HI6028 Taxation Law: RIP Pty Ltd Case Study Analysis

This report analyzes the case of RIP Pty Ltd, a funeral services company, in the context of Australian taxation law. It examines the treatment of prepayments, stock, dividend income, rent, long service leave, and capital expenditure. The report draws on relevant case law, including Arthur Murray (NSW) Pty Ltd v FCT (1965) and Carden’s case (1938), to provide practical advice on how RIP Pty Ltd should account for these items for tax purposes.

HI6028 Taxation Law
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Table of Contents
Introduction......................................................................................................................................3
PART A...........................................................................................................................................4
PART B...........................................................................................................................................7
Conclusion.....................................................................................................................................10
References......................................................................................................................................11
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Introduction
In the taxation, there are various provisions and they are required to be followed. For that, it is
required that proper understanding of them shall be obtained. All of the laws which are
applicable shall be studied properly so that they can be applied in various situations. In this
report, all of them will be considered and on that basis, all of the issues will be resolved in the
most appropriate manner. The advice will be provided so that no default is made by the client in
this respect.
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PART A
a) Description of Arthur Murray (NSW) Pty Ltd v FCT (1965) case.
In the business, there are various transactions and it is required that they all shall be considered
in an appropriate manner while calculating the assessable income. For that, they all will have to
be identified and one such item is the prepayment which will be included in the accounts and for
that the case law of Arthur Murray (NSW) Pty Ltd v FCT (1965) 114 CLR 314 will be
considered so that they can provide the best treatment in this respect.
Facts of the case:
This case is related to the prepayments which are made in the company. In this, the business is
involved in the business of providing the customers with the service in relation to the dance.
They are provided with the lessons and for that, there is the policy to make the charge in form of
per hour basis (ATO, 2018). They will be required to be collected as and when the service is
provided. The company has launched a new scheme in which it will be required that they shall be
charged for the total 1200 hours in one tome. Then they can avail the service in the coming
period whenever they wish. The company will not be making any kind of the refund if the
provision of the service is not made and the amount will be forfeited and transferred to another
account. That will be included in the income when the service will be provided.
Issue related to the case:
The company is required to make the appropriate decision in respect of the manner in which the
treatment shall be made for the prepayments which are there. It will have to be considered that
when are the amounts to be included in the assessable income. The company has not included
them in the total income as they believe that it in advanced and will be charged when the service
will be provided. According to the commissioner, there is no relevance of the service provider
and they believe that once the amount is received it shall be considered as the income and will be
incorporated in the total assessable income of the company. So this is the issue and the decision
in this respect is provided by the court.
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The conclusion is drawn from the case:
The act has been considered and according to that, it has been identified that the incomes which
are not earned will not be included in the assessable income. This means that the only receipt of
the amount is not enough and there shall be the provision of the service also which shall be made
so that it can be considered as the income. So, by this, it can be said that there is the correct
treatment which has been made by the company as they have excluded this amount from the total
income. Therefore there will be no requirement to make any kind of adjustment in the accounts.
In the present case of RIP Pty Ltd which is company that is providing the funeral services there
are amount of advance which are received by them for the services and they will have to be
charged in the income when the service will be provided by the company to its clients as then
only they will be considered to be earned. This will be used in all the cases which are related to it
and the advance in relation to it is provided hereunder:
 In the company, the charges for the funeral services are to be made after the service has
been provided. If there is any kind of the prepayment which is included then it will be
considered in accordance with the decision that is provided by the court. There will be no
inclusion of such amount in the calculation which is made for the assessable income.
They will have to be excluded and will be included only after the company has provided
the service in relation to it.
 The company is providing various plans and one of them is an easy funeral plan in which
the payments for the services which will be provided are received by the company in
advance. Due to this, it can be said that they are the prepayments and will not be included
in the assessable income (Austlii, 2018). They will be required to be considered and will
be moved to another account. The inclusion of them in the assessable income will be
made after the company has provided the required services to its clients. If the client does
not avail the service then the company will not be responsible for the refund and all of the
amount will have to be forfeited by the company.
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In the taxation, there are various cases and one more is there in this respect which is Carden’s
case (1938) 63CLR108 in which the different judgement has been made by the company.
According to that, the company will not be required to exclude the prepayments from the
assessable income and they can include that even if the services have not been provided by the
company. According to this, the company is just required to receive the amount and then that can
be considered as the income. So by this, the company has one more option and it can make the
treatment in accordance with the same. By this, there will be no need to make the forfeiture of
the amount and so no separate account will have to be created by the company.
b) The company has the forfeited amount account and in that balance of $16200 is there and it is
required that appropriate treatment in this respect shall be provided by the company. In that,
there are two options which will have to be considered and then the company will be deciding
the manner in which it will have to be incorporated into the accounts of the company. If there is
the adoption of the first option than according to that it will be charged to tax when the company
will be providing the services as then only it will be transferred to the assessable income of the
business (Bhatti, 2015). But in case the second option has been selected then the condition of the
service provision is not there and the amount would already have been included in the assessable
income in the initial stage only. By that, the tax would have already been paid and so there will
be a requirement to charge the amount to tax again. There will be payment of the taxation only
once for all the transactions and so it will now not be included in the assessable income.
According to it, the tax will be charged in the first case after the services will be provided and in
the second option, there will be no such requirement in the business.
