the fact arises on Arthur Murray(NS) Pty Ltd V FCT (1965) 114 CLR 314 is that the taxpayer sold prepaid dancing lessons with prepaid fees attributable in part to lessons to be provided in future income years. The commissioner assessed the tax payer on the basis that prepaid fees constituted income derived by the taxpayer when received. The high court concluded that amount received in respect of service to be provided in future years are not earned until the future obligations for which they are paid are discharged. Arthur Murray’s case can be co-related with the given condition of RIP Pty Ltd as the company is providing funeral services which is provided only after the death of client. For this they are receiving money in advance in order to provide future service .that’s why the case is related to Arthur Murray case ii
The professional people like Doctor, engineer and small business they can access their income in cash basis if their income turnover is up to $ 2 million a year. Section 6 of ITAA 97, Provisions for ordinary income and statutory income are given in s6-5 and s 6-10 in income tax assessment act 1997.Income is derived upon the arising of enforceable debt for taxpayer who carries business of supplying goods. Professional fees for services are derived upon the arising of recoverable amounts during course of carrying business however if the amounts are basically reward for the personal service then the fees are derived upon its reception. The prepayments for goods and services are assessable only when that services or goods are provided. Dividends, wages and salaries are derived when paid and received respectively. Likewise, interest is also derived upon it receipt but if the taxpayer is in the course of lending business then accrual basis is appropriate. And, all the trading income is derived at the point of sales. (Gilders et. al. 2009). According to Arthur Murray case, income is derived when the service is provided .Relating to RIP Company with Arthur Murray principle, we can say that RIP Company will derive their income only when the service is provided to its client. b)
Yes the Arthur Murray principle apply to the company‘s accounting treatment of amounts in funeral plan No 1 and 2. Funeral plan 1 is a fixed price contract and when the agreed amount is paid, the client is guaranteed deluxe funeral arrangement. Under funeral plan 2 company continuously receive installment until the death of the client .however the fund is refundable but only 85% upon the cancellation where as money received is not refundable in funeral plan 1 . On the both plan, the company ultimately receive providing funeral services in the future .if we co-relate their services with the situation of Arthur Murray, we can see that they first receive the money first but provide service later in the future to its client. That’s why Arthur Murray principle is applicable to RIP Pty Ltd. c)
Yes the commissioner or any tax payer have a choice in the method of accounting for tax. There are some cases that can be introduced to answer this question briefly. Carden’s case , the judgment of Dixon J , with whom a majority of the court agreed ,stated it was necessary to use the tax accounting methods that would reveal a “substantially correct reflex of the taxpayer’s true income “. The court concluded it was appropriate to recognize professional income on a cash basis. Similarly Henderson case concluded that partnership should account on an accrual basis for income years after 30 June 1964. Similarly in Fc of T v Firstenberg 76 AT (4141) case, the court stated that where the taxpayer is a professional Sole practitioner, it is appropriate his income to be consider as being cash basis .Imposing the use of accrual basis on a professional sole practitioner would represent unrealistic and un reasonably burden. We can say that if the company is a Pty Ltd or Partnership , the tax payer derives income on accrual basis and if the tax...
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