HI6028 Taxation Law: Taxation Implications for Business Decisions

This report provides an analysis of Australian taxation law, focusing on the implications for businesses, particularly RIP Pty Ltd. It examines the Arthur Murray (NSW) Pty Ltd v FCT case regarding the treatment of prepayments in assessable income, advising RIP Pty Ltd on how to handle advance payments for funeral services. The report discusses the option of including prepayments as income upon receipt versus recognizing them when services are rendered. It also addresses the treatment of forfeited amounts and dividends received, emphasizing the importance of understanding tax legislation related to stock, business expenses, and franked dividends. The advice is provided by considering the case laws and the available options for the company.

HI6028 Taxation Law
1

Table of Contents
Introduction......................................................................................................................................3
PART A...........................................................................................................................................4
PART B...........................................................................................................................................7
Conclusion.....................................................................................................................................10
References......................................................................................................................................11
2

Introduction
In the global economy, it is very essential that all the laws and regulations shall be followed by
the company in most effective manner and so are the taxation laws which are specified. In this
report, the Australian taxation will be considered and on the basis of that, all the advice will be
provided. In that, the case laws will also be considered so that the findings and decisions can also
be used for the making of correct decisions. The RIP Pty Ltd will be taken into consideration by
in the below-mentioned report.
3

PART A
a) Description of Arthur Murray (NSW) Pty Ltd v FCT (1965) case.
In the calculation of the assessable income, it is required that proper consideration shall be
provided to all the aspects and one of them is prepayments which are made. They will be
included in a correct manner and for this the case law related to Arthur Murray (NSW) Pty Ltd v
FCT (1965) 114 CLR 314 will be used. The amount that will have to be paid for tax will be
therefore ascertained in an accurate manner.
Facts of the case:
In this, the case is related to the services of the dancing classes which are provided to the
students and in that there are various facilities which are provided. The company is making such
charges which can be paid by the clients on the basis of the hours for which the lessons are
attended which mean that it is variable. A new provision has been launched according to which
the students will be provided with the 1200 hours which they can use any time in their life but
the payment for that will have to be made in full in one installment only (ATO, 2018). They can
avail the facility of the discount by the making of the immediate payment. If there is any client
who fails to attend the class an do not avail the service then the payment which related to it will
not be refunded in any circumstance and the same shall be transferred to the unattended classes
account. This will be charged to the normal income once the services will be provided to the
student.
Issue related to the case:
The main issue which is faced by the company is related to the treatment which will be provided
for the prepayments which have been made by the students. It will have to be determined that
whether it will be required to be considered in the calculation of the total assessable income or
not. The treatment which is proposed by the company for this is different from what is preferred
by the commissioner. The company does not include this amount in the assessable income as it is
of the view that it will form part of the income once the service will be provided and before that
there will be no payment of the tax which shall be made and so it did not record the amount. The
4

commissioner wants to include the amount as according to them once the amount is received t
forms part of the income and shall be chargeable to tax.
The conclusion is drawn from the case:
The assessable income is the income which is earned by the company and in this, the sum which
is just received will not be included and this is provided by the Act. According to it, the company
has made the correct treatment by not including the prepayment in the assessable income as this
is just the contract which has been made by the company and there is no service which has been
provided in this regards (Austlii, 2018). So the final inclusion will be made only after the receipt
of the amount and providing the service both are performed.
The RIP Pty Ltd is the company which is involved in the business of providing the funeral
services in which various type of plans is offered by them. The payments in relation to them are
received by the company in advance. According to the case, they will be included in the income
only after they are earned and service is provided and before that, they will be forfeited and
transferred to another account. The advice is provided by considering this and the same is
presented below:
 The funeral services are provided and in those payments will be collected by the
company after the provision of the service and if they are made before then it will have to
be excluded from the total assessable income. This is because of the decisions that are
provided by the court, according to which the tax will be paid once the income is earned
and not just received. So there will be no inclusion of the prepayments in the income and
this will be charged after the company will be providing the services to the client.
 The easy funeral plan is also one of the plans which are offered by the company to its
client and in this, the services will be provided and the payment for the same will be
provided in advance by the client. This will be the prepayments and so on this, the
company will be applying the decision which is recognized above. The amount will have
to be excluded from the company from the total taxable amount. The client will have to
avail the facility and if there is any default in this then the company will not be making
any kind of the return. The total amount of that client will be forfeited and that will be
5

moved to some other account and this will be charged to tax when the service will be
provided to them.
Carden’s case (1938) 63CLR108 is another judgment which has been provided in this relation
and according to it, the company has the option to make the inclusion of the amount in the
assessment income once it is received. Under this, the provision of the service is not necessary
and so the prepayments will also be included in the total taxable income and tax will have to be
paid on this (Jaidi, et. al., 2017). If the company is satisfied with this then it can undertake the
treatment according to it and include the charges of the easy funeral plan in the assessable
income for the payment of tax. By this the requirement of transferring the amount to another
account will be eliminated as that will be charged to tax whenever it is received.
b) the company is currently having the balance in the forfeited account and that amounts to
$16200. This is the amount which has not been claimed by the client and the services in relation
to it has not been provided by the company. This will have to be treated in the proper manner and
for that, the decisions which are identified in the above part of the report will be taken into
consideration. According to the company will be choosing the one option from among the two
options which are available. If the first option will be selected then the company will not be
required to include this in the total income and so that tax will not be paid on this amount. This
will be considered for the purpose of the tax in the year when the service will be provided in
actual (Bentley, 2016). Other option can be chosen in which the company will be including this
in the assessable income and so then they would have been paid in the past so now it will not be
included in taxable income as the tax is paid once for any transaction. So it can be said that the
company will be paying tax after the provision of the service if the first option will be selected
and if another is taken then no tax will be paid as now the forfeited amount will be transferred
and tax would have been paid already.
6

