Silsila taxation Law
Referring to Rip Pty limited company’s case study it has been detected that proper guidance is rcquircd by thc company. This is dctcctcd according to thc lais s of income iax to dctcrmine thc company ’s incomc. The is done bascd on thc income tax pnrposc for considering the sales or re enue of the companr under various heads i 'itli appropriate conclusion The rei enue is considered for scri’ing thc incomc iax purposc according to thc prci’ailing lan s in Australia.
The Rip Pty limited company (Arthur Murray (NSW} Pty Ltil v FCT (1965} 114 CLR 314 case} »’as trading ii’ith educating dances to the studcnts ii’ith thc hclp of the organisation that ii as cngagcd in operating thc dancc school business This school of dance accumulates fees from students in add ance » hich » as accounted bj the school in the suspense account. According to Li eI al (2G14. p 10). the normal practices of accounting arc folloii’cd by thc dancc school. Thc amount of fees that » as charged bj the school in advance for the lesson proc ided in dancing school had been kept in the account of suspense until the time period the lessons » ere extended to dancing school studcnts Thc amount chnrgcd by the dance school ii’as transferred to the company s account of rci enue aficr the time i licn tlic lessons » ere rendered to the students. No proi’ision »’as thcrc for rcfiinding thc fees chargcd according to the si stain of the organisation for stiidcnts ii’ho does not attend thc classes of dance On thc other hand. proi’ision to muka refund » as there as usual practice for the students » lio » cre non attcnding thc course of dancing According to Cao e/ n/ (2014. p.1 I S). this situation creatcd confusion for the authority of income tax in determining tlic company 's incoinc tax for a specificd j car of finance related to income derii ation
The issiics »’ere embosscd about the prcpaid status of inonci in prcfcrcncc of the fccs of tiiitions
in advance ix'itIi respect to nature of received amount as fees of tuition in advance According to Wocllncr er al (2010. p.25). the issiic ii as bascd on the naturc of thc fccs amount to determine thc company’s income. Thc issiic cmbossed ii as if thc prcpaid fccs amount for tuition has bccn acquired as rei enue. The issue included the ii hether acquired revenue was in the pertaining year to which the acceptance of thc fces of tuition has bcen doric or in the i ear of finance the prcpaid amount of tuition fees ii a accepted.
It has been detected going according to the company s books of accountmg that the received amount as prcpaid fecs of tuition ii’ere treated as par ment in adi’ance According to Andcrson ct of (201fi, p.127), this ii as treated as payment in add ance until the time period to ii hich the applicants or studcnts ii’ere rendcred the seri’ices In this condition. the court requires detcrinining the adi’ancc par ments nature in rclation to the compare ’s rei’eniie.
The court detected case with the deinerits and the merits for finding out the company s gains ii hich ii’ere cnjoyed bj the company during the practice The Court’s objectii’e is finding out what profits is enjoy ed by the company during the practice »‘itIi the idea of Cowie Home of
profits The objcctii’c of thc court has bccn also in finding ont thc rcccii’cd amount which is to bc obtained as actual Come Home of payer of tax as far as profits are considered. Its objective is also to dctcnninc »’hcthcr the pnyincnt of amount rcccii’cd in adi’ancc has bccn trcatcd propcrlj or not in the iaxpaycr’s account as a profit. According to Tan e/ o/. (2016. p.329). this is done for ensuring the soundness or legality of the business
It ii as detcctcd that rcccii’ed amounts liLc paymcnt in adi’ancc »’crc not putting lcgal barrier of any kind It » as understood that the treatment of such amount should be considered as rei enue’s quality and on the other hand, could not be treated as taxpayer’s income The amount’s trcatincnt in thc account should bc donc by booking sainc amount in thc account of siispcnsc. Then this should be follow ed bj booking it in the account of rei cnue » hcn goods i ere phs sicalli sold ii’ith sco’iccs or dclii’cn’. This rci’cnuc amount is considered as income according to the chnractcristics stntcd in accounts.
