Taxation Advice for RIP Pty Ltd: Funeral Services and Income Tax Implications

HI6028 TAXATION LAW
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Contents
Introduction..............................................................................................................................................3
Part A.......................................................................................................................................................3
Part B.......................................................................................................................................................6
Conclusion...............................................................................................................................................8
References:...............................................................................................................................................9
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Introduction
There is a company named RIP Pty Ltd which is engaged in providing funeral services to its
customers. This advice is relating to the discussion on the timing on the taxability of the
income, adjustment in profits of the company, deductibility of expenses and related matters.
Part A
The fact of the case is very much similar to Arthur Murray v FCT case. The issue in the said
case was that whether the prepayment charges paid by the customer for the services to be
provided in future are included in the total income in the year of receipt or in the year in
which the services are rendered.
Facts – In the case of Arthur Murray, the Company used to conduct dancing classes for
students and charge fees on the hourly basis. There was a course for which student had to pay
a lump sum amount in advance and he can take the dance class for around 1200 hours during
the lifetime. Under this package, the company used to provide the discount as payment was
received in the lump sum immediately. But if any student could not take the classes for 1200
hours then the fees were not to be refunded.
The company used to treat the advance receipt as unearned income and transferred to profit
and loss account periodically as and when the lessons were rendered.
The company had a view that this is not the income in the year of receipt rather it will be
taxable when such income is actually earned by giving lectures. The amount received in
advance was to be transferred to ‘Unearned deposits- Untaught lessons account’ and not to
the income statement.
In the income tax returns filed by the company, the advance payment was not included in its
total assessable income.
However, while making assessment; the Commissioner had a view that there is no need to
distinguish between the fees received for lessons given and the fees received in advance. The
advance tuition fees will also be considered as assessable income in the year in which it is
received. (Barwick, 2017).
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