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Introduction

The valuation of the personal assets, its related transaction, the ceased real estate’s licenses granted and functioning of the duties over the regional areas are assessed by the government. This assessment of the properties and duties of an individual is accounted for the taxation under the government taxation rules and regulation. The tax is imposed on the individual for the purpose of extracting funds from the income and using it for providing service to the state. This report is focused on the taxation imposed by the Australian government and the rate of tax paid by the individuals or Australian company. By the help of given case study of Australian court, the tax payable is ascertained for RIP Pty Ltd in the reported study.

PART A

A. Referring to the Court Case Study discussing the Facts, Issues, and Conclusion of the case

According to Millar (2014, p.24), the case study in Arthur Murray (NSW) Pty Ltd v FCT (1965) 114 CLR 314, 

Facts- The fact released in this court case is regarding the school of dancing who received the fees in advance and has to hold the fees in the suspense account utile the service is rendered to the students. The motive was shown for delaying the tax payment in providing the dancing lesson to the members in the coming year (ato.gov.au, 2017). The facts showed that the taxpayers will not be done until the service is rendered, after that the fees will be transferred to revenue account. The norms of refunding the fees have not been followed which created confusion in the mind of the tax consultants. 

Issues- The issue arising in this segment stated that the prepaid money paid in lieu of the advance fees has been derived as revenue or not.

Conclusion- according to the commissioner (MTG 9-090) the principle of Arthur Murray is applied when the payment in advance is not revealed or the revenue income is not treated as income in the account. The treatment of suspense account denotes that the assets are being used as contingency assets, which has created a chance of fraud. The advance fees derived by the taxpayer are shown in the revenue account as the prepaid income of the dancing school. The judgment was passed by the high court is that the amount that is received by the dancing school is for the services which will be provided in the future. Thus, the amount will have been treated as income earned in the recent year.

1) Advising RIP Pty Ltd for the general reception of Income

As per Paterson and Brody (2015, p.338), the commissioner the payment is not included in the revenue income account until the service for future is not discharged (30 days credit program). The court case study on Arthur Murray provided is similar to the case of the related company RIP Pty Ltd. In this case study of dancing school, the fees are paid with a contract signing for providing a lesson for a maximum of five to fifteen hours a day. The issue arises in the court case of Arthur Murray is quite same as the RIP Pty Ltd. As RIP Pty Ltd is a funeral servicing company, it is also prepaid for the service booking and the task is rendered after expiry. Hence, it can be said that both the income can be treated as unearned as the amount has been earned in advance. Thus the comparison done for Arthur Murray case study and RIP Pty Ltd is same regarding the prepaid earning of the fees.

2) Advising RIP Pty Ltd when fees are derived from the various activities and funeral services

The income of the taxpayer basically depends on the debt which is enforceable in concern of the company or individual who is operating the business. According to Aitchison (2016, p.12), accounting principle of Australia, the annual income turnover above $2 million annually can access their income as respect base of cash. This criterion is applied to every working professionals of Australia either it is the engineer, accountant, doctor, or small and large sector business related person. The rules of tax payment on income are incorporated under Income Tax assessment Act of 1997 under section 6.

The dividend payable Moreover, provision for ordinary income as well as statutory income are also provided on the cash basis to the professionals having an annual turnover income of $2 million under section 6-5 and section 6-10 of Income Tax Assessment Act 1997 (Stewart, 2017, p.40).

The interest is the part of or receivable income which the company received in the due course of dividend received on the accrual basis. The service is lent when the sales are done in exchange for the income. Considering the case study of Arthur Murray it is assumed that the tax could only be paid if the service is discharged. Thus the application of the similar principle in case of RIP Pty ltd income accounting, it is accepted only if the services are provided after the receiving the prepayment of the fees (Paterson and Brody, 2015, p. 338).

3) Application of Arthur Murray principle for the treatment of fees earning in the funeral plan of RIP Pty Ltd

It has been observed that plan of funeral expenses assists the company in receiving the aggregate installment until the expiry is caused to the client. This plan of the funeral is concerned about the services which are refundable. It is provided to the client until the cancellation request advised by the member. At last, it is observed that not more than 15% of the amount of the canceled funeral is refunded.  Thus it results in the higher income of the RIP Pty Ltd for the assumption of providing funeral services to the client in future. Therefore the case is similar in both case studies of Arthur Murray and RIP Pty ltd income criteria. In both the case, the amount is received in advance and the sustained from tax payment. The tax payment is not enforced by the Australian government to this kind of case by the assumption of rendering the services in future.

4) Any recommended option for an accounting tax to the commissioner and Taxpayer

The commissioner is concerned with the further option of accounting the tax payment method. There is various case arises which provide the idea of implication for an accounting of the tax by the commissioner. The cases will help further in revealing the true income statement of the company. As per the court judgment, it is vital to consider the income on the basis of the cash of each professional engaged in any kind of business. In the comparison case of Henderson vs. FC of T ATC 4016 (1970) it is observed that in partnership business the account must be managed on the basis of accrual account (law.ato.gov.au, 2017). Thus it assists in the good outcome of the tax accounting and applies suitable methods for taxation. IRS 99-19 states that any business prevailing under the registration of partnership or Pty must account the income on the accrual basis. On the contrary, if the business is operating as a sole entrepreneur then the accounting of income would be on the cash basis. 

B. Advising the company for the treatment of tax of $16,200 in the account of ‘Forfeited Payments

According to Krever and Teoh (2016, p.85), the accumulated amount of $16,200 which is received by the company for an unpaid service by the contract is done for the funeral plan but failed to pay the subscription on regular basis. Thus the said amount is treated as a forfeited payment in the account. The forfeited amount is, therefore, should be accounted as the surplus of the company. It should be included in the balance sheet as an asset. In concern to tax payment treatment, the amount of $16,200 should be accounted as the liability transfer under the funeral plan to the asset for the surplus in the forfeited payment account for the purpose of taxation.

According to the rules laid by the officer of Australian Taxation, each income which implicates the forfeiting of the payment in accounting, which further should be measured as tax payable. Legally the company is liable for payment of tax on the income it receives to the Australian government either sole trader, partnership or Pty Ltd. RIP Pty Ltd have retrieved the amount of $16,200 as a forfeited payment on 30th June. It is treated as a tax imposed by the Australian government on the company for receiving of income (Bain et al. 2015, p.158). 

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