The coininissioncr has taken into account that this case might be proc ided i 'itli treatmcnt as rcfcrcncc of casc in par ment of adi’ancc case ii hich ;irc trcated liLc amount of contingcncj’ This is put in thc account of suspcnses for proc ing that income’s naturc should be regarded as incoinc that is uncanied in the account of incoinc of the payer of tax. According to Barrios ri o/. (201fi. p.25). this amount is not rcgardcd as income until thc timc period the rcccii’cd adi’ancc amount has been executed in a proper ii ay bj the see ices or sales process This process of sales is made ii ith impact of adjiistincnt of balancc day to gross account of rci’cnuc This adjustincnt is done for gross rci’cniic cxcliision from incoinc ii hich is uncarncd for dcrii’ing thc rcal loss or gain account. Here arises the three situation argument which are consistent to Arthur Murray case for unearned incomc derii’ation:
a) Contract term ii hich is specified.
b) In case the paj ment of add ance receii er practices the refund concept if stated in contract.
c) In casc of contract’s non-execution. the payincnt refund by receii’er for not dclii’ering thc serf ices and goods situation iinpled for
The gencrally derii’cd income of RIP Pty ltd includes the receii’ed income for the processes of funeral According to Docrrcnberg er of. (2017. p.4 l). this income is recoi’ered from companies based on insurance such as general assurance of life companies for the departed to i horn funeral scrvices are rendercd on 3G dajs sj stem of credit. Another income ii’hich is derii’ed from
scri’iccs of funeral and actin itics all@d or rclatcd to it arc from the rcccix’cd fccs of Finnncc of RIP Pty ltd under plan of installment repay ment.
According to thc rcccn’cd amount under plan of casy funeral bi thc company is rcndcrcd in add ance, the iinponance of Arthur Murray principles applies as receii ed amount is in nature of adi’ancc paymcnt. Hcncc. this amount is not rcgardcd as rci’cnuc Thus. thc rcccii’ed amount
» ill be regarded as income which is unearned. It should be put in the account of suspense until particular sen ices are proc ided for execution of plan of funeral. The syminetir of the company and Arthur Murray case is. both thc companics arc engaged in inonc; rcccii’ing for a scin’icc that is due in the futurc and the serf ice is not cxteiiding instantly aftcr thc receipt of inoncy Therefore. the both cascs amount is trcatcd as incoinc that is uncarncd The amount for cxcciition of serx’iccs is transfcrrcd from account of siispcnse to thc account of rci’cniic. This amount ii’ill be regarded as the coiiipany's income for the year of finaiicc » lien rendering of serf ices » as doric. This condition is maintains iinifonnitj with Arthur Murray Jirinciplcs, where amount reccii ed in add ancc by company is inadc for cxtending the dance tuition in advance from the school. Hence according to the case of Arthur Murray, thc rei enue amount is idcntified for dcrii’ation of incomc tax piirposc for thc i car of financc in ii’hich real sco’icc extension is transferred to the rei enue account from the suspense account This is done for determining the company ’s actual incomc
In casc of rcccii’cd paymcnt in adi’ancc by the Rip Pty limitcd company for am kind of rcndercd seri’ices in the future is treated as unnamed income. In case of receii ed paj ment in advance bj the Rip Pty limited compare for any goods sold in future. the incomc considcration in rclation to the receipts of add ance payments is treated as income i hich is unnamed. It is also not regarded as sales or revenue for the year of finance. The year of finance considered in which the payment has becn rcccii’ed but goods selling has not occurred or scri’iccs ii ere not extcndcd. Thc commissioner requires to receii e the amount as income that is unearned. It is treated by the commissioner in thc balancc shcet as a liability of thc gii’en company The unearned incoinc is treatcd as liability under the account of suspense head The par cr of tax for the company has to include the amount in the company s books of accounting According to Lloyd ei o/ (2015, p.10) it is included in company s books of accounts as income ix hich is iineamcd. It is recordcd as company s balance sheet which is features under the head liabilities. Besides, it has been stated
that treating nncarncd income amounts arc not pgrmittcd bgcausc of the nntiirc of such adi’ancc paj ments This nature of the add ance payments are the cause for non execution of such incomes
Thc $16200 amount is a collcction ii hich has bccn produced from thc chargcs of scri’iccs ii’hich
» ere unpaids from subscribers » mo are chosen for Plan for the Easy Funeral. This subscribers did not pay subscription on rcgular basis for the purpose ii hich »’as statcd by thc company. This similar amount has been credited in the account of forfeited payments. The account of forfeited paj ments treatment should be of Surplus and Resen e’s nature. This should be put in the side of asscts of thc balance shcct According to Pinto-Sanchcz e/ al. (2015. p.104). this amount should not be pro ided » ith trcatmcnt of anj’ kind rclatcd to the company' s income. Tliercforc, against this amount. no incoinc iax is being attractcd as this amount is not in the fonn of taxablc income for company. The surplus and rcsco’c amount is trcated as an amount of contingcnc; ii’hich could be uscd for facing anj occuring in future i here fund i 'ill be needed According to Bulman eI al. (2015. p 13). the trcatment of tax of $102GG amount is to bc proi’idcd ii ith thc trcatincnt as liability transfer under tlic head of accounting of Plan of East Funcral The $1fi200 amount is also treated as asset of surplus and reseri c undcr thc head of accounting of Accounts of Forfeited Pat incnts for the purposc of taxation
As $25G00 amount has bccn clcarcd in adi’ancc in 2016. June to procurc thc stocks of trading of other accessorics and caskct for gctting adi’antagc of good discount. As dclii’cy’ of the in;1tcrial ii ill be done in 2016. August. the amount is regarded as payment in add ance to i endors. The
$250G0 amount treatment is donc under the expcnses of prepaid hcad in current assct account. As the paid amount is under the head of current assets, it is debited to consumable account at the tiiiie » hen the see ices and goods are received physically from i endor Till then. it is put in account as prepaid cxpcnses and is rcgardcd as company’’s current assets for computing thc tax. While delis ering the consumables, same amount is regarded as loss or profit account’s component.
