Taxation Laws : Sample Assignment PDF

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

1TAXATION LAW
Table of Contents
Part A:........................................................................................................................................2
Arthur Murray (NSW) Pty Ltd v FCT (1965)............................................................................2
Case Facts:.............................................................................................................................2
Issue:......................................................................................................................................3
Conclusion:............................................................................................................................4
Answer to A (i):.....................................................................................................................4
Answer to A (ii):....................................................................................................................5
Answer to question A (iii):.....................................................................................................6
Answer to Part B:.......................................................................................................................7
Answer to question A:............................................................................................................7
Answer to B:..........................................................................................................................8
Answer to C:..........................................................................................................................8
Answer to D:..........................................................................................................................9
Answer to E:...........................................................................................................................9
Reference List:.........................................................................................................................11

2TAXATION LAW
Part A:
Arthur Murray (NSW) Pty Ltd v FCT (1965)
Case Facts:
The taxpayer involved within this case is licensed from United States as the company
which organized the lessons for dancing for the pupil situated in Sydney and Melbourne.
Now the taxpayer has given the students which will ensure that they are getting proper
lessons for the dancing skills (Athanasiou, 2014). The time period for these lessons was
scheduled for fifteen hours and this time period was distributed within a whole year time
span. The learner was enrolled under the business of the taxpayer who was required to sign
the contracts associated with different rules and regulations. The rule which was introduced
into the contract is completely non- refundable and also the learner who enrolled for the
yearly course were clearly made responsible for the course fees that they had to pay for the
dance classes. The main point of the contract was that the amount paid by the learner was not
cancellable and also the taxpayer is also not liable to return that money once the payment is
done.
The section of the contract highlights that any request coming from the learner related
to refunds will only be entertained if the causes are genuine and from the justified bases
(Brody et al., 2015). However, the organization violated this contract and they have failed to
provide the refunds to the students who were unable to attend all the classes during the whole
year, the organization provided explanation for this actions and they denied to return the
money the learner paid for the classes.
The accrual” method of accounting was accepted by the taxpayer, so the full amount
was paid by the learning at the beginning of the course but there was not recorded in the

3TAXATION LAW
books of account of the organization. Instead of recording this transactions the taxpayer has
kept the amount in “Unearned deposits”-“Untaught Lessons Account” (Courtney, 2014).
Now the instructors for the dancing classes were supposed to take down the names with their
corresponding paid amounts for the dancing classes during the beginning of the classes.
At the end of corresponding each month a comparable amount was gained upon
imparting the dancing lessons was reflected into the account called “Earned Tuition
Account”. Accordingly, the amount was not considered as an income capital until the learner
has got the lessons from the organization (Fegan & Stephens, 2012). Now after one income
year has been passed, the sum gathered in the account named “Unearned Deposits-Untaught
Lesson Account” was considered as additional to the following year as well.
According to the taxation commissioner issued an assessment of the amount which
was dependent on the year of income along with the assessable income. This income was
ultimately received by Arthur Murray in every end of the year. The taxpayer raised his
objection against the assessment which taxation commissioner rose for checking the Board of
Review (Ferran & Ho, 2014). This review arranged by the board stating that the liquid money
which the tax payer is getting for the business is considered as the gross pay for the entire
business process and also this amount was highlighted as the assessable gains in the year
where this amount were collected from the learners in advance for purpose of providing
dancing lessons to them. These facts directed the taxpayer to appeal in High Court of
Australia. This description highlighted the facts about the case.
Issue:
The issue determines around weather the taxpayer has genuinely obtained the advance
payment for the tuition fees which they received during the year where dancing lessons were
supplied?

