a tax return and financial information prepared solely for inclusion in the tax return, analysis of figures provided by the client to report to the client, relaying of information to the client without collection, classification or summarisation of the information and assurance engagements.

3. Fundamental responsibilities of members

APES 315 requires members to observe and comply with their public interest obligations when performing a compilation engagement. The Standard also reminds members of their professional obligations established in APES 110 Code of Ethics for Professional Accountants, Section 130 – Professional Competence and Due Care.

APES 315 states that independence is not a requirement for a compilation engagement; however, disclosure is required in the compilation report when the member is not independent.

4. Procedures

Depending on the terms and nature of the compilation engagement, APES 315 requires the member to obtain a sufficient understanding of the client’s business, its operations, and accounting principles and practices. 

Procedures such as verification of relevant matters or information, assessment of internal controls, and assessments of reliability, accuracy and completeness of the information provided are not required unless the member has reason to believe the information supplied by the client includes a misstatement. 

Suppose the client refuses to provide further information required to address any potential misstatements. In that case, the member should refer to the firm’s policies and procedures established following APES 320 Quality Control for Firms in determining whether to continue acting for the client.

5. Reporting on a compilation engagement

A member must issue a compilation report where:

  • the member’s or firm’s name is identified with the compiled financial information
  • external parties other than the intended user can associate the member with the compiled financial information, and there is a risk that the level of the member’s involvement with the information may be misunderstood
  • the intended use may not understand the nature and scope of the member’s involvement
  • the compiled information is required under applicable law or regulation, or it is required to be publicly filed.

Where the member compiles financial information for internal use only by a client, the member should issue an accountant’s report disclaimer, and on each page of the compiled financial information include a reference to the fact that the information is restricted for internal use only and should be read in conjunction with the accountant’s report disclaimer.

Where a member issues a compilation report concerning financial statements prepared by regulation or contract, the member shall describe in the compilation report the purpose for which the financial statements are prepared or refer to a note in the financial statements that contain that information.

Mandatory elements to be included in a compilation report are:

  • a title of the report, and the addressee statement that the engagement is performed following the Standard
  • if applicable, a statement that the member is not independent of the client
  • identification of the compiled financial information, and if applicable, noting that it is based on the financial information provided by the client
  • the basis of any forecast information and key assumptions (applicable to prospective financial information only)a statement that the client is responsible for the financial information compiled by the member
  • a statement that neither an audit nor a review has been carried out and that no assurance is expressed on the compiled financial information
  • if a member is reporting on the compilation of SPFS, a statement to that effect as well as stating the specific purpose for which the SPFS has been prepared, and that the SPFS are only suitable for the purpose they have been prepared and may not be suitable for any other purpose
  • the date of the compilation report, the member’s or firm’s name, address and signature
  • an appropriate disclaimer of liability
  • a description of the client’s responsibilities concerning the compilation engagement and the financial information.

Refer to the standard for information concerning:

  • scope
  • application
  • objectives
  • definitions
  • public interest
  • professional competence and due care
  • confidentiality
  • planning
  • applicable financial reporting framework
  • documentation and quality control
  • responsibility of the client
  • communication of significant matters
  • the subsequent discovery of facts
  • decision trees to determine whether an engagement is a compilation engagement
  • when a compilation report should be issued
  • examples of an engagement letter
  • compilation reports
  • accountant’s report disclaimer.
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