The facts evolving from the case are linked with the question those are simple and less in number. During the applicable years the company organized their business by providing classes for dancing and generated variable amount of revenues in each hour. This case elaborates the fundamental tuition courses that was made available as three options, 5, 15, 30 hours respectively (Barkoczy 2016). These options were made available as private tuition throughout a year of time span. Now when it comes to the payment of these courses two methods got highlighted either students have to pay as lump sum amount at the starting of the course or in instalments. However, the discounts were made available for immediate payments for the course.
In the books of company the fee structures that earned were getting immediately credited to the accounting name “Unearned Deposits- Untaught Lesson Account” (Kaplan and Nadler 2015). These amounts from the lessons were equivalent to the lessons taught and also this was scheduled as periodical basis and got credited as “Earned Tuition Account”. The income tax returns were considered by the company based on the foothold that the money received in advance was not getting included as the taxable incomes during the time of receipt (Miller and Oats 2016). The committee following relevant trials on viewing the fees which was received in advance basis from the students. The tuition involves the nature of income that will be dependent on the recipient and that too from the moment of receiving in the income year.
The taxpayers indulged prepaid tuition fees as the form of income which is obtained from the dance classes and this is kept in the books of account for the company (Panigrahi and Sarangi 2016). Moreover, there was no considered prepaid sum identified for the tuition fees that can be considered as the taxable income for the taxpayers. Nevertheless, during the time period of calculating the taxable income, it was identified that the fee structure that was involved within the assessable incomes are mainly received from the dance classes. Henceforth, the considerable taxation commissioner stated that the taxpayer received the assessable income in the form of prepaid tuition fee structures (Saad 2014). This will happen in the time of the income year when the students will start paying the fees to the company. The receipt of prepaid tuition fees comprised a common income dependent on “section 25 (1) of the ITAA 1997”.
The issue comprised in this case is that did the taxpayers obtain the prepaid amount of fees during the time of income year when it was received? The issue surrounding the case necessitate the important assessment of the fact if the taxable income of the taxpayer comprises a prepaid tuition fees or not?
The aim of the case was to appreciate whether the income that comes inside the company to the taxpayer in the form of prepaid was held as taxable income (Lang et al. 2015). The court of law stated that the considered fees which were received in advance for dancing classes, then this kind of incomes are not part of the table incomes. The court of law stated that there must be an agreement among the student and the company, that should contains the policies that no refund will be provided on the prepaid fees. management, at the real point of time, the fees were refunded through taxpayer if there is no tuition or classes provided to the students (Cvrlje 2015). The court of law approved that taxpayer did not include the tuition fees as the income during the income year, since then the policies are adopted for which it is clarified that there will be refund if the students are not getting the classes. The taxation commissioner alleged that the tuition fees which was collected by the taxpayer does not held any value for income if the services are not getting provided to the students in the income year.
Agreeing to the “section 6-5 of the ITAA 1997” any amount which is received by an individual on the behalf of the taxpayer, this is income will be regarded as the income (Woellner et al. 2016). Henceforth, origination of such kind of income is necessary for taxable income of the taxpayer with respect to the “section 6-5 of the ITAA 1997”.
There are two consistent methods for calculating the income for assessing the purpose, which is comprised of earning methods and receipt method. The taxpayer dependent on the compatibility is necessary for deceiving the selection of method (King 2016). According to the taxation ruling of 98/1, the taxation ruling is related to the ascertainment of income those are related to the earning method or receipts. “Subsection 6-5(2) of the ITAA 1997” needs a taxpayer for including the gross sum in their taxable incomes for the gross amount calculated by them.
Conferring to the “taxation ruling of 98/1”, the receipt method is declared as the genuine method for ascertaining the income those are gained from the investments. Furthermore, there are exemptions involved in this rule (Grubert and Altshuler 2016). This involves the gross sum method which are considered as the genuine method for determining the business income generated from the operations or manufacturing businesses. As a common rule, the earning method is known as the appropriate method for treating the income for taxation purpose.
According to the case study of RIP offers that the business was engaged for providing the services related to the interment. According to the evident during the end of year 2016, the organization gained a good amount of profit as $2.45 million. The organization also obtained income all the way through other means for providing its buyers all the benefits of crediting the pay related to invoices within the time span of 30 days. To extravagance the income for RIP for assessing its importance the earning method is considered in reference with the “subsection 6-5(2) of the ITAA 1997” (Oishi, Kushlev and Schimmack 2018). This earning method of accounting is known as the appropriate method for RIP Pty Ltd for substantially providing the genuine reflection of income.
