The main fact of the case is based on the Arthur Murray. According to the study of the case, it has been observed that the main character of the case is regarded as taxpayer. Considering the case, the taxpayer is running a dance class and certain commercial tactics were taken by the group to catch the attention of the student. The main work of the company is to provide dance class in certain periodic manner and certain courses are generated to the students. Further, according to the case, the dance group has initiated certain plans of their students where they can pay their course fees in installments and there is a facility of advance payment. The dance group has entered into certain contract with all the students where all the business related provisions were mentioned. According to the group, those students who have paid their fees in advance will not get their money back. However, the company has observed an exception to the rule. It states that if in case the company has failed to provide proper classes to the student, the student can make legitimate approach for refund and in those cases, company can refund the payment to the students. All the provisions of the contract were completed and there was no partial submission in the contract. Further, the validity of the contract is permanent and it is non-cancellable in nature. A brief discussion of the constitution of the case states the fact that there were suspense account and revenue account. When the students are paying the money to the group for the first time, the money will be transferred to the suspense account. When the course has been over, certain fees will automatically transfer to the revenue account. All the monies deposited in the revenue account will be treated as income of the group. However, different rules have stated for the assessable income and according to the definition; all the monies earned by an individual in a taxable year will be known as assessable income. However, the term advance income is excluded from the definition of assessable income, as in those cases there is a scope for refund the money to the payer. According to section 25(1) of the Income Tax Assessment Act 1997, the advanced payment could not be assessed.
Considering the brief facts and business process of the group, certain issues have come into the light. The group is earning money and certain cases have been initiated against the company. It has been observed that it is required to define the character of the income first. It is the duty of the Commissioner of Tax and the taxpayer to assess all the nature of the income and to consider the assessable income. It is also to be determined whether the advance payment earned from the student will come under the shadow of assessable income or not.
According to the definition of the assessable income, it has been clarified that total money earned by an individual for a year is known as assessable income. However, a close interpretation of the definition reveals the fact that the nature of the income should be complete. Therefore, it can be stated that the provision of advance income will not fall under the definition of the assessable income. However, there are certain rules regarding the advance payment. According to the general provision, if the provision of refundable money has been included under the advance payment, it will not fall under the provision of assessable income. However, in the absence of the refundable provision, advance payment will fall under the category of assessable income. In this case, it has been observed that the group has mentioned a provision stated refund will be provided in respect of legitimate claim. Therefore, it can be stated that the advance payment made to the group will not fall under the provision of the assessable income.
In Australia, the tax related the Income Tax Assessment Act 1997 governs matters. There are many provisions that deal with the subject of income. According to section 6.5 (4) of the Act, when an individual taxpayer has received certain amount or any other individual receives the amount on behalf of the taxpayer, that amount is treated as income. However, according to the section, not all the income will fall under the provision of assessable income. Further, there are certain processes that are applied to calculate the taxable income amount. These processes can be divided into earning method and receipt method. The parties should have to select any of the processes to calculate their taxable income. Further, it has been mentioned in Tax Rule 98/1 Para 19, the nature of the income will be varied fir business related income and investment related income. Further, the income derived from an employee will be regarded as the taxable income and in this case, receipt methods are applied. Source of income plays an important role in this case. According to the provision mentioned in Para 20 of the same rule, source of income of an individual is required to be assessed. Those income generated from the computing method will fall under the category of earning method. Considering the case, it has been observed that the income source of the company is based on computing method and therefore, it can be stated that the earning method will be applied in this case.
The main subject matter of the case is based on the case study of RIP Pty Ltd. The main business matter of the company is to conduct funeral ceremony and assist the customer with all the related accessories like cascades etc. Considering the facts of the case, the company has proposed certain business rules applicable for their customers. The business of the company is quite profitable in nature and it has been observed that the total profit of the company has gone to the point of $2.45 million in June 2016. The most important thing after earn certain amount of money is to assess the income to meet all the requirements under the Income Tax provision. The company is maintaining an annual balance sheet and from the fact sheet of the company, it can be learnt that the company has certain provisions relating to invoice agreement. Considering the business provision of the company, the company has a provision regarding the advance payment made to the company by the customers. According to this provision, the customers are required to pay in advance and the company will provide certain future service. However, under this system, no question relating to the refund provision has been included by the company. Further, it has been stated to the company that the company will not provide any future services to the customer in case they have failed to pay any advance money to the company. Therefore, according to the provision of the company, the company will not be liable for any future act if the clients will fail to pay the advance money. Further, the company with an intention to settling the money management plan provides the invoices. However, the nature of the future plan program of the company will fall under the category of assessable income, as there is no mention about the refundable provision.
Considering the brief of each case, it is to be determined what the assessable income options for each company are. From the case study of Andrew Murray, the company has maintained certain refundable provisions. Further, it is to be stated that claims for refundable amount will be considered in case the company has failed to provide necessary courses to the students. According to the definition of assessable income, advance payment with refundable provision will not be considered as assessable income. Therefore, it can be stated that the all the money gained by the company under the shadow of advance payment will be excluded from the provision of the assessable income. On the other hand, RIP Pty Ltd has no such refundable option in their advance payment sector. Further, it has been observed that the company has not taken any responsibility regarding the failure of any payment made by the customers. All these nature show the fact that the company has maintained certain rules of assessable income. Therefore, all the advance payment taken by the company will fall under the criteria of assessable income.
