Question

You have been acting as a tax agent for a married couple for many years. They are jointly involved in a business. They have recently been divorced and you are preparing their individual tax returns. They have continued to run the business.

In the past you have legitimately claimed certain deductions from the husband’s income. Now that they are divorced it is clear that claiming deductions for the ex-husband means that the ex-wife is unable to make similar claims to reduce her taxation liabilities.

What would you do to resolve this situation? For this exercise you needed to recognise that there was a conflict of interest. In context of Australia 100–120 words

Answer 1

The above situation is an example of a conflict of interest that has arisen as a tax agent due to the divorce of said clients. As an agent we must have in place arrangements for the management of potential conflicts of interest as such.

the Tax Practitioners Board can impose sanctions on us for breaches of professional conduct. In order to avoid this, in the above situation, we would need to disclose the conflict of interest to the wife, enabling her to assess how the conflict of interest may affect the service that we provide her,giving her time to make an informed decision on the best option for her own financial needs.

It requires written consent from the parties, but we should document our advice and disclosure and make it a part of our client file so as to avoid any appearance of a conflict of interest.

The general rule for tax deductions is that you can't take deduction of money that you didn't spend yourself. If you and your spouse file a joint return, though, your spouse's write-offs affect your taxable income too.