RIP Pty Ltd
\nis the residential undertaker business. The company procures around $2.45 net
\nprofit in 2016. The company has made a fixed contract with the clients. In this
\nregard, Easy Funeral Plan has been introduced by RIP Pty Ltd. If the plan
\nmember can\u2019t pay the whole amount at the death, the amount received won\u2019t be
\ntransferred. The company has also credited to the \u2018Forfeited Payments Account\u2019
\narose from the default of scheduled payment of the plan members. The Arthur
\nMurray case has been considered to solve this given case. The company has also
\noccurred some major expenses and expenditures over multiple years. The tax
\ntreatment is also the crucial issue. For the tax purpose, the relevant
\ninformation from Australian Taxing Office has been provided in the report to
\nmaintain balance in the taxable income over years.<\/p>\n
According
\nto S6(1) of ITAA 1936, an Australian resident is the person or the company residing
\nin the Australia and whose permanent residence is in the Australia. So, ITAA
\n1936 requires an Australian individual or business to be the resident of
\nAustralia (Abdullah, Patterson, & Pegg, 2015). <\/p>\n
So, RIP Pty
\nLtd is the Australian Residential Company doing the business of funeral
\ndirector. All the local rules and regulations are applicable for RIP Pty Ltd.
\nRIP Pty Ltd will need to pay tax to the Australian Government properly on the
\nbasis of its worldwide taxable income and thus the residency determination is
\nvery crucial (Wolff, 2014). <\/p>\n
It has been Varzaly, (2015) has stated in its From the i) Emphasizing the signification of refund: the receipt can\u2019t be considered as derived income since it could be refunded;<\/p>\n ii) Matching contractual obligations (Tyacke & Webb, 2007)<\/p>\n The It has been It has been It has been In the case Since Institute of Public According to Australian Taxation Office, (2016), the taxpayers report on an annual basis In item (i) The In the item According The High Practically unearned receipt has no viewpoint of considering it as income and thus for tax implications.<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[61],"tags":[90],"class_list":["post-414","post","type-post","status-publish","format-standard","hentry","category-free-law-essaystax-law","tag-au-law"],"yoast_head":"\n
\nfound from Arthur Murray (NSW) Pty Ltd v FCT (1965) 114 CLR 314 <\/em><\/strong>that
\nArthur Murray is the American Dance Studio that avails dance classes for the
\npupils. Arthur Murray requires advance payment in this regard (Abdullah, Patterson, & Pegg, 2015). The refund conditions weren\u2019t
\nexisted at Arthur Murray. Unearned Deposits accounts have been maintained for
\nthis advance payment. FCT had assessed Arthur Murray for the receipt of advance
\nfees. Varzaly, (2015) has rightly noted in its
\nresearch article in the Journal of Eur Bus Org Law Rev that the court decides not to regard this
\nadvance receipt as income in the current year. So, the High Court of Australia
\ndecides to consider receipt that has been earned in the current year must be
\nrecognized as taxable income.<\/p>\na) Advising RIP Pty Ltd when income is derived (i) generally, and (ii) when it derives its income from funeral services and related activities<\/h4>\n
\nresearch \u2018The Enforcement of Directors\u2019
\nDuties in Australia: An Empirical Analysis\u2019 <\/em>that the income must be recognized when it is
\nearned. Practically unearned receipt has no viewpoint of considering it as
\nincome and thus for tax implications. Since RIP Pty Ltd consider that the members
\ndefaulting on continuing schedule payments in the Easy Funeral Plan are
\nconsidered as defaulting embers, the \u2018Forfeited Payments Account\u2019 will be
\nconsidered. This account balance has been $16,200 at 30 June. RIP Pty Ltd can\u2019t
\nconsider this account balance as income immediately. But, it can consider it as
\nincome at the end of the year if the company\u2019s book-keeping method is formed in
\nsuch a way. Then, it would be regarded as \u2018Reported Income\u2019 not the \u2018Taxable
\nIncome\u2019. As these defaulting members are not expected to continue repaying the
\narrears, the current balance of the \u2018Forfeited Payments Account\u2019 will be
\nconsidered miscellaneous income at the end of the year if its book-keeping
\nmethod supports it (CHISHOLM, 2004). Generally, the instalments fees receipt
\nfrom the members investing in the \u2018Easy Funeral Plan\u2019 must be recognized net of
\nrequired costs at the end of the year. It can derive its income from funeral
\nservices and related services when the members have contracted to contribute
\nthe \u2018Easy Funeral Plan\u2019. Even though the Arthur Murray case has come to the
\npoint that the court disregard to consider the advance payment as income
\nimmediately, the case of RIP Pty Ltd may be supporting with its evidence of
\nbook-keeping differently in this regard to consider income from the fund. As
\nRIP Pty Ltd has made fixed price contract with the plan members, any default of
\nthe scheduled payment will be considered as the \u2018null and void\u2019 of the contract
\nif the contract involving this condition is established with the regulation of
\nthe government of Australia (Gray, 2009). <\/p>\nb) Explanation: Does the Arthur Murray principle apply to the company\u2019s accounting treatment of amounts in Easy Funeral Plan? <\/h4>\n
\ncase of Arthur Murray (NSW) Pty Ltd v FCT (1965) 114 CLR 314 <\/em><\/strong>it is
\nexplored that Arthur Murray has built two principles emphasizing the
\nsignification of refund (Abdullah, Patterson,
\n& Pegg, 2015)-<\/p>\n
\nprinciples of Arthur Murray can\u2019t be completely applied to RIP Pty Ltd\u2019s case
\nregarding the accounting treatment of the amounts n Easy Funeral Plan. According
\nto Gray, (2009), the High Court of Australia decides Arthur
\nMurray should refund the amount of advance that has not been earned. In the
\nArthur Murray case, the idea from the court\u2019s decision was that if a student
\ndoesn\u2019t attend in the dancing class of Arthur Murray from the middle point of
\nthe contract, the company must refund the half amount to the student and this
\nrefunded amount won\u2019t be derived as income (Lucadou-Wells
\n& Bourke, 2015).