In the upcoming occurrences this is identified that the organization usually receives fees in advance. Nevertheless this advance fees is collected under the easy future plan which is commonly considered as non- refundable part (Stiglitz and Rosengard 2015). Generally the fees which are paid in advance are forfeited and relocated to the Forfeited Payment Account, but here considered that these are for the person who fails to pay all the instalments in the considered future plan. Subsequently, RIP Pty Ltd is having a need of considering the receipt of forfeited fees as the income as no other liabilities originates for offering the service dependent on the interment in the easy future plan.
The principle stated involved in the case of “Arthur Murray (NSW) Pty Ltd v FCT (1965) 114 CLR 314” elaborated that the earning which is received as the advance amounts needs to be collected during the time of service period so that these can be considered as the income for the company (Bankman et al. 2017). Now coming to the case of the RIP Pty Ltd Easy Funereal Plans the chargeable amount received by the company in advance and services for the interment will be provided to them in future. Now the case law approach shows that instead of setting strict rules it is required to set weightage to the customers and their needs. In this case the accounting method is used for reflecting the income value during the income year. The court of law in “Federal Commissioner of Taxation v Dunn (1989)” alleged that the situations of the occupation and how the business is being operated and how the incomes will be recorded in the books of account of the company should be calculated and noticed (McDaniel 2017). The RIP Pty Ltd documents the fees in the books of accounts and also judges the same amount of money which was received during the same time of year.
The problems of the Arthur Murray can related to the conditions of RIP Pty Ltd for mainly accounting treatments. However, it is not needed for the organization to include the received the fees in advance and treat the equal as earnings of the year and this is shown in the receipt (Murphy and Higgins 2016). Moreover, this is important that TRIP is needed to record in the books of account of RIP that will consider the advance amount which is collected by the organization in that particular income year.
The “taxation ruling of TR 98/1” elaborates that the ruling is only implemented on the personalities and units for assessing. This should utilize the earning or receipts methods of taxation for ensuring that the ascertaining the taxable incomes (Feld 2016). “Subsection 6-5 (4) of the ITAA 1997” states that the receipt methods related to accounting guides the income which is gained through the taxpayer’s business activities in his business (Burke 2016). The result of this subsection highlights that the taxpayers gain the amount which is considered to get paid over but distributed based on the individuality.
The earning method is known as the appropriate method for earning the gain by the taxpayers. The taxpayer may have the amount which is recoverable but they are not allowed to recovery the debt amount for this business (Robin and Barkoczy 2018). Another important statement in this case is the taxpayer and commissioner will be able for the selection of earning method or receipt method for calculating the income related to the assessment purpose.
According to the evident from the situation of RIP Pty Ltd if the customer is victorious enough for paying advance instalments then in that case the inequitable amount received for the person is considered as forfeited and after this consideration this amount is then transferred to the Forfeited Payment Account. RIP Pty Ltd gained the fees that was non- refundable. Now in this condition the forfeited amount of $16,200 will only be considered as the income for the company at that considered situation.
Any amount which is utilized in trading stock should not be in the form of capital nature (Blakelock and King 2017). The stocks used in trading business does not involve CGT assets which are not introduced under “section 275-105” and also this should be owned by the superannuation fund or it can be associated with the deposit funds involved within the same business process. Likewise, the caskets and the accessories which bought by the RIP Pty Ltd were utilized in case of the ordinary business actions. This same amount is considered as the stock for trading but not considered as the capital assets.
Agreeing to “section 8-1 of the ITAA 1997”, any amount which is utilized for buying the trading stocks is necessary for deductions as well (Robin 2017). Equally, in the situation of RIP Pty Ltd, the decision of purchasing the trading stock will be considered as allowable presumptions. This will happen either considering when this stock was bough or when this trading stock became a part of considered stock in hand of the company. Similarly, “section 8-1 of the ITAA 1997”, highlights that the persons will be allowed to charge for the deductions was imposed on their assessable incomes. Now for the RIP Pty Ltd a prepaid expense is $25,000 which paid for purchasing the trading stock. Afterwards, the prepayment amount should be considered in advance for the income year of 2016 at the end of it.
