Assignment by alicejenny


									                              School of Business

                         BULAW 5916
                     TAXATION LAW &

 1. See the Instructions and Assessment Criteria in the Course Description and
    make sure you follow them!

 2. Please answer all parts of the question

 3. Attached to this document is a Checklist to be filled in by you and attached
    to your essay/assignment. Read this now before you start your research. If
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 4. All work presented for assessment in this Unit must comply with the
    format outlined in the University's Presentation of Academic Work
    publication, available from the bookshop or on-line at

 5. All assignments must be accompanied by a signed official cover sheet
    ('Plagiarism Declaration Form'), available at and lodged as
    appropriate for your campus.

 6. You MUST reference in the body of the essay every time you use information
    from other people. This requires you to keep a track of where you are taking
    information from and then writing the reference up. You should use the
    Harvard/APA style; and use the University’s new Presentation of Academic
    Work. The Library’s website also has a citation style guide site. If you
    plagiarise (intentionally OR unintentionally) you will be given zero: see
    Regulation 6.1.1 for more details.

 7. Assignments must be 1,500 to 2,000 words. You will probably write more
    initially but you should then look to see if you are making your points directly
    and clearly.

 8. LAST DUE DATE: 13 September 2011 at 4 pm. If you need an extension
    you must ask for one BEFORE the due date (unless this is impossible).

 9. The essay/assignment is worth 25% (ie 25 marks).

Part A

RIP Pty Ltd is a resident private company carrying on the business of
undertaker/funeral director. It operates out of premises comprising office facilities, a
chapel and assembly area and professional rooms. Its other assets include a fleet of
motor vehicles.

For the year ended 30 June 2011 the company reported a net profit of $2.45m. Its
income arises from the provision of funeral services financed as follows:
        i)     Fees payable under a ‘net, 30 days’ invoice.
        ii)    Fees payable under several external insurance contracts to which bills
               are issued under a ‘net, 30 days’ arrangement. [Eg: some funeral costs
               are paid by the Transport Accidents Commission.; others are paid out
               of private life assurance plans.]
        iii)   Fees received from Ripper Finance Pty Ltd, a wholly owned finance
               company providing credit under an instalment repayment plan.
        iv)    Amounts paid under two funeral plans in which clients make periodic
               contributions to meet future funeral costs.
                         a) Funeral Plan No 1 is a fixed price contract. When the
                              agreed amount is paid, the client is guaranteed a ‘deluxe
                              funeral arrangement’. If the contract price in not fully
                              paid at date of death, the deceased’s estate is billed under
                              (i) or (iii), above. The amount is not refundable or
                              transferable. Receipts are credited to a Deferred Income
                              Liability Account. At 30 June the credit balance in
                              Funeral Plan No 1 is $225,000.
                         b) Funeral Plan No 2 is an insurance type plan under which a
                              client periodically pays an actuarially determined amount
                              until the date of death and no further amounts are payable.
                              Amounts paid are credited to ‘Funeral Plan No 2
                              Account’ – a Deferred Income Liability Account. In
                              2010/11 payments of $166,500 were received under Plan
                              No 2. The plan may be cancelled by notice in writing and
                              the amount refunded is determined by a formula that
                              factors in the client’s age, amount paid, and period of
                              membership. On average, 85% is refunded upon
                              cancellation. Refunds paid were $23,375. The balance,
                              described in the company’s accounts as ‘Administrative
                              Fees; FPNo2’ is brought to account as income at the date
                              of cancellation. At 30 June 2011 the credit balance in that
                              account was $4,125.
                         c) From time-to-time amounts paid pursuant to both Plans
                              are not drawn upon. The clients might die abroad or
                              remains not be recovered and no funeral service is
                              provided. No refund issues arise with Funeral Plan No 1.
                              The company is unsure how it should deal with such
                              matter under Funeral Plan No 2.
                           d) At 30 June the company transfers from Funeral Plans
                              Nos 1 and 2 amounts estimated to have arisen in
                              connection with defaulting members (ie, members who
                              have ceased making scheduled payments and who are not
                              expected to make up arrears). These are credited to a
                              ‘Forfeited Payments Account’ that has a balance at 30
                              June of $16,200.