4TAXATION LAW
Conclusion:
The Australian high court stay reliant on the standards stated in “Federal
Commissioner of Taxation v Flood (1953)” where the law court did not pursue the
commercial and different accounting rehearsal those will combine the deductions of income
(French, 2013). The court of law on highlighting the decision in the case of “Arthur Murray”
stated that the amount received by the taxpayer as the prepaid amount of tuition fees could be
taken as derived until the tuition is provided to the learners. The verdicts of the court advises
the receipt which was actually made is important in relation with the business and the
taxpayer is responsible to consider the amount received as the tuition as net capital income
for the year (Gaal, 2013). The decision approved by the Australian high court, the taxpayer is
also liable for paying the money back to the learner for the failure of providing regular
classes to the learner. The decision of the court highlighted that the taxpayer could not
consider the advance payment as income until they are providing the services to the learner
for their development.
Answer to A (i):
As stated under “section 6-5 of the ITAA 1997” when the taxpayer gains any income
then the amount which is derived by the taxpayer will be considered for assessment. The
income which gained by the taxpayer must be considered for getting assessed according to
the “section 6-5 of the ITAA 1997”. To calculate the business earnings there are significant
methods. The method includes receipt method and earning method (Saad, 2014). This is
important for the taxpayer to follow this method as this will reflect the efficient income for
the taxpayer for each income year. This can be considered that the receipt method as most
genuine method in determining assessable income per income year. According to the
provision stated in paragraph 19 of the “Taxation Ruling 98/1” it explains if the gaining of
any taxpayer is derived from any other manufacturing services then the amount collected will

5TAXATION LAW
be recorded according to the earning method. Henceforth, the earning method must be
selected as the genuine method for calculating the amount of tax payable for the taxpayer.
Answer to A (ii):
This can be considered that the case of RIP Pty Ltd which is a funeral service
providing company and gains around $2.45 million as their net profit each income year,
identified majority of the revenues are gained by providing services to their valuable
customers. The customers were provided with the facilities of paying the amount for utilizing
their service are highlighted as follows:
a. An invoice of thirty day by the company and got rendered from an outside insurance
company for obtaining the fees
b. The organization subjected the invoices of thirty days to their customers for providing
ease of paying the amount within the decided time period
c. The company offered to their customer different credit facilities and allowed them to
repay within set of instalment patterns
d. According to the easy future funeral plan of RIP Pty Ltd, they were able to gain the
fees as advance
Noticing the circumstances of RIP Pty Ltd the principles of Arthur Murray can be applied
in the year where the company gained the fees from their customers. According to the
common law any form of money which is collected in advance will be kept as income capital
(Shetreet & Turenne, 2013). Now the evidences from the case study suggests that the RIP Pty
Ltd follows the practice where the fees is collected in advance and this gets recorded when
the company receives the amount. The instances collected from the case, suggested that the
standards adopted is same with the case of Arthur. It is suggested that RIP Pty Ltd must not
record the fees in the income year when it is collected. However, the company is advised to

6TAXATION LAW
record the fees when the funeral services are actually provided by the company to their
customers by different means.
Denoting the provision stated in the taxation ruling of the “Taxation Ruling 98/1” two
procedures has been defined in keeping track of the business profits and the same is
applicable in the taxation determination (Vann, 2014). For determination of the accounting
profit and tax there are two procedure that is taken into the considerations this includes the
earnings methods and the receipt methods. Based on the above stated method an individual
taxpayer obtaining the income is considered based on the amount that is received and based
on the constructive receipts.
Referring to the explanation made in the “section 6-5(4) of the ITAA 1997” an
income is regarded as obtained when the taxpayer originally gains the income (Barkoczy,
2016). There is also alternative methods of determining the accounting profit ant the taxation
of the business and this method is regarded the earnings method. Referring to the above
stated explanations an argument can be bought forward by stating that the income that is
obtained by the taxpayer is identical to the income that is obtained from the recoverable debt.
The taxpayer is required to take into the considerations of taking actions since the income
that is obtained is reliant on the agreement and the execution of the contract (Basu, 2016).
Therefore it is vital to stated that the taxation commissioner and the individual taxpayer can
account for either receipts or the earnings method to determine the tax liability:
Answer to question A (iii):
A business of providing the easy funeral was commenced by the RIP Pty Ltd which
required the customers of the company to pay the amount of the scheme in parts and later the
company imparted the funeral service to its customers. RIP Pty Ltd obtained the fees from the
customers based on the stipulations that the fees would not be refundable. On account of any

