Assignment: Taxation Law and Practice

Running head: TAXATION LAW AND PRACTICE
Taxation law and Practice
Name of the student:
Name of the university:
Table of Contents

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TAXATION LAW AND PRACTICE
Part A...............................................................................................................................................
Answer to Question i.......................................................................................................................
Arthur Murray (NSW) Pty Ltd V FCT (1965) 114 CLR 314..........................................................
a)......................................................................................................................................................
(i)......................................................................................................................................................
(ii)....................................................................................................................................................
(b).....................................................................................................................................................
(c )....................................................................................................................................................
Answer to Question ii......................................................................................................................
Part B...............................................................................................................................................
Answer to Question i.......................................................................................................................
Answer to question ii.......................................................................................................................
Answer to Question iii.....................................................................................................................
Reference.........................................................................................................................................
Part A
Answer to question 1:
Arthur Murray (NSW) Pty Ltd V FCT (1965) 114 CLR 314

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Facts of the case:
In the given case the taxpayer is giving dancing lesions to the students. The taxpayer
had different sessions for dancing training purpose. Fees received by the taxpayer is fully
paid for a selected period and such payment is non- refundable (Tran-Nam, Evans and
Lignier 2014). Further the taxpayer creates a separate suspense account under the head
“unearned deposit-untaught lessons account”. The fees transferred to revenue account only
when the taxpayer has provided the dancing classes. Further it is also observed that the
taxpayer refunded the tuition fees on which the student had not exercised the lessons.
After providing the dancing lesions the taxpayer recognised the tuition fees as
“income derived”. Therefore the assessable income does not include the advance payment
received by the taxpayer (Tan, Braithwaite and Reinhart 2016). The income arise on provided
dance lesions to the students, form part of calculation of assessable income by the tax payer.
Whereas the commissioner of tax treated the advance inflow as assessable income of the tax
payer in accordance of ITA Act 1197.

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Issues of the case:
In the given case there is a contradiction between the commissioner of tax and the
taxpayer in respect of computation and treatment of pre-paid tuition pees received (Saad
2014). The proceedings in court had started on the issues of commissioner of tax who has
taken the pre-paid expenses as a revenue on receipt basis and therefore he included that in
assessable income as an ordinary income and the assesse only include the precedes on
provided classes.
Conclusion of the case:
The court assed that in the given case according to substance over from principal of
accounting standards the substance of any item will we given more importance than the form
of the item for that reason the pre-paid advances received in advance will not be included in
the assessable income. Though there is a contract between the parties to the contract that the
advance money paid is not refundable such practice is not followed by the taxpayer and there
are significant chances that the taxpayer will repay the dues to the students who has not attain
the classes. Therefore the taxpayer did not included the amount of tuition fees that have been
received in advance as ordinary income but recorded as a liability as there is a probability that
situations might occur where the taxpayer will return the advance money without forfeiting
that. The High court conclude that the accounting adjustment of the taxpayer is correct and
such adjustment hold reasonable grounds where the taxpayer might repay back the dues to the
student who did not attained the classes of dancing.

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A)
i. In accordance of the ITA Act 1997 in section 6-5(4) receipt of any amount or
consideration as in form of income or described in any form of manner by the
taxpayer or any party on his behalf or related parties will held as income
(Richardson and Lefroy 2016). The tax payer need to choose the most appropriate
method of computation of income In between “earning methods” and the “receipt
method” .Receipt method is appropriate where the income sources are based on
investment or sources of income other than business process according to the
Taxation Rule 98 /1in, Para 19 as per general rule. In case of the taxpayer is caring
on a treading or manufacturing business then it is advisable that the earning basis
need to be followed according to the para 19 of TR/1.for the computation of tax is
noted that earning method is the most appropriate method for computation of
income (Miller and Oats 2016) .
ii. RIP PTY LTD reported a profit of $2.45 million by the year ending 30 June 2016
by providing funeral and related services to the customers. The revenue of the
company generated by providing various options to the customers (McGee, Devos
and Benk 2016). Rip LTD applied the following process to recognise the revenue
from the company
 External insurance company’s invoices issued for a net time of 30 days
and fess received for the services (Marett 2018).
 Collection fees are realised from customer after issuing 30 Days invoices.
 The company provide credit for defaulted instalment payment and receive
fees forum the service receiver.
 Customer avail Easy future plan by advance payment of fees to the
company.