According to the “Section 6-5 of the ITAA 1997”, the resident considered through ordinary sources will listed as the incomes according to the common concepts. However, an organization gaining incomes from the surpluses is required to involve the same in their tax returns (Robin and Barkoczy 2018). According to the evident from the situation of RIP Pty Ltd the organization gained a surplus income and in return of that taxable income franking was included with the surplus. Consequently, in the case of RIP Pty Ltd the surplus income which they gained from the organization which is paying franked surplus must take back the franking credit as the surpluses are completely franked.
The advance payment which is delivered for leasing storage should be from the part of capital assets according to the “section 100-25 of the ITAA 1997” (McDaniel 2017). Correspondingly, in reference with the “section 100-25 of the ITAA 1997”, for the situation of RIP Pty Ltd the paid amount which received for rental storage will not be considered as the capital benefit. Now further proofs can be provided in case of the situation of RIP Pty Ltd where the advance payment for the leasing considered as the current income related to the amount gained from the four month time period. This rent is then considered for common deductions according to the “section 8-1 of the ITAA 1997”.
Imbursement those are made for unutilized long time services leave or cessation of employment must be related to PAYG withholding. Now according to the Australian taxation bureau a worker is generally committed to long service leave until the ending period of their service agreement with the company. However, the long service leave can be approved according to the employment agreement. According to the “Section 83-80 of the ITAA 1997”, an unutilized long service leave generally does not formulate a part of the taxable gain (Murphy and Higgins 2016). A single taxpayer is committed to the tax offset for the unutilized amount according to the service leave payment where the amount must not be more than 30 per cent according to the subsection (2) of “section 83-85 of ITAA 1997”. Likewise, in case of the situation regarding RIP Pty Ltd, the organization remunerated a three months long service leave for advance time period. Now this same amount needs t be considered as expense for the income year which ending with 30 June, 2016.
A taxpayer for claiming deductions according to “section 8-1 of the ITAA 1997” needs to consider the expenses which are involved during derivation of the taxable income for them or their company. However, there are certain list of CGT assets which are considered according to the “section 100-25 of the ITAA 1997”, where this considers the land and building (Murphy and Higgins 2016). According to the evidence from this situation, the RIP includes their expenditure for lands and building and this formulate a part of the capital asset for them. This expenditure included will considered as the deductions in the considered year for the company.
Reference List:
Bankman, J., Shaviro, D.N., Stark, K.J. and Kleinbard, E.D., 2017. Federal Income Taxation. Wolters Kluwer Law & Business.
Barkoczy, S., 2016. Foundations of taxation law 2016. OUP Catalogue.
Blakelock, S. and King, P., 2017. Taxation law: The advance of ATO data matching. Proctor, The, 37(6), p.18.
Burke, K., 2016. Federal income taxation of partners and partnerships in a nutshell. West Academic.
Cvrlje, D., 2015. Tax literacy as an instrument of combating and overcoming tax system complexity, low tax morale and tax non-compliance. The Macrotheme Review, 4(3), pp.156-167.
Feld, A., 2016. Federal Taxation of State Tax Credits.
Grubert, H. and Altshuler, R., 2016. Shifting the burden of taxation from the corporate to the personal level and getting the corporate tax rate down to 15 percent.
Kaplan, R.A. and Nadler, M.L., 2015. Airbnb: A case study in occupancy regulation and taxation. U. Chi. L. Rev. Dialogue, 82, p.103.
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Miller, A. and Oats, L., 2016. Principles of international taxation law. Bloomsbury Publishing.
Murphy, K.E. and Higgins, M., 2016. Concepts in Federal Taxation 2017. Cengage Learning.
Oishi, S., Kushlev, K. and Schimmack, U., 2018. Progressive taxation, income inequality, and happiness. American Psychologist, 73(2), p.157.
Panigrahi, D. and Sarangi, M.S.K., 2016. Legal and Taxation Issues in Online Marketing in India-A Case Study. International Journal of Scientific Engineering and Applied Science, 2, p.50.
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Saad, N., 2014. Tax knowledge, tax complexity and tax compliance: Taxpayers’ view. Procedia-Social and Behavioral Sciences, 109, pp.1069-1075.
Stiglitz, J.E. and Rosengard, J.K., 2015. Economics of the Public Sector: Fourth International Student Edition. WW Norton & Company.
Woellner, R., Barkoczy, S., Murphy, S., Evans, C. and Pinto, D., 2016. Australian Taxation Law 2016. OUP Catalogue.
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