Required 1 [Approx 50%] [Note: it is necessary to refer to appropriate case law on the

(i)       Refer to the decision in Arthur Murray (NSW) Pty Ltd v FCT (1965) 114 CLR
          In your own words, briefly describe the facts, issues and conclusion in that

 [Note: Case reports and extracts of Arthur Murray are widely available or the
decision may be accessed via]

       (a) Advise RIP Pty Ltd when income is derived, generally, and when it derives its
           income from funeral services.
       (b) Does the Arthur Murray principle apply to the company’s accounting
           treatment of amounts in Funeral Plans Nos 1 and 2? Explain.
       (c) Does the Commissioner or any taxpayer have a choice in the method of
           accounting for tax?

(iii)     Advise the company of the tax treatment of amounts in item (iv)(c).

(iv)      Advise the company of the tax treatment of $16,200 in ‘Forfeited Payments
          Account’ in item (iv)(d).

Part B

i) RIP Pty Ltd holds a stock of three types of caskets as well as a range of accessories
(such as religious and secular icons). In June 2011 the company prepaid $25,000 for
material to be delivered in August. The company obtained considerable discounts for
the advance purchase.

ii) A fully franked cash dividend of $21,000 was received from Ripper Finance Pty

iii) An amount of $57,000 was paid on 1 March 2011 for two year's rental of storage
space. The lease expires on 28 February 2013. In the company’s financial accounts an
amount of $9,500 was expensed and $47,500 capitalised.

iv) On 1 June 2011 the managing director of RIP commenced three months long
service leave and was paid $22,000 in advance. The amount was debited against a
Provision for Long Service Leave Account.
v) In 2008 the company’s Board of Directors decided existing accommodation was
inadequate and it resolved to construct a purpose built facility. In that year $250,000
was paid for preliminary architectural designs. In 2009 land costing $1.25m was
acquired and $50,000 paid to demolish an existing structure. Construction of the new
premises commenced on 1 September 2009 at a cost of $2.5m. Fitting and equipment
was installed on 1 June 2010; operations began on 1 August 2010. On-site car parking
costing $125,000 was completed on 30 September and landscaping of the site was
completed on 31 January 2011 at a cost of $40,000.

Required [Approx 50%]
Advise the company in regard to the following: [You must refer to appropriate
sections of the legislation and relevant case law.]
    i)      Advise the company what is trading generally, whether the caskets and
            accessories would be trading stock for tax purposes and how the amount of
            $25,000 is treated for tax purposes.
    ii)     What adjustments (if any) should be made to the company’s reported
            profit for tax purposes in regard to items (ii), (iii) and (iv).
    iii)    Advise the company what tax deductions are available for the costs
            connected with the new facility [Item (v)] under s8-1, Div 40 or Div 43.
            [You should include calculations of any allowable deductions.]
    iv)     Prepare a schedule taking $2.45m as your starting point and making
            appropriate additions and subtractions to calculate the company’s taxable
            income and tax liability.
University of Ballarat – School of Business


Name: ……………………………………………………………..
Student No. ………………………………..

Please check that you have done the following. Tick the boxes to show you have!

       Submitted an assignment that is your own work. (You may discuss the issues with others
        but you cannot copy another’s work, give your work to someone else to copy, or work closely
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       The assignment is between 1500 and 2000 words long (excluding abstract, references,

       Read and tried to address the criteria in the Course Description.

       Read and addressed the issues raised in the University’s Presentation of Academic Work

       Read Regulation 6.1.1, Plagiarism and asked questions if you are unsure about what it means.

       Referenced direct quotes (use quotation marks or indent) AND summarising from another
        person’s work in the body of the essay. (This includes internet sources).

       Indicated what referencing style you have chosen Harvard/APA and USED IT.

       Answered all parts to the question.

       Proof read the assignment for spelling, punctuation and grammar errors.

       Where required, used relevant sections of legislation, legal rules/principles

       Where required, used cases to support your points or arguments. These cases can be obtained
        from textbooks, or the CCH online libraries, articles found via AGIS PLUS TEXT database

       Put case citations in the body of the work as well as listing the case in the List of References.

       Discussed the issues as required and put arguments and gave your view.

       Used a range of resources.

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