Sample Assignment on Tax PDF

Running head: TAX
Tax
Name of the Student:
Name of the University:
Authors Note:

TAX1
Table of Contents
Answer to Question 1.................................................................................................................3
Part A.........................................................................................................................................3
Answer to Question i..................................................................................................................3
a..............................................................................................................................................4
i).............................................................................................................................................4
b)............................................................................................................................................6
c).............................................................................................................................................7
Answer to question ii.................................................................................................................8
Part B..........................................................................................................................................8
Answer to question i...................................................................................................................8
Answer to question ii.................................................................................................................9
Answer to question iii..............................................................................................................10
Reference..................................................................................................................................11

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Answer to Question 1
Part A
Answer to Question i
Arthur Murray (NSW) Pty Ltd v FCT (1965)
Facts
In this case, the taxpayer provided dance classes as a business activity and offered
discount to the students providing fees in advance. The main aim of providing the discount is
to encourage the student to pay fees in advance. It was expressively provided in the
agreement between the student and the taxpayer that the fees received in advance shall not be
refunded. The fees that was received in advance by the taxpayer was transferred to a separate
suspense account namely "unearned deposit untaught lesson account". The taxpayer followed
the process of transferring the fees from suspense account to revenue account after the dance
lessons are provided to the student (Chan, 2015). In accordance with the agreement the
taxpayer was not required to refund the advance fees receipt from the student however in
practice the taxpayer usually refunded the fees of the student not completing the dancing
lesson.
The taxpayer followed the policy of recognizing the fees received in advance as
income after the lessons are provided to the student. Therefore the assessable income of the
taxpayer did not include the fees received in advance. The taxpayer calculated the assessable
income after including only the fees of the student to whom dancing lessons has been
provided during the year. On the other hand, the assessable income was calculated on receipt
basis by the Commissioner taxation. The Commissioner while computing the assessable
income of the taxpayer included all the fees received during the year that includes fees

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received in advance. Therefore the ordinary income under section 6-5 of the Income Tax
Assessment Act 1997 computed by the taxpayer was different from the income determined
by the Commissioner of taxation (Mangioni, 2015).
Issues
In this case, the issue is that the taxpayer and the Commissioner has computed the assessable
income differently. As a result of this the tax payable demanded by the Commissioner was
more than the amount computed by the taxpayer. Therefore the issue before the Court was to
ascertain whether the prepaid amount received by the taxpayer should be included in the
assessable income.
Conclusion
The High Court it its judgment held that as per the general rule the fees that is received in
advance for the service that has not been provided yet should not be included in the
assessable income. It was further held by the High Court that although there was an
agreement between the student and the taxpayer that the advance fees shall not be refunded
however in practice the agreement was not followed. In such case the taxpayer cannot include
in its assessable income fees received in advance because there are possibilities that fees
could be refunded. The high court provided the judgment that the taxpayer derives income in
the year the dancing lesson is provided and not in the year the fees is received. The court
therefore upheld the accounting treatment of fees received by the taxpayer.
a
i)
As per the provisions of the section 6-5(4) of ITAA97 if the taxpayer is in receipt of
any amount or anyone receives an amount on behalf of the taxpayer then the same will be