RIP Pty Ltd: Income Tax Assessment and Treatment of Business Items

HI6028 Taxation Law
1

Table of Contents
Introduction:....................................................................................................................................3
Part A...........................................................................................................................................4
Arthur Murray v FCT case..........................................................................................................4
1: Treatment of Income if received generally or from funeral services......................................5
2: Application of Arthur Murray principle on the treatment of Easy Funeral Plan.....................5
3: Choice in the method of accounting for tax............................................................................6
(B) Tax treatment of ‘Forfeited Payments Account’ item...........................................................6
Part B:..........................................................................................................................................7
(a): Treatment of Inventory items................................................................................................7
(b): Treatment of fully franked Dividend....................................................................................7
©: Treatment of Advance rent expense.......................................................................................8
(d) Treatment of amount paid to Director....................................................................................8
(e) Treatment of expenses for Building construction..................................................................8
Conclusion:....................................................................................................................................10
References:....................................................................................................................................11
2

Introduction:
Taxation is a very crucial matter for the taxpayers as well as a government because it is related to
the revenues of both. Present summary is made to explain the Income Tax rules which are
applicable to a business company in Australia. RIP Pty Ltd is a resident company is Australia
and engaged in the business of Funeral services. The Income Tax rules in Australia are
applicable according to the income tax act 1977 and present summary explains some income Tax
rules which are applicable on RIP Pty Limited along with the applicable criteria, rules and
exceptions. Income Tax rules related with Income recognition and determination are also
explained in this summary statement so that the managers of RIP Pty Ltd can make an
appropriate correction in the Tax Calculation statement to ensure the compliance of Income Tax
Act 1977.
3

Part A
Arthur Murray v FCT case
The case is about the dispute between Arthur Murray Vs FCT in which the high court gives a
judgement in the matter of income recognition. The judgement of court explains that is a
prepayment of a service which will be provided in future is included in the income of the
company or not?
Case facts:
The Company gave dancing lessons to Learners and receives fees on an hourly basis. The
organization additionally gave the chance to make a single payment for the dance practice
lessons of 1200 hours which can be taken by the learner at any time in life but learner should pay
the whole amount in advance. The rebate for fast instalment was made for the single amount
portions. The company was having a No refund policy and if learner fails to join the classes, the
company does not make any refund to the customer. The sum of fees received from the
customers as single payment was transferred to the ‘Unearned deposits- Untaught lessons
account’ and when company rendered services to its customers, it was transferred to the “Earned
tuition Fees” account.
Matter:
The case is about the dispute between Arthur Murray v FCT case and the matter of is that the
advance amount which was received by the company from its customers as one-time payment for
1200 dance learning classes, was chargeable to tax in receiving a year or not. In this case
company and income, tax commissioner has a dispute about the assessment of income. As per
the company accounting, fees which were received as a one-time payment from dance learners
will be transferred to the unearned income account because services were to be provided in
future. The company was following an assumption that income is chargeable on the basis of
earning and not on receiving basis so the advance amount does not includable in the income of
current year. As per the view of Income-tax commissioner, fees received by the company from
its customers as advance fees of dance tuition is chargeable to Income tax in the year of
4