Item (b) is associatcd ii ith the cash dii’idend of franLed of $21G00 that ii as collected from RIP Finance Pty Ltd. This income is included in RIP Pty Ltd company s books of account. This amounted is regarded for purpose of tax by the company Thc dii’idend is assumed to bc paid deducting the tax from the profit .which has been credited or paid from RIP Finance Pty Ltd as
dii’idcnd of frankcd. This has been assnmcd for ai’oiding thc double taxation The tax on the di idend need not be let ied on the coiiipany.
Thc itcm (c) is associated »’ith $57.G00 amount ii’hich has bccn rcndcrcd for rent of the spacc of storagc for thc t» o ; car of finnncc 2G 16-17 and 2017-18 Pnrt of the total amount. that is $9500. is paid for 2016-17 year s rent has been included as expenses in the loss and profit account Thcrcforc. this amount is rcgardcd as a cxpcnsc in thc loss and profit account for 2G16-2017 ycar of finance for the purpose of taxation The H7500 amount has been rendered in advance for rent of the space of storage. The amount accounting is regarded as expenses of prepaid aiider is kept in thc balance sheet undcr thc hcad of ciirrcnt assets. According to Walnit er al. (2015. p.30). thc amount accounting i 'ill not be put undcr the loss and profit account for the j car of finaiicc 2016-
17 But thc sainc amount ii ill be put under loss and profit account for thc j’car of financc 2017- 1S as an cxpensc to derry e thc tax of company.
The item (d) is associated i 'itli Ical c of long sen ice Lead c of long serf ice is a paj ment for longcr tiinc pcriod scri’iccs ton ards cinployccs This is paid by them at thc tiinc ii hcn thci extciid thc see icc tenurc of 15 vcars according to rule of it of Australia under 83-B sub dii ision of thc Income Tax Assessment Act ,1997. RIP Ptj Ltd company rendered managing dircctor an amount of $22GG0 on lst June. 2000 It ii’as paid. ag;1inst the lcai’c of long scri’iccs of managing director. as add ance for three consecutii e month It has been collected as lead e of long serf ice account in proi’ision as a gcsturc mark of company’s normal practiccs Hcncc is amount is trcatcd for the purpose of taxation.
Referring to item (e), coiiipany has taLen decision for constructing a facility of building purpose by demolishing the structure ii hich is existing This decision is taken in the year 2G13 and the company has immediately chosen land and initiated the frames ork of designing the architectural Afteri ards, the coiiipany has initiated ii orking by land procurement actions and constructing i’arioiis building. Thc steps ini’oli’es incurred to company cost ii hich the company had incurred by the time period to 2016 from 2013 There deduction allot ance of Lai of Income tax of Australia for the expenses rclated to capital to construct ii’hich is undcr thc 43-2G scction of rule of I T of Australia. ITAA 36 The i’arioiis alloii’ances of deduction of tax are used for the purpose of construction and for the purpose of taxation.
Specified situations and questions are proc ided in the case study. »'liich » itli appropriate guidance arc nccdcd to be ansii’ercd in contcxt to Rip Pty limited company. Solutions to thc queries. ii ith rclci’ant rcfcrcncing and appropriate justifications. has been anale scd bi the hclp of pres ailing case studies
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