7TAXATION LAW
failure of the customers the fees were forfeited into the separate Forfeited Payment Account
(Feld, 2016). The forfeited sum of payment from the failure of the customers enable the
taxpayer to shift the amount in the separate company accounting books known as the
Forfeited Payment Accounts. The company in its declaration stated that it cannot be
considered liable for imparting any form of services to the customers that fail to pay the
money as a whole. Evidently in the situation of the RIP Pty Ltd the forfeited amount of
$16200 would be held as income for the year in which the fees was received by the company.
Answer to Part B:
Answer to question A:
In accordance to the guidelines stated in the “Section 70-10 of the ITAA 1997” it can
be stated that the trading stock refers to the business items that is obtained with the objective
of resale or exchange in the market during the income year (Fleurbaey & Maniquet, 2017).
Referring to the guidelines provided under the “section 70-10 of the ITAA 1997” trading
stock cannot be considered as the item of the CGT assets. In addition to this an individual
taxpayer under the “section 70-25 of the ITAA 1997” is prohibited from including the
amount that are having the characteristics of capital in the trading stock (Miller & Oats,
2016). Taking into the considerations the evidences that has been obtained from the case
study of the RIP Pty Ltd it can be stated that the company reported expenses on the caskets
and the other types of accessories that was used in the business. Therefore, RIP Pty Ltd is
required to consider those items as the trading stock instead of classifying those items as the
business assets.
The case study of the RIP Pty Ltd provides that the trading stock constitute a
component of business deductions that can be availed under the “section 8-1 of the ITAA
1997” (Murphy et al., 2016). Taking into the considerations of the situation of RIP Pty Ltd it

8TAXATION LAW
is noticed that the business made an advance payment of trading stocks that valued $25,000.
Referring to the explanation made under the “section 8-1 of the ITAA 1997” RIP Pty Ltd can
claim an allowable deductions since the amount was entirely incurred by the company for
acquiring the trading stock the purpose of purchase and sale during the accounting year ended
June 2016.
Answer to B:
Referring to the definition provided under the “section 6-5 of the ITAA 1997” the
major part of the income that is obtained by the taxpayers is regarded as the ordinary income
based on the ordinary concepts (Pope et al., 2017). In addition to this, “section 6-5 of the
ITAA 1997” explains that an Australian deriving income from the Australian sources shall be
accountable for the assessment. Similarly in the situation of RIP Pty Ltd the receipt of
dividend income would be considered as the computable returns. The dividends that is
received by the company is fully franked. Therefore, RIP Pty Ltd can take away the franking
credits that attached with the dividend.
Answer to C:
Referring to the definition that is stated under “Section 100-25 of the ITAA 1997” an
explanation can be bought forward by stating that the any type of advance payment that is
made any commercial shall be prohibited from being held as the capital asset (Tan et al.,
2016). Similarly, the payment of the advance rent could not be classified as the capital asset.
As evident in the situation of RIP Pty Ltd an advance payment was made by the company and
based on the general rules of the “section 8-1 of the ITAA 1997” these expenditure can be
claimed as the allowable deductions for the business.