When a company or an individual earns certain amount, it is their responsibility to assess the taxable income out of that earnings and in that case, they have to choose any method. All these rules have been discussed under various provisions of the Income Tax Assessment Act 1997 and Tax Rules. Under the Tax Rules, earning method and receipt method are applied to determine the assessable income. Further, under section 6.5 (4) of the Act, when certain money received by an individual, that considered as income. When the income is deriving from earning process, it will be assessed by earning method. To certain extent, this method has been regarded as cash and credit method. Under this system, the individual will get the option of recover the money. According to the case study of Arthur Murray, it has been observed that the company is earning the money from the business; but due to the presence of refundable option, not all the earnings of the company could be termed as assessable income. Therefore, the company has to select an applicable approach in this regard to make the process of income assessment possible.
The main subject matter of the company is based on the case of RIP Pty Ltd. In this case, the stated company has taken certain steps to develop the future of the company. The company has stated certain business plans. In the section of easy business plan, the company has provided certain future payment option for the clients where they can pay certain amount of money to the clients and deliver service to them. According to the business related matters of the company, it can be stated that all the plans regarding the development of the company has been planned properly and the company has taken all the steps carefully to divide all the principle amount gained by it in a year. All the payment relating to the advance system will be transferred to the forfeited account. In case of any failure regarding the payment process, the company will no longer bound to the clients and all the terms of the services will be postponed. However, the monies are not refundable in nature. Therefore, it can be stated that the company has designed its income capacities in a well-planned manner. Further, as there is no scope of refundable amount, the monies transferred to the forfeited account will be assessed and will fall under the provision of the taxable income. Therefore, according to this, income assessment provision will be imposed regarding $16,200 that is credited in the forfeited payment account.
This particular provision of the part is dealing with the matter of trading stock. The word trade means anything that does not fall under the provision of capital income. According to the definition of trading stock, it can be stated that anything used for the purpose of manufacturing process or any goods that can be used to form a part of the exchange or sale of goods. A general definition of trading stock has been mentioned under section 70.10 of Income Tax Assessment Act 1997. Considering the definition of the trading stock, it can be stated that all the CST assets and financial agreements will fall under the provision of the trading stock. Further, certain rules have been mentioned under section 70.25 of the Act where it has been mentioned that the nature of the trading stock should exclude capital income.
In this case, it has been observed that RIP company is conducting funeral ceremonies and they are also dealing with all the accessories mandatory for the ceremony. Therefore, it can be stated that the cascades and hearse are fall under the category of crematorium accessories. According to the definition of the trading stock, it can be stated that all these accessories should fall under this category, as all the essentials of trading stock has been fulfilled in this case. Further, it can be stated that the nature of the accessories will not form a part of the capital income.
In addition to this, it can be stated that certain sections of general deductions will apply on that provision and in that case, the deductable thing should fall under the definition of section 8.1 of the Act. According to this section, deduction provision will apply on the trading stock. Therefore, in case of any accessories related matter, the general provision of deduction will be applied on the same and all the monies paid for the same will fall under the similar category. Therefore, it can be stated that all the prepaid amount paid for the trading stock of RIP Pty Ltd will be subjected to certain deduction. Therefore, $25000 will be regarded as the income of the company and provision of general deduction can apply on this amount.
|
Particulars |
Amount |
Section |
|
Production of stock |
$25,000 |
section 8-1 of the ITAA 97 |
|
Advance Payment |
Nil |
of Section 6-5 of the ITAA 1997 |
|
Payment for next year |
$25,000 |
This provision of the question based on the general idea of ordinary payment. A complete definition of the term income has been given under section 6.5 of Income Tax Assessment Act 1997. When the taxpayer has received certain amount of money, it will be regarded as ordinary income. Further, it has been mentioned under the Act that dividends will be included under the provision of ordinary income. It has been observed that the company has taken certain rental storage under certain payment provision. The provision of rental storage related money will be come under the provision of ordinary payment. However, the term advance payment will not fall under the assessable income and therefore, it can be stated that the long leave payment process will also not come under the purview of assessable income, as the nature and character of both the payment is similar. Therefore, long leave payment of the company will also not fall under the provision of assessable income.
The main subject matter of the case is based on the provision of building equipments and application of the provision of general deduction over the building equipments. According to certain sections of the Income Tax Assessment Act 1997, the term general deduction will be applied on those things that have been paid on an urgent basis. The rules mentioned under section 100.25 of the Act that the term building equipments and land are falling under the category of CST asset. It has further been stated under this section that the provision of CST asset excludes from the section 8 of the Act. Therefore, it is no doubt to state that all the building equipments will be excluded from the provision of general deduction according to the Income Tax Assessment Act 1997.
Reference:
“Assessable income”. in , , 2018, <https://www.ato.gov.au/Business/Income-and-deductions-for-business/Assessable-income/> [accessed 24 May 2018].
“Deductions”. in , , 2018, <https://www.ato.gov.au/Business/Income-and-deductions-for-business/Deductions/> [accessed 24 May 2018].
Income Tax Assessment Act 1997
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