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PART B
In the company, there are various issues which arise and in order to deal with that, it will be
required that all of laws and regulations which are applicable will have to be applied in the
company in an appropriate manner. For that an understanding of the same will be gained and
then on that basis, the advice is provided for the various aspects and they are presented below:
a) In the business, there are various operations which are to be performed and for that, it will be
required to obtain the proper resources. The company will be required to maintain the proper
stock in this respect and in that all of the requirements will be considered which are provided by
the government of Australia. In this, all of the items whether they are tangible or intangible both
will be included (Dixon & Nassios, 2016). Some of the exclusions are there which are provided
by the act and they will have to be ignored from the stock such as the crops, spare parts and
consumables. In the company also there will need to maintain the stock so that all of the
functions such as manufacturing, planning and sales can be performed in an effective manner.
The funeral services are also requiring various items and so that will have to be included such as
accessories and caskets which are provided in the given case. As the company will be using them
in the process of earning so they are related to the business and will be treated as the stock. They
are very important and will not be excluded while determining the total stock that is maintained
by the company. As this is the business expense so it will be allowed as the deduction from the
income.
By this the net taxable amount will be calculated as all of the expense together with the discount
which is provided will have to be reduced. The net amount will be considered and the tax will be
calculated on that. They will be reduced from the sale which is made in the company so that net
sales which will be considered as taxable will be determined.
b) The income in the business is made from various sources and so it is required that all of them
shall be considered for the payment of the tax. In that the income which is made on the
investments that are made by the company will also be incorporated. The company has also
invested the funds and on that dividend income is there which amounts to $21000. According to
law it will be needed that the same shall be incorporated in the total taxable income so that tax
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can also be paid on this. There are certain exceptions to this situation and that include the
condition in which the tax has already been paid by the other party on that amount (Hemmings
and Tuske, 2015). So it will have to be determined and in the given case the dividend which are
received are fully franked and they are the ones on which the declaring company is responsible
for making the payment of tax. So it is to be noted that on this tax has been paid and will not be
required to be paid again and due to this no adjustments will be required to be made by the
company in its profits and the proper treatment is already provided.
c) In the business there are various expenses which are made and it is required that they are
properly calculated as the deduction will be available in respect of all the business expenses. The
deduction for the same will be provided in the period for which the cost is incurred. In that is the
advance payment is made then the company will have to take in notice the period for which it
relates and provide the exclusion in the same year. In the given situation also there is the rent
which is paid by the company in advance and it amounts to $57000 and this is made on 1st March
2016 for the two years. Due to this it can be said that for this year only the rent of four months
will have to be considered. The company has taken into account the rent of 9500 in the expense
and that is related to the current period. Due to this it can be concluded that the treatment which
is made by the company is correct and no further adjustment will be required as the remaining
amount will be allowed in the future in the period for which they relate.
d) There are various types of payments which are made by the company to all of its employees.
In that salary is considered and in addition to that the other amounts which are also provided in
form of incentives will have to be included (Mares & Queralt, 2015). There is the similar case
which is arising and that relates to the long service leave which has been provided by the
company to its employees. In that an amount of $22000 has been paid in advance. As the same is
the prepayment so it will be considered in the period for which this has been made. The company
has made the payment for the coming period and so it will be considered in that that time only
and the provision will only be required in the present period. The company has already made the
provision for the same and so it can be concluded that there is no need to make the adjustment as
correct treatment is made by the company.
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e) The income in the company is made with the help of the expense which are incurred for them
and all of them can be classified as the revenue if they are in nature of regular business and if
they are onetime expense of which the benefit will be received in the long run then they will be
called as the capital expenditure (Burkhauser, et. al., 2015). The deduction in the company will
be allowed for only the revenue expense and all of the others will have to be capitalised by the
company. The built facility is being taken by the company and all of the expenses which are
made in this respect will be considered as the capital expenses and this will be providing the
facility for the long period of time. The construction is carried out and with that parking and
fixation are also there which all are fixed in nature and so there will be no deduction which shall
be allowed in this respect and whole of the amount in this will be capitalised. The expense of the
$250000 which has been made in relation to the architectural design will also not be requiring
any adjustment as this is also capital in nature. The demolition charges which are made are
although revenue in nature but then also will not be deducted due to them being related to the
other period which amounts to $50000. So there are no adjustments which are to be made by the
company and there will be no change which will be incorporated.
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Conclusion
The report that is presented above elucidates the laws which are applicable in Australia in
relation to several tax-related aspects. The understanding is gained for them and on the basis of
them, all the conclusions are drawn. The main component which is taken into account is related
to prepayments. There are several case laws which are considered and the judgments which are
made in them are used for the resolving of the issues that are faced by the company in various
circumstances and the advice is provided in that respect.
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References
 ATO. (2018), Deductions for prepaid expenses 2010-11. [online] Available at:
https://www.ato.gov.au/Forms/Deductions-for-prepaid-expenses-2010-11/?page=3
[Accessed 25 May 2018].
 Austlii. (2018). INCOME TAX ASSESSMENT ACT 1997. [online] Available at:
http://www8.austlii.edu.au/cgi-bin/viewdb/au/legis/cth/consol_act/itaa1997240/
[Accessed 25 May 2018].
 Bhatti, M. (2015). Taxation treatment of Islamic finance products in Australia. Deakin L.
Rev., 20, 263.
 Burkhauser, R. V., Hahn, M. H., & Wilkins, R. (2015). Measuring top incomes using tax
record data: A cautionary tale from Australia. The Journal of Economic Inequality, 13(2),
181-205.
 Dixon, J. M., & Nassios, J. (2016). Modelling the impacts of a cut to company tax in
Australia. Centre for Policy Studies, Victoria University.
 Hemmings, P. and Tuske, A., (2015). Improving Taxes and Transfers in Australia.
 Mares, I., & Queralt, D. (2015). The non-democratic origins of income
taxation. Comparative Political Studies, 48(14), 1974-2009.
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