Taxation Law and Practice - Doc

Running head: TAXATION LAW AND PRACTICE
Taxation Law and Practice
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Table of Contents

TAXATION LAW AND PRACTICE2
Part A...............................................................................................................................................1
Answer to Question i.......................................................................................................................1
Arthur Murray (NSW) Pty Ltd V FCT (1965) 114 CLR 314..........................................................1
a)......................................................................................................................................................2
(i)......................................................................................................................................................2
(ii)....................................................................................................................................................3
(b).....................................................................................................................................................4
(c )....................................................................................................................................................5
Answer to Question ii......................................................................................................................6
Part B...............................................................................................................................................6
Answer to Question i.......................................................................................................................6
Answer to question ii.......................................................................................................................7
Answer to Question iii.....................................................................................................................8
Reference.........................................................................................................................................9

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PART A
Answer to Question i
Arthur Murray (NSW) Pty Ltd V FCT (1965) 114 CLR 314
Case Facts
The person paying tax was associated with providing lessons for dancing to students
and also allowed discount to those who make early payment of fees. This practice was used
so that the students gets encouraged in paying the fees early. In the agreement between the
student and the taxpayer it was clearly mentioned that no refund will be allowed of the fees
paid in advance. The fees received in advance was transferred to the “suspense account” by
the taxpayer, which he named it as “unearned deposit-untaught lessons account”. Advance
fees was transferred in the revenue account after the lessons were provided to the students.
Nevertheless, as per the contract, it was not necessary for the taxpayer to refund the advance
fees but in reality, the taxpayer used to make refund of the fees of the students with
uncompleted lessons (Burkhauser et al. 2015).
Only after the students avails the complete dance lessons, the prepaid tuition fees
were accounted as “income derived” by the taxpayer. Hence, the advance fees was not
included in the taxpayer’s assessable income. However, under section 25(1) of the ITAA
1997, the tax commissioner included the advance fees as ordinary income and the assessable
income was computed on the basis of receipt.
Issue of the Case
The assessable income of the taxpayer was not tallying with that of the commissioner
as they treated the prepaid tuition fees differently. The primary issue of the court was to

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declare whether the prepaid tuition fees to be included in the taxpayer’s assessable income or
not (Lederman 2015).
Conclusion to the Case
The High Court stated that any such income that is received for any service which has
not been served cannot be included under assessable income. The court also stated that
despite it was stated in the contract that no refund of the advance fees would be made, but in
practice it was not adhered. Fees of those students were refunded by the taxpayer to whom
complete lesson were not provided. Hence, this practice did not allowed the taxpayer to add
the advance fees as receipt in the year as because, there might arise such circumstances where
the taxpayer might need to refund the tuition fees to the student (Becker et al. 2015).
Moreover, the High Court added to its statement that the income derived by the taxpayer are
accounted as per the number of lessons provided and not in the year. Hence, the court stated
that the process of computation of its own assessable income of the taxpayer is correct and
appropriate.
a)
(i)
As per ITAA 1997, it is stated under section 6-5(4) that if any amount is received by
the taxpayer or on his behalf, by anyone, then that amount shall be treated as income derived
as per the act. Under section 6-5 of the ITAA 1997, it is mentioned that any income received
in a year would be considered as the assessable income for that year. As per the law there
exists two primary methods of computing the assessable income for taxation purpose,
“Earning Method” and “Receipt Method” (Braithwaite 2017). It is the responsibility of the
taxpayer to select that method of tax computation which best describes his income. It is also
mention under Taxation Ruling 98/1, Para 19 that only such income to be calculated as per