\nLikewise, RIP Pty Ltd must refund the amount receipt from the defaulting
\nmembers net of fees. Rationally, the company may incur some costs from
\nconducting this fund so the refundable amount should be net of fees and charges
\n(Wolff, 2014). <\/p>\n
\nunderstood from the case analysis report conducted by Tyacke & Webb, (2007) that the contractual obligations under Arthur Murray
\nand RIP Pty Ltd are not quite similar. In case of Arthur Murray, the company
\nreceived advances from the students and didn\u2019t refund to the students who stops
\ncontinuing classes (Gray, 2009). But, in case of RIP Pty Ltd, the
\nmembers can\u2019t make scheduled payment in the Easy Funeral Plan fully at the
\ndeath or decease, the Fund won\u2019t be refundable under the repayment plan. Since
\nit becomes the conditions of the contract made with the plan members, the
\n\u2018Forfeited Payments Account\u2019 should be recognized as taxable income as the
\ncompany reports income from it. <\/p>\nc) Does the Commissioner or any taxpayer have a choice in the method of accounting for tax?<\/h4>\n
\nfound from the Deakin Law Review<\/em>
\ntitled as \u2018Litigiousness in Australia:
\nLessons from Comparative Law\u2019 <\/em>conducted by Wolff,
\n(2014), the taxpayer or
\ncommissioner has the choice regarding Cash basis accounting and Accrual basis
\naccounting primarily. According to EY, (2015), the tax provisions in these
\nmethods of accounting differ slightly. When the taxpayer reports income on cash
\nbasis in an income year, the taxpayer must have to pay tax on that income.
\nAgain if the taxpayer follows accrual basis accounting, it has to pay tax over
\nall the earned income whether received or arrears (CHISHOLM, 2004). So, the commissioner or any taxpayer has the choice in the method of
\naccounting for tax. But, the Australian Tax Authority requires that the tax
\naccounting should be followed by either local GAAP or IFRS (Quilter, 2009). In the given case, RIP Pty Ltd being the taxpayer has the ability to
\nmake a choice in the method of accounting for tax since it has freedom in
\nmaintaining its book-keeping record whether under Local GAAP or IFRS (Lucadou-Wells & Bourke, 2015). <\/p>\nii) Advising the company of the tax treatment of $16,200 in \u2018Forfeited Payments Account\u2019 in item (iv)<\/h3>\n
\nfound from the Carden\u2019s Case (1938) 63 CLR 108<\/em><\/strong> that the advance payments for
\nthe entire fixed course of service will not only be regarded as income but also
\nbe subject to the tax payment (CHISHOLM, 2004). Carden\u2019s Case also expresses that
\nthe receipt are completely unaffected by the legal restrictions. The
\nunderstanding of Dixon J. over Carden\u2019s Case (1938) 63 CLR 108<\/em><\/strong>
\ncomes that the decision of the receipt whether to recognize as earnings or not
\ndepends on the judgment of the court (Quilter,
\n2009). <\/p>\n
\nof Arthur
\nMurray (NSW) Pty Ltd v FCT (1965) 114 CLR 314<\/em><\/strong>, it is found that the
\ncommissioner has made the practical assessment over the receipt of fees that
\noccurred at the end of the or at the beginning, there is no distinguish (Davis & Phillips, 2003). The tax must be paid over the fees receipt
\nfrom the customers. The commissioner has decided that the receipt must be
\nearned to consider it as taxable income (ATO, 2016). The judicial court
\nof Australia decides that whether the income is not earned but received or the
\nincome is earned but not received is regarded as income depends on the
\nbook-keeping methods of the company. If RIP Pty Ltd decides to consider
\n\u2018Forfeited Payments Account\u2019 as asset and income; and the disposal of the
\nunderlying asset, the tax must be repaid to the tax authority. If the member
\nhas the right to get repaid under the contract, the forfeited amount must be
\nrefunded to the defaulting member (Barwick & Kitto and Taylor, 1965). Then there will be
\nno taxation. Since the company has credited to the \u2018Forfeited Payments Account\u2019
\nwith $16,200, this amount must be taxable to the Tax Authority of Australia. <\/p>\nPart B<\/h2>\n
Advice for requirement (i)<\/h3>\n
\ncaskets and accessories are used for the continuous operations of RIP Pty Ltd.
