The main facts encompassing the relevant question is simple in nature. Over the years, the company was discerned to conduct tuition for dancing, out of which it was able to generate a considerable fee every hour. The case finds that several courses were conducted consisting of 30 hours to 5 hours. This was based on appointment within a span of one year. The payments relating to the courses included either spot payment or receiving payment in advance (Giardina and Pinto 2014).
The financial interpretation made by the company showed that fees were obtained instantly and created as per “Unearned Deposits- Untaught Lesson Account”. The total amount corresponded to the lessons and transferred from time to time in the accounting “Earned Tuition Account”. The returns from income taxes consisted of the company’s footings associated with the fees which we received in advance of the lessons and did not form a part of the taxable income at the time of receipt. Moreover, the commission adopted the relevant assessment of being the fees as a part of income when received in the income year (Kaplan and Nadler 2015).
The main depictions are revealed that the treatment of the advance payment by the taxpayer was entered into the books of account after taking the dance classes. In addition to this, there had been no such inclusion of prepaid tuition fees as per the taxable amount. Despite of this, during the tax assessment was determined that fees included under that accessible income was duly received during the income year (Bevacqua 2015). The taxation commissioner held the TI has a part of prepaid income fees comprising of course lesson. It needs to be discerned that the very essence of consideration for the part payment of tuition fees is considered under “section 25 (1) of the ITAA 1997”.
The issue associated to the present case relates to the total amount of fees which was received during the year. This is measured to be vital factor for making sure whether taxable income of the prepaid tuition fees needs to be held for assessment.
The main objective of this case pertains to the understanding of income which is related to prepaid taxation-law which was held taxable. The decision made by the court stated on the fees which was received in advance for the services but not provided but not provided needs to be disregarded from the tax assessment. The Court considered the taxpayer and student with the purview that no refund was possible for advance payment of fees. In practical sense, the fees were paid back by the taxpayer in case there was no lessons imparted to the students. The more defiled by the court did not included any form of tuition fees which was formed as a part of assessable income to during the year of providing the tuition. Additionally, the tuition fees which were held up to enable by the taxpayer was not containing any attribute of income until the services they are already rendered.
The depictions made under the “section 6-5 of the ITAA 1997”, states that any value which is received by an individual on behalf of other individual, needs to be considered for assessment of taxation under the “section 6-5 of the ITAA 1997” (Australian Government 2015).
The aforementioned sections are seen to be appropriate for assessment purpose and consideration of earnings and receipt method. Therefore, as per the appropriateness of the individual who will pay the tax needs to make the appropriate choice. The consideration of the taxation rulings under 98/1 is related to the income assessment as part of earnings or receipt method. Furthermore, based on “Subsection 6-5(2) of the ITAA 1997”, an individual responsible for paying of tax needs to consider the gross amount (Kokolia and Chatziioakeimidou 2015).
The earnings method is typically considered to be appropriate for business income which are generated from the trading or manufacturing business activities. In general, earnings method is regarded to be most suited for treatment of income as taxable. The overall considerations of the study as per the “taxation ruling of 98/1” suggests on the receipt method and states that this is appropriate for assessment of the income obtained from investments. Despite of this assessment, there has been significant exception associated to this rule. (Mason 2016).
The discourse from case of RIP relates to offering funeral services. This is an outcome of the derived income which was facilitated as a credit to the customers with total time of one month for invoice. The income treatment for RIP needs to be considered as per “subsection 6-5(2) of the ITAA 1997”. This is directly relevant to the fact that in 2016, the company acknowledged a total amount of net profit of $ 2.45 million. In addition to this, the earning method is considered to be appropriate for the company and able to substantially provide reflex of income (Ilboudo et al. 2016).
In the later discourse it is discerned that company has received fees in advance which is considered under easy future plan and head under the non-refundable income category. Typically, payment of fees as a prepayment needs to be transferred to “Forfeited Payment Account”. Similarly, Rest in Peace Pty ltd. needs to forfeit the receipt of fees as there had been no income since no further liability was originated with offering of the surveys associated to the funeral under easy future plan (Office 2017).
The discussion on several types of case law shows the consideration which needs to be put on the taxpayer condition in providing necessary income reflection. As per the different nature of the depictions made under the “Arthur Murray (NSW) Pty Ltd v FCT (1965) 114 CLR 314”, receiving of income in advance needs to be assessed during the financial year. (Langham and Paulsen 2017).
The law in “Federal Commissioner of Taxation v Dunn (1989)” clearly represented the situations on how the business is maintained and determination of books of account. With particular reference to the case of RIP, the fees in the books of account needs to be considered similar as the income in a particular year. The different situation of Arthur Murray is similar for RIP and the principles considered for him is also applicable to accounting treatment in the case of RIP. It is worth noting RIP needs to record in the books of account the various fees which it received in advance and consider the same for funeral services provided (Sharkey and Murray 2016).
The consideration of taxation ruling as per “TR 98/1”, demonstrates that some of the individuals need to apply the use of earning procedure for tax assessment purposes. Additionally, “Subsection 6-5 (4) of the ITAA 1997” takes into consideration the procedure of income derived by the taxpayer constructively (Australian Taxation Office 2014).
A significant consideration of earnings philosophy relates to accrual method or credit method which is incurred by the taxpayer at the time it takes place. The taxpayer in such a situation may consider recovering of the amount with following several legal measures. These cannot be applied with appropriate method of recovery of the same. The individual being the tax and the commissioner will have a wide range of selection for necessary method of taxation which will show the receipts and earnings associated for assessment of tax (Abdulkarimli 2015).