9TAXATION LAW
Answer to D:
According to the statement made by the Australian taxation office it is the
accountability of the employer to make a contribution in the employee long service leave
entitlement in respect of the services rendered by the employee during the course of the
employment. The taxation office also lay down that the employer making contribution in the
long service leave entailment of the employee shall be subjected to the PAYG Withholding
(Woellner et al., 2016). Referring to the guidelines provided by the Australian taxation office
based on “section 83-80 of the ITAA 1997” the taxation income of the employee should be
more than the long service leave since it held as the non-assessable unit.
In compliance with the explanations that is made under the “subsection 83-85 of the
ITAA 1997” the provision the long service can be availed by the taxpayer as the allowable
deductions since it is associated to the derivation of the assessable income. It is worth
mentioning that “subsection 83-85 of the ITAA 1997” provides that any type of long service
leave that is paid by the employer should not be greater than 30% of the employees
assessable earnings. The long service contributed by the RIP Pty Ltd constitutes business
expenses and cannot be classified as advances for the year ended June 2016.
Answer to E:
Referring to the description provided under “section 8-1 of the ITAA 1997” an
individual taxpayer can claim an allowable deductions relating to the expenditure that is
occurred in the derivation of the assessable income (Pope et al., 2017). The expenditure that
is reported by the company is held as capital nature relation the expenses occurred for land
and building.
Expenses associated to the architectural design is regarded as the capital expense.
Based on the provision stated under the “Section 100-25 of the ITAA 1997” such expenditure

10TAXATION LAW
is added into the cost base of the asset and not allowed as the allowable deductions.
Therefore, RIP Pty Ltd would not be able to avail deduction under “section 8-1 of the ITAA
1997” for the expenses incurred on the land and building, onsite parking and architectural
design because they are capital expenditure.

11TAXATION LAW
Reference List:
Athanasiou, A. (2014). Changing from cash to accruals accounting. Taxation in
Australia, 48(8), 459.
Barkoczy, S. (2016). Foundations of taxation law 2016. OUP Catalogue.
Basu, S. (2016). Global perspectives on e-commerce taxation law. Routledge.
Brody, E., Breen, O. B., McGregor-Lowndes, M., & Turnour, M. (2014). 5 An Unrelated
Income Tax for Australia?. Performance Management in Nonprofit
Organizations: Global Perspectives, 17, 87.
Courtney, W. (2014). Contractual Indemnities. Bloomsbury Publishing.
Fegan, T., & Stephens, M. (2012). Taxation of entities. Concise Collection of Tax
Fundamentals,
Feld, A., (2016). Federal Taxation of State Tax Credits.
Ferran, E., & Ho, L. C. (2014). Principles of corporate finance law. Oxford University
Press.
Fleurbaey, M., & Maniquet, F. (2017). Optimal income taxation theory and principles of
fairness. Journal of Economic Literature.
French, R. (2013). Law-complexity and moral clarity. Brief, 40(6), 25.
Gaal, J. (2013). CGT Small Business Reliefs: The Comprehensive Practitioner's
Handbook. CGT Small Business Reliefs: The Comprehensive Practitioner's
Handbook, xxviii.
Miller, A., & Oats, L. (2016). Principles of international taxation. Bloomsbury
Publishing.

12TAXATION LAW
Murphy, K. E., & Higgins, M. (2016). Concepts in Federal Taxation 2017. Cengage
Learning.
Pope, T. R., Rupert, T. J., & Anderson, K. E. (2017). Pearson's Federal Taxation 2018
Corporations, Partnerships, Estates & Trusts. Pearson.
Saad, N. (2014). Tax knowledge, tax complexity and tax compliance: Taxpayers’
view. Procedia-Social and Behavioral Sciences, 109, 1069-1075.
Shetreet, S., & Turenne, S. (2013). Judges on Trial: The Independence and
Accountability of the English Judiciary (Vol. 8). Cambridge University Press.
Tan, L. M., Braithwaite, V., & Reinhart, M. (2016). Why do small business taxpayers
stay with their practitioners? Trust, competence and aggressive
advice. International Small Business Journal, 34(3), 329-344.
Vann, R. J. (2014). Hybrid Entities in Australia: Resource Capital Fund III LP Case. Tax
Treaty Case Law.
Woellner, R., Barkoczy, S., Murphy, S., Evans, C., & Pinto, D. (2016). Australian
Taxation Law 2016. OUP Catalogue.