HI6028 Taxation Law: Income Derivation and Trading Stock in Funeral Services

HI6028 Taxation Law
Trimester 1, 2018
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Contents
Part A.....................................................................................................................................................2
Part B.....................................................................................................................................................5
References.............................................................................................................................................8
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Part A
a) Refer to the decision in Arthur Murray (NSW) Pty Ltd v FCT (1965)114 CLR 314. In
your own words, briefly describe the facts, issues and conclusions in that case.
The facts of the Arthur Murray principle relate to the recognition of income in the books of
accounts for tax purposes. The taxpayer provides the services of dance lessons to the
students. The students are charged a lifetime fees for the dance lessons which can be availed
at any time during the life of the student. The fees are not refundable to the students whether
or not the dance classes are taken by the students. The taxpayer does not include the amount
received in its assessable income since it follows the accrual system of accounting and the
amount is received in advance which relates to the unearned income of the taxpayer. The
Commissioner of Taxation included the amount of unearned deposits in the assessable
income of the taxpayer. On the objection made by the taxpayer the matter was sent to the
Board for review which also supported the commissioner’s view. The taxpayer appealed to
the High Court. The issue involved in the case was that whether the amount which is received
as advance payments from the students for dance classes shall be included in the assessable
income of the current period or not. It relates to the assessment of when the income of
business is considered to be derived income. The High court held in its decision that the
income earned by the taxpayer from the services provided in the current period will form part
of the assessable income of the taxpayer. The amount which is received in advance will be
regarded as the unearned income and the tax treatment done by the company for the amount
of fees received from the students is correct. The Court also held that the Carden’s case will
not be applicable to the business of the company (Barwick, 2017). Thus, the income which is
received as well as earned by the business will only be included in the assessable income of
the business.
 Advise RIP Pty Ltd when income is derived generally and when it derives its income
from funeral services and related activities.
As per Section 25(1) of Income Tax Assessment Act 1936-65, the assessable income of a
taxpayer which is resident in Australia will include income from all direct and indirect
sources and that if a non-resident taxpayer will include the gross income derived by the
taxpayer from all the sources in Australia. The inclusions and exclusions and the meaning of
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