In this particular constellation the company is evident with the fact that the customer was not successful in paying the advanced payments for the instalments and several amounts were forwarded to “forfeited payment account”. Moreover, the fees which was obtained by RIP was deemed as non-refundable (Australian Taxation Office 2014).
Based on the “section 70-10 of the ITAA 1997”, the act of trading relates to any business which produces, manufactures goods for selling or exchange. The depictions made under “Section 70-25 of the ITAA 1997” takes into consideration the sum which has taken place during trading stock and should not be considered as a part of capital. Moreover, this trading stock did not consist of any asset pertaining to CGT which was a part of “section 275 -105”. In addition to this, it needs to be discerned that the relevant purchase related to accessories and caskets were not a part of income generated during normal business course and should not be comprised under capital assets (Anderson, Dickfos and Brown 2016).
As stated in “8-1 of the ITAA 1997”, the trading stock purchase needs to be considered for deductions. A similar situation is applicable in case of RIP Pty Ltd, and the purchase of stock in trading needs to be considered for income tax assessment. Similarly, the prepared expenditure of RIP amounting to $ 25000 was paid for purchasing trading stock and hence for the prepared sum needs to be considered in advance of FY June 2016. In addition to this, the company will be able to claim for the deductions which are allowed for the trading stock during the year trading stock was purchased or formed a part of stock in hand. The “section 8-1 of the ITAA 1997” shows permission of the individuals under the purview of claimable deduction of taxes. (Hayashi 2014).
The application of “Section 6-5 of the ITAA 1997” is associated with the income derived the residents during OCB. The derivation of the income by the company needs to be considered under relevant TI. Henceforth, the dividend income received needs to be taken away from the franking credit as the dividends were fully franked (Australian Law Reform Commission 2017).
The advance payment for the rent cannot be included under “100-25 of the ITAA 1997”. Similarly, the sum received by RIP for rent cannot be held at the part for capital assets. In addition to this, there has been several evidences which shows that the advance payment made by RIP relates to the current income and the sum of four months. In addition to this, the rent held as a general deduction is considered with “section 8 of the ITAA 1997” and the unused long service will not comprise of taxable income. The offsetting of the unused amount by the individual paying the tax is not more than 30% and applicable under “subsection (2) of section 83-85 of ITAA 1997” (Australian Taxation Office 2015).
It is needed by the taxpayer for claiming deductions under “section 8-1 of the ITAA 1997”, associated to the expenditure which are which were part of TI. Additionally, a certain list of CGT assets is stated as per the “section 100-25 of the ITAA 1997” and this needs to be considered as a part of land and building. In addition to this, it has been evident from the given situation of RIP Pty Ltd, that the expenditures associated to the land and building were comprised of the capital expenditures which were considered to be non-allowable in nature. Similarly, the expenditures associated with the on-site car parking were considered by RIP along with the various expenditures incurred on landscaping and equipment (Australian Taxation Office 2014). The aforementioned items of capital expenses were not held for assessment of capital expenses and taxable income as stated in the “section 8-1 of the ITAA 1997”.
The various assessments of the case study have signified that Over the years, the company was discerned to conduct tuition for dancing, out of which it was able to generate a considerable fee every hour. The case finds that several courses were conducted consisting of 30 hours to 5 hours. This was based on appointment within a span of one year.
The significant depictions of the study have been stated with the aforementioned section clearly suggests that any sum associated with the purchasing of trading stock needs to be held assessable for deductions. A similar situation is applicable in case of RIP Pty Ltd, and the purchase of stock in trading needs to be considered for income tax assessment. Moreover, the various types of claims for the deductions in taxation is will be permitted pertaining to the trading stock as it formed a considerable part under stock in hand. It needs to be also understood that the consideration of taxation ruling as per TR 98/1, shows that individuals and entities needs to use the either of receipt or earning method for tax assessment. The rulings under “Subsection 6-5 (4) of the ITAA 1997” further relates to the method of income derived by the taxpayer constructively. The important form of impact shows that the obtaining of income by the individual needs to be considered even though the original amount was not dispensed (Australian Law Reform Commission 2017). The overall depictions of the study have been able to state that the total amount corresponded to the lessons and transferred from time to time in the account “Earned Tuition Account”. The returns from income taxes consisted of the company’s footings associated with the fees which we received in advance of the lessons and did not form a part of the taxable income at the time of receipt. The study is affordable to state that the earnings method is typically considered to be appropriate for business income which are generated from the trading or manufacturing business activities. In general, earnings method is regarded to be most suited for treatment of income as taxable. In the later discourse it is discerned that company has received fees in advance which is considered under easy future plan and head under the non-refundable income category. the prepared expenditure of RIP amounting to $ 25000 was paid for purchasing trading stock and hence for the prepared sum needs to be considered in advance of FY June 2016. In addition to this, the company will be able to claim for the deductions which are allowed for the trading stock during the year trading stock was purchased or formed a part of stock in hand. It needs to be further understood that the returns from income taxes consisted of the company’s footings associated with the fees which we received in advance of the lessons and did not form a part of the taxable income at the time of receipt. Moreover, the commission adopted the relevant assessment of being the fees as a part of income when received in the income year. In addition to this, there had been no such inclusion of prepaid tuition fees as per the taxable amount. Despite of this, during the tax assessment was determined that fees included under that accessible income was duly received during the income year.
Reference List
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