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TAXATION LAW AND PRACTICE
Income of the business should be computed on earning method according to the
general rule therefore the revenue recognised for providing funeral services by RIP
Ltd is an income. The company deals with a delayed payment policy for the service
provided by them but the income are to be recognised on very few moment the
service is being provided on accrual basis.
The Company provides a distinct policy to the customers where the customer
may pay in advance in many instalments and the company will provide the service on
a future date (Austen, Sharp and Hodgson 2015). Such deposit of advances received
by the company from the customers who avail such easy future plan policy are not
refundable in nature. Further if the customer fails to pay the due instalment the earlier
payment will be forfeited by the company. Such receipts of forfeiture will be credited
in the “forfeited payment account”. The RIP Ltd is advised to record the forfeited
amount as the income when the customers did not continue the scheme and therefore
the liability of the company towards the customers will not be accountable (Mangioni
2015).
b)
In Arthur Murray’s case the statement given by the court provides the income will be
recorded in the year of service provided (James, Sawyer and Wallschutzky 2015). Advance
received will also be recognised in the year of service as per general rule. RIP Pty Ltd
represents a scheme “easy future plan” where the interested customers will avail the service
in future date. Fees that are actually received will be taken as income of the company when
they actually received that. In the given case RIP Pty Ltd must consider the case of Arthur
Murray as the circumstance are very much similar and corresponding with the situation.
Principles need to be followed for the accounting treatment as per the judgement. The

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company must recognise the advance received for the funeral services only after the
fulfilment of the service duty not before that.
c)
There are two methods of accounting for the tax purpose “earning method” and
“receipt method” according to the taxation rule 98/1 (Hufnagel 2016). In “receipt method”
the income is recorded in the year it is actually received in cash, the income arise on the
receipt of the cash will be called cash or receipt basis. If the taxpayer or any one on the behalf
receives any consideration then such income will be treated as the income as per section 6-
5(4) of the ITA act 1997 .There is an also different mode of computation where the payment
received creates an liability. After providing the product or the services the company can
recognise the cash as in form of income such mode is known as accrual basis or credit or due
basis. Mode of determination of the method lies on the decision of the tax commissioner
(Hickman 2015).
Answer to question 2:
A scheme is provided to the customers who are willing to avail funeral services from
RIP Pty Ltd where the customer pays on instalments and later the funeral service will be
provided to them (Gans 2016). This will not create burden to the customers as the stream of
cash flow is maintained as the customer are not to require to pay at one-shot more customers
will be attracted towards the scheme. The company is providing in the name of “Easy Future
Plan” with a condition if the customer fails to pay any of the instalment, the money already
paid in form of instalments will be forfeited by the company and the forfeited amount will be
treated as an income of the year ended. In the given case RIP Pty Ltd forfeited instalments of
$16200.00 which will be treated as an income of the company as there is no liability to be
borne by the company (Evans, Lignier and Tran-Nam 2016).

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TAXATION LAW AND PRACTICE
PART B
Answer to question 1:
As per the provisions of the section 70-10 of ITAA 1997. The treading stock contains
the goods that are held for treading or providing services i.e. CGT assets and there financial
agreements. An item of capital nature should not be included in the treading stock as the
treading stock is revenue in nature. Casket and the accessories are to be treated for the
ordinary consumption of the business nature (Edge 2017). Therefore such expenses of the
RIP Pty Ltd is to be considered as treading stock not a capital asset.
The section 8-1 of the ITA act 1997 deals with the deduction of a firm or the
company allowable trading stocks are acquired to provide services or manufacturing or to sell
therefore such expense is an allowable deduction as such expenses is required to carry on the
business (Cook and Natalier 2016). Any expenses relating to the consumption of any material
or service of the business to earn income should be deducted from the assessable income. The
amount paid by RIP Pty Ltd for the supply of casket and accessories will be supplied in the
next assessment year and therefore such expenses is not contributing in the assessable income
of current year. Therefore the payment of $25000 to the supplier is to be treated as an
advance and such payment will be deductible in the next year (Cobiac et al. 2017).
Answer to question 2:
Any income received by the taxpayer will form part of the ordinary income of the tax
payer even if such income does not arise from general business course according to the
section 6-6-5 of the ITA Act 1997. Income from dividend will be accountable as a business
income. As the dividends are fully franked the company may avail franking credit (Barkoczy
2016). The advance payment of rental storage can be deducted to the extent it is related to the
current financial year and such expenses is not be capital in nature as per the section 8 of the