\nthey will be referred as trading stocks. The expenses occurred for these
\ntrading stocks must be expensed against the income (Lipton & Herzberg, 2006). From the case of Arthur Murray (NSW) Pty Ltd v FCT
\n(1965) 114 CLR 314,<\/em><\/strong> it has been stated in the Arthur Murray Principle
\nthat advance payments for the goods and services will be derived or charged
\nagainst income when the goods will be delivered or services will be provided (Quilter, 2009). The principle also added that there is no provision for the refund.
\nFrom this case law, it can be decided that the advance payments of $25,000 for
\ncaskets and accessories made by RIP Pty Ltd. will be derived at the delivery
\ndate of August 2016. <\/p>\n
\nAccountants of Australia<\/em><\/strong> allows the taxpayer who wants to alter the treatment for advance
\npayments towards either deferral method or full inclusion to income to receive
\nautomatic consent for doing that under the Revenue Procedure (Barwick & Kitto
\nand Taylor, 1965). <\/p>\n
\nregarding prepaid expenses, these prepaid expenses could be charged against
\nincome in the Income Statement within a single business year. So, RIP Pty Ltd.
\ncan report the prepaid expenses as general expenses for the tax purpose. <\/p>\nAdvice for requirement (ii)<\/h3>\n
\nit has been stated that RIP Pty Ltd has received $21,000 cash dividend from RIP
\nFinance Pty Ltd. Since RIP Finance Pty Ltd. has already paid corporate tax on
\nthe derived income from investment, the investors like RIP Pty Ltd. don\u2019t need
\nto pay tax for the dividends received. For the tax purposes, the dividend
\nreceived from RIP Finance Pty Ltd. will be free from corporate tax charged (McQueen, 2009). <\/p>\n
\nprovisions for tax authority of Australia state that the taxpayer can apportion
\nthe prepaid expenditure over 10 years or eligible service period for the tax
\npurpose (Australian Taxation Office, 2016). In items (iii) it has been stated that RIP
\nPty Ltd paid $57,000 on 1 March 2006 for the storage space rent for two years
\nin an advance. This lease will expire at 28 February 2018. RIP Pty Ltd has
\nexpensed $9,500 and capitalized $47,000 without the consideration of tax
\npurpose. Since the law permits RIP Pty Ltd to expense the whole amount in an
\napportioned approach over the two year period, RIP Pty Ltd can recognize
\nexpense of $28,500 in each year. With this tax purpose, the company will now
\npay less tax in the first and higher tax in the second year compared to the
\nexisting reporting (McQueen, 2009). <\/p>\n
\n(iv) of Part B, it has been found that the RIP\u2019s managing director was paid in
\nadvance with $22,000. RIP has charged it as \u2018Provisions for Long Service Leave
\nAccount\u2019 with the entire amount. Since the law of government requires that the
\nprepaid expenditure can be apportioned, RIP Pty Ltd charge one-third to pay tax
\nin 2016 and two thirds in the next consecutive months of its reporting year
\n2017 from the tax consideration (Australian Taxation Office, 2016). With this consideration, RIP will
\nenjoy tax deductions for one month equivalent payment in 2016 and two month
\nequivalent payment in 2017.<\/p>\nAdvice for requirement (iii)<\/h3>\n
\nto Lipton & Herzberg, (2006), the Australian Taxing Office requires
\nthe prepayment expenditure to be apportioned over the eligible service period.
\nIn the item (v), the overall expenditure for constructing the purpose built
\nfacility can apportioned over years so that the depreciation can be charged
\nover years under the straight-line method. The expenditure $1.25 for land can
\nbe recognized in the taxable period of 2014 for the tax purpose. The expense of
\n$50000 must be charged against income of 2014 (Australian Taxation Office,
\n 2016).
\nThe overall expenditure over 2014 and 2015 must also be apportioned over the
\neligible service period. <\/p>\nConclusion<\/h2>\n
\nCourt of Australia decides to consider receipt of Arthur Murray that has been
\nearned in the current year must be recognized as taxable income. As RIP Pty Ltd
\nhas made fixed price contract with the plan members, any default of the
\nscheduled payment will be considered as the \u2018null and void\u2019 of the contract if
\nthe contract involving this condition is established with the regulation of the
\ngovernment of Australia. Since it becomes the conditions of the contract made
\nwith the plan members, the \u2018Forfeited Payments Account\u2019 should be recognized as
\ntaxable income as the company reports income from it. RIP Pty Ltd being the
\ntaxpayer has the ability to make a choice in the method of accounting for tax
\nsince it has freedom in maintaining its book-keeping record whether under Local
\nGAAP or IFRS. If RIP Pty Ltd decides to
\nconsider \u2018Forfeited Payments Account\u2019 as asset and income; and the disposal of
\nthe underlying asset, the tax must be repaid to the tax authority. For the tax
\npurpose, RIP Pty Ltd. can apportion its overall prepaid expenditures over the
\neligible periods to maintain tax balance over years. <\/p>\nReferences & Bibliography<\/h2>\n
\n