Question

In which case did the taxpayer derive assessable income during the year ended 30 June 2020?

	a.	Fridge World sells refrigerators. On 30 June 2020, it sells a refrigerator for $2,000. The customer enters into a lay-by arrangement by paying an initial deposit of $400. For the next four weeks, the customer continues to make $400 payments until the final $200 instalment is paid on 2 August 2020;
	b.	Learn to Dance is a dancing school. On 30 June 2020, it receives a non-refundable upfront payment of $150 from a customer for 3 dancing lessons (ie. $50 each). The three dance lessons are conducted on 6 July, 13 July and 20 July 2020;
	c.	Malik received a $10,000 bonus from his employer on 12 July 2020 in appreciation of his hard work for the year ended 30 June 2020;
	d.	Julie, a chartered accountant practicing as a sole practitioner, invoiced some clients $12,000 on 30 June 2020 for services provided up to that date. Julie received this amount in the mail on 10 July 2020.

Answer 1

Answer is Option d. Service provided will be taxable in the period in which it was provided irrespective of payment received or not. Here, Service is provided in financial year ending 30 June 2020 although payment is received on 10 July 2020. So, it it will not be included in assessable income of year ending June 2020.

In Option a. Sale of goods in lay by agreement is treated as sales when final installment is paid. Here final installment is paid on 2 August 2020. So, this will not be considered in assessable income of year ending June 2020.

In Option b. Upfront fee is an advance payment for performance obligations to be satisfied in the ture and is recognised as revenue when those future services are provided. Here service i.e. dance lessons is provided in July 2020. So, the non refundable upfront charges will be considered as Income in Year ending June 2021. The same will not be included in assessable income of year ending June 2020.

In Option c. Generally, Bonus is taxable in the financial year it relates to. But If bonus is not known in the financial year for which it was declared, the bonus would be taxed in the financial year in which it is received by the employee. So, here bonus was given in July 2020, it will not be included in assessable income of year ending June 2020.