The Income Tax and Social Services Contribution Assessment Act 1936 and Other Taxation Laws and Principles - Assignment Example

TOPIC: INCOME TAX LAW NAME: CORSE NAME: COURSE INSTRUCTOR: PART A This was a case between federal commissioner of taxation and Arthur Murray (N.S.W) Pty ltd in 1965 in which the court delivered a judgment that; this is a case stated by the Chief Justice under the authority of s. 18 of under the provisions of the Income Tax and Social Services Contribution Assessment Act 1936 as amended. The involved five appeals four by the taxpayer company and the fifth one were by the commissioner respect to the fourth year (Beechey &Perkins 2007). According to the proceeding of the case, it became evident that the first question required formal answers since the facts in the question were few and simple. The business transacted by the company involved providing courses of tuition in dancing while charging a fee that varied depend on the number of hours. The payment of the tuition fees were made in advance either in installment or lump sum with the payment in cash attracting a variable discount. Other facts of the case further showed that A converse of what happened during to the case between commissioner Taxes and executive trustee and agency Co. Ltd was also used as a reference case to determine the assemble income of the year for the business hence helping to determine whether it was appropriate for the company to hold the receipt before earning any income. The case sort to find out whether generally speaking the taxpayer realizes any gains immediately. Ultimately, these cases tried to find out what derivation of income constitute among the business persons considering the receipt or assessable income. In the case, this could be best understood based on the best accounting standard methods used in the business community. The judgment passed on the case is that, based on the judicial understanding, the amount received but not yet earned or the amount earned but yet received basically determined. For more appropriate and professional income, would be determined especially in the medical practice based on the basic understanding of the accounting fundamentals like the treatment given to receipts. Any uncertainty is treated based on the actual understanding of the concepts. The subject off contingency comes about as a result of receipt of any amount that has not yet been earned (Coughlan, 2001). According to the proceedings of case, it is evident that income is according to the accounting and commercial principles applied in the business community derived amount received for goods and services rendered in advance. This is what the courts abide by as they have seen no reason to why they should differ with the accountants and the commercial men. The word “income” as it exist in the commercial cycles has therefore been left without a definite definition as it has been left to be understood in the sense of business affairs Contingency According to (Beechey &Perkins 2007), a recoverable debt will not be existence if its contingency is upon an event yet to happen in future. For instance, in the case of the facts above, except that NTV Co has the sole decision of rejecting the program any time before paying Niches. In the event that the program is rejected, Niches is not entitled to payment whatsoever. NTV Co does the editing and pays Niches on 30 september2010. II. (a) According to a principle in Arthur Murray (NSW) Pty Ltd v FCT (1965) 114 CLR 314 in the case where income for services offered is prepaid, the enumerations are generally not obtained or received except in the event that the services have been provided or delivered. However, this does not apply where the payment is non-refundable. For this case there RIP pty Ltd should derive its income on a receipt basis since it is a more reliable. When services are prepaid, income derivation is obtained upon delivery of the said services. it is therefore advisable for RIP Pty Ltd to derive its income upon delivery of services since it would be guaranteed of payment and the avoidance of loss in the case of default by the client. This also saves the firm from repayment of debts in case the firm fails to deliver services as required (Norgaard, 2004). (b) The Arthur Murray Principle generally applies to the company’s accounting treatment of amounts in Funeral plans 1 and 2. First, it is applicable on plan 1 since the client is guaranteed a ‘deluxe funeral arrangement’ upon payment of the agreed amount. in a case where the contract price is not fully satisfied at the date of death, the deceased’s estate financed or billed under a ‘net 30,days’ invoice and also under a credit type of arrangement where a client will operate on an installment repay framework. This forms a receipt basis of income derivation. The principle is also applicable in plan 2 as a client periodically pays an amount that is actuarially determined until the date of death and thereafter no any other amount are paid. This forms and accruals basis of income derivation (Coughlan, 2001). (c) The Commissioner or any taxpayer has a choice in the method of accounting for tax so as to make use of a most appropriate basis which gives ‘a substantially correct reflex of taxpayer’s income’ III. The company should consider refunding the client’s or the deceased’s estate some percentage of the amount paid. IV. The company should consider using this amount improves the quality of their services and to provide additional services to their clients so as to boost loyalty and faithfulness among the clients. Part B a) Tax on Stock Trading According to (North, 2001), if the stockpile was held for less than one year, one will have pay small period principal gains. If the stock was held for more than one has to pay extended/long term capital gains. This is because any small profit is better than a loss even if its weight is not heavily felt. Does one automatically sell once he or she has a profit of 100-200 dollars on some share stock of casket position? To a certain extent, than immediately selling once one has a $100-$200 profit try using a trailing stop (either % or dollar amount) on one of your stock holdings. My broker requires that a trailing stop be set at a minimum of $0.15 below current market price. The trailing stop order completing price will rise along with the stock price of the stock, but it does not go back down when the stock price falls. If the stop is reached the trailing stop order becomes a market order to sell. The only time you pay tax in relation to stocks is if A) the company pays a dividend. In that case, one get a 1099-DIV, and one have to pay taxes on that. B) One receives capital gains. One can receive capital gains if the business gives them to him or her from their own investing activities (which is kind of complicated and not worth going into) or if one trades on one’s stock (meaning one sell at a profit) (Norgaard, 2004). The tax is very low on capital gains, however, is especially for 2008-2010 if one is in the lowest tax brackets (its 0% in those circumstances). So if one hasn’t sold, then one reports nothing and pays no tax. When one do sells (at a $100-$200 profit in one’s practice),one pay tax on one’s gain at %15 if in a higher tax bracket, or one pays no tax at all for the next 2 years if someone in a lower bracket. One has to pay tax on the gain from any sale made, regardless of what one does with the money. Investing it in other stocks doesn't change that. One shall report all of the gains and any losses on a schedule D. If one has a net gain, one pay tax on that. One’s investment strategy might not be the best. If one sell quickly, then one pay a higher rate than if one hold the stock for a year, and could miss out on substantial gains if it continues to go up (Coughlan, 2001). b) Tax Dividend paid by Ripper Finance Pty Ltd should be taxed as it treated has income to the company. This constitutes part of the income tax that the company is obliged to pay. In its financial reporting, adjustments should be made to factor in this tax as an expense to the company. Regarding the prepaid rental for the two years, the company the financial report should be adjusted to indicate that the amount is not taxable as its not part of the income that the company get but an expenses that has been incurred and hence in tax free. The amount paid to the managing director should be tax inclusive as the amount contains both the amount that the company ought to pay in order to have the MD on leave including the advance tax included in the salary advance (Beechey &Perkins, 2007). c) Tax deductions and d) schedule Some of the tax deductions available for the company to take advantage include but limited to the tax as a result of goods and services employed in the process of coming up with the new facility. All services procured were tax inclusive and had all the relevant income taxes factored in their costs. The resources/goods used had the taxes included hence taxed accordingly (Tybout, & Calder, 2010). REFERENCE Beechey, V. &Perkins (2007), Accounting Laws and Guidelines Minneapolis: University of Minnesota Press. Tybout, A. & Calder, J. B (2010), Step-by-step guides to best accounting standards River Street Hoboken, NJ: John Wiley and Sons . Coughlan, A.T. (2001), Income tax: The Prentice Hall international series in accounting practice, Upper Saddle River, NJ: Prentice Hall. Icun Y. & Getty, M. BCI (2007), Taxation laws and principles, New York: Elex Media Komputindo. Norgaard, R. B (2004), Fundamentals of accounting. London: Cambridge Press. North, D. C. (2001), Basic Accounting skills, New York-London. Read More