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ITA Act1997, the payment by RIP Pty Ltd for rental storage associated with the
consumption of current year to the extent of four months therefore deduction allowed is up to
four months’ rent. The advance will be allowed as deduction for the next year. RIP Pty Ltd
has given advances for three months long leave service such advance will be treated as an
expenses not an advance as such payment is made for unused long services under section 83-
80 of the ITA act 1997.).
Answer to question 3:
Under section 8 of the ITA Act the taxpayer will avail deduction under general
expense for generating assessable income (Basu 2016). Land and building are to be treated as
CGT assets according to the section 100-25 of the ITA ACT 1997. If any expense in relation
of acquisition of land and building will be treated as an expenses towards capital utilisation of
the resources except in the case the taxpayer is engaged in real estate business under section 8
of the ITA act. The expenses relating to the development or construction of onsite parking
expenses or purchase of equipment etc. will be treated as capital expenditure not as general
expenditure. Only the expenses of general nature is allowed as deduction further capital
expenses will be added in the value of particular capital asset (Berns 2017).

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Reference List
Austen, S., Sharp, R. and Hodgson, H., 2015. Gender impact analysis and the taxation of
retirement savings in Australia. Austl. Tax F., 30, p.763.
Barkoczy, S., 2016. Core tax legislation and study guide. OUP Catalogue.
Basu, S., 2016. Global perspectives on e-commerce taxation law. Routledge.
Berns, S., 2017. Women Going Backwards: Law and change in a family unfriendly society.
Routledge.
Cobiac, L.J., Tam, K., Veerman, L. and Blakely, T., 2017. Taxes and subsidies for improving
diet and population health in Australia: a cost-effectiveness modelling study. PLoS
medicine, 14(2), p.e1002232.
Cook, K. and Natalier, K., 2016. Gender and evidence in family law reform: A case study of
quantification and anecdote in framing and legitimising the ‘problems’ with child support in
Australia. Feminist Legal Studies, 24(2), pp.147-167.
Edge, P.W., 2017. Religion and law: An introduction. Routledge.
Evans, C., Lignier, P. and Tran-Nam, B., 2016. The tax compliance costs of large
corporations: An empirical inquiry and comparative analysis.
Gans, J., 2016. Modern criminal law of Australia. Cambridge University Press.
Hickman, K.E., 2015. Administering Tax Complexity Versus Simplicity.
Hufnagel, S., 2016. Policing cooperation across borders: comparative perspectives on law
enforcement within the EU and Australia. Routledge.
James, S., Sawyer, A. and Wallschutzky, I., 2015. Tax simplification: A review of initiatives
in Australia, New Zealand and the United Kingdom. eJournal of Tax Research, 13(1), p.280.

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Mangioni, V., 2015. Land tax in Australia: Fiscal reform of sub-national government.
Routledge.
Marett, P., 2018. Information law in practice. Routledge.
McGee, R.W., Devos, K. and Benk, S., 2016. Attitudes towards tax evasion in Turkey and
Australia: A comparative study. Social Sciences, 5(1), p.10.
Miller, A. and Oats, L., 2016. Principles of international taxation. Bloomsbury Publishing.
Richardson, B.J. and Lefroy, T., 2016. Restoration dialogues: improving the governance of
ecological restoration. Restoration Ecology, 24(5), pp.668-673.
Saad, N., 2014. Tax knowledge, tax complexity and tax compliance: Taxpayers’
view. Procedia-Social and Behavioral Sciences, 109, pp.1069-1075.
Tan, L.M., Braithwaite, V. and Reinhart, M., 2016. Why do small business taxpayers stay
with their practitioners? Trust, competence and aggressive advice. International Small
Business Journal, 34(3), pp.329-344.
Tran-Nam, B., Evans, C. and Lignier, P., 2014. Personal taxpayer compliance costs: Recent
evidence from Australia. Austl. Tax F., 29, p.137.

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