PART B
In the company, there is the need to use the various laws which are available and for that, all the
legislation which are there will have o be taken into consideration. There will need to obtain an
understanding of the so that proper decision is made by the company. The advice related to it is
providing which are as follows:
a) The company will be requiring the various types of the resources and with the help of that, all
of the operations will be carried in an effective manner. This will help the company in earning
the returns in the company. The stock will be including the intangible and tangible both of the
assets and this is provided in the tax laws which are specified by the Australian government. But
there are some of the things which are not considered as the stock by the company and they are
consumables, spare parts of the assets and other crops which are grown (Hemmings and Tuske,
2015). By the help of them, all of the functions such planning, exchange, manufacturing, and
sales will be performed. In the company also the stock will be required so that funeral services
can be provided by them in the proper manner. The main elements which are included in this are
caskets and accessories. They will be helpful in the earning of the income and due to this, it will
be considered as the stock for the company as they will be used for the provision of the services
without which it will not be possible.
The tax amount which will be determined is based on the taxable income and so it will have to
be calculated in a proper manner. There will be a deduction of the business expense which will
be made in the company for the carrying out of the process. All the discounts which are provided
will also be used by the company in the calculation of the net amount so will be deducted from
the sales amount.
b) The incomes of the company represent the total amount which is earned and in that the
company will also be including the dividend which is received by it from the investments which
are made in the other business. In the given case also there is the amount which is received in
form of the dividend amounting to $21000. So it shall be included in the income but there is an
exception to this situation and in that if the tax has already been paid on that amount by the
provider of the dividend that it will not be taxed by the company. In the given case the company
7

is receiving the fully franked dividend and that is the value on which tax has already been paid
by the declaring company. So the company will not be required to include this and no adjustment
will be made in this respect.
c) The expenses which are made in the company includes all of the payments which are made by
the company. In that, the amount which is paid in advance is also included and considered as the
prepayment. The provisions of the tax provided that the expense will be deductible in the period
for which it is related (Bhatti, 2015). By that, the correct assessable income will be calculated
and then the tax will be identified on the same. The company is making the payment for the rent
and this is made in relation to the coming two years which amounts to $57000. Out of this the
amount which is related to the current period of four months will be considered in the present
year. This amounts to $9500 and the same has been included by the company in the current year.
The amount which will be retained will also be divided on the proportioned basis among the
remaining period. As the company has already made the required treatment so there will be no
adjustment which will be made by the company in the profits.
d) The employees in the company are paid the required amount of the basic salary and in
addition to them, there are some other incentives which are also paid by the company to them. It
is required that they shall also be included in the calculation of assessable income so that proper
tax treatment is made. The company is making the payment of $22000 to an employee in relation
to long service leave which is provided. It is required that this shall be deducted from the
income. This is the advance payment which is made by the company and due to this it cannot be
deducted and will have to be considered as the prepayment. For this, the company can only make
the provision as this will be deductible in the period to which it relates. The company is already
making the provision so it can be said that appropriate treatment is made and there will be no
requirement in terms of the adjustment.
e) For the earning of the income, it is required that proper expenses are also made. Out of them
some of them are business expenses which are related to the regular business. And some are
capital expenditure which is made once and the benefit of which will be obtained for the lifetime.
The ones which are related to the business will have to be deducted and the others are
capitalized. In the company also various such expenditures are made and they include the ones
8

which 8-I for this purpose (Dixon & Nassios, 2016). As this is the fixed asset so all the expense
which are made on this will be considered by the company as the capital expense as long-term
returns will be made with the help of them. The charges which are incurred for the car parking,
construction and fixation will be capitalized as they are the capital in nature will not be
deductible from the income. The architectural design related expense which is made amounting
to $250000 also lies in the category of capital expense and so there will be no adjustment for this
also which will have to be made in the profits. The demolition expenses are revenue and can be
charged in the business but as in the given case they are amounting to $50000 and also they are
for the other period so will be required to be included in that and not in the current period. In
accordance with all of this there is no amount which is to be adjusted and so the profits of the
company will remain similar. The treatment which is provided by the company is absolutely
correct and so it will remain unaltered.
9

Conclusion
From the report which has been presented above the knowledge about the laws and regulations
which are followed in the Australian taxation are identified. The manner in which the treatment
of the various items is made has been determined by the profits of the company are affected due
to them. There are case laws which have been taken into use for the same and for this they are
also understood in a proper manner. All the issues which are there have also properly be
considered and the advice for the same is also provided in accordance with the laws.
10

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 21 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 21 May 2018].
 Bentley, D., (2016). Taxpayer rights in Australia twenty years after the introduction of
the Taxpayers' Charter. eJournal of Tax Research, 14(2), p.291.
 Bhatti, M. (2015). Taxation treatment of Islamic finance products in Australia. Deakin L.
Rev., 20, 263.
 Dixon, J. M., & Nassios, J. (2016). Modeling 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.
 Jaidi, J., Noordin, R., & Kassim, A. W. M. (2017). INDIVIDUAL
TAXPAYERS’PERCEPTION TOWARDS SELF-ASSESSMENT SYSTEM: A CASE
OF SABAH. Journal of the Asian Academy of Applied Business (JAAAB), 2.
11