Taxation Law Case Study: Arthur Murray (NSW) Pty Ltd v FCT (1965) 114 CLR 314

Running head: TAXATION LAW
Taxation Law
Name of the Student
Name of the University
Authors Note
Course ID

1TAXATION LAW
Table of Contents
Arthur Murray (NSW) Pty Ltd v FCT (1965) 114 CLR 314.....................................................2
Facts:..........................................................................................................................................2
Issue:..........................................................................................................................................3
Conclusion:................................................................................................................................3
Answer A:..................................................................................................................................4
Answer A (i):..............................................................................................................................4
Answer to question (ii)...............................................................................................................5
Answer to (iii):...........................................................................................................................6
Answer to question B:................................................................................................................6
Answer to Part B:.......................................................................................................................7
Answer to A:..............................................................................................................................7
Answer to question B:................................................................................................................8
Answer to C:..............................................................................................................................8
Answer to D:..............................................................................................................................8
Answer to E:...............................................................................................................................9
Reference List:.........................................................................................................................10

2TAXATION LAW
Arthur Murray (NSW) Pty Ltd v FCT (1965) 114 CLR 314
Facts:
Arthur Murray carried the licences from the company of United States to conduct the
business of giving lessons relating to dancing to the people in Sydney and Melbourne. There
were pupils that signed onto the contract to take lessons that ranged from five hours to fifteen
hours and was spread over the one year time period (Auerbach and Hassett 2015). The
contract also contained the agreement of providing a lifetime series of twelve hundred
classes. The payments that was made to Arthur Murray was either made based on the full
amount upon the signing of contract or through the substantial deposits based on the
instalment basis during the lesson course (Black 2017). The contract provision also contained
that the agreement was not divisible with the students would be entirely held in charge of the
tuition amount that is laid down in the contract. The contract was non-refundable and non-
cancellable.
The licence that was carried contained that the taxpayer conducted would conduct its
business based on the provision that if the students makes the request for refund then in such
situations refunds were only provided when there was any form of justifiable reasons behind
the justification (Buchanan and Consett 2016). As the matter of fact even though the contract
was non-cancellable and non-refundable but refunds were made to the students in the year of
income on the circumstances when the student that failed undertake the prescribed number of
lessons and provided the satisfactory reasons for discontinuation of tuitions.
A method was adopted by the taxpayer for accounting purpose. The method was
known as the “accruals” or the “earnings methods” where all the money that is received in the
form of advance payment based on the lessons to be rendered were not credited under the
general revenue immediately (Burton 2017). As an alternative these amounts were credited to

3TAXATION LAW
the account that was known as the “Unearned deposits” for the untaught lessons. As and
when the lessons were given by Arthur Murray the instructor was required to enter into the
records sheet that was maintained in accordance with the names of the pupils. At the end of
each month the amounts that were corresponding the number of lessons that were provided
were transmitted into the account that was known as the “earned teaching account” (Clarke
2017). Therefore the money that was received by the taxpayer was not treated as by the
taxpayer as having been earned till the lessons were provided or in fact given by the taxpayer.
The accounting practices adopted by Arthur Murray required carrying a considering sum of
amounts that were recorded in the “earned deposits account” to be carried forward into the
subsequent financial year.
The commissioner of taxation carried out the assessment for relevant years of 1954,
1955 and 1956 which also included income where the amounts that were originally received
by the taxpayer during those years instead assessing those amounts that have been earned in
respect of the accounting methods adopted by taxpayer (Cooper 2015). The taxpayer bought
forward the objections regarding the assessment of the income but the objection was
disallowed. The board found that the cash that were received represented a gross proceeds of
the taxpayers business and was regarded as the element of the receipts. Further appeal was
made by the taxpayer in the high court of Australia.
Issue:
The issue revolves around determining whether the taxpayer had derived the prepaid
amount of tuition fees during the year of income in which the tuitions were rendered or
alternatively the year in which the fees were received by the taxpayer.