BTX3350: Business Taxation Semester 2 Monash University

Assignment 2

Questions

1. Taxation of Trusts 

Varma Holdings is a family discretionary trust, with Varma Holdings Pty Ltd acting as trustee. The trust derived the following income in the 2025-26 income year:

• $700,000 revenue from operating a café in Melbourne;
• $210,000 interest from an Australian bank account; and
• $50,000 rental income from an investment property located in Singapore (you can ignore anyforeign tax paid on this income and any foreign income tax offsets).

The trust has the following three beneficiaries who are entitled to receive both income and capital distributions under the trust deed:

• Amanda, a 50-year-old Australian resident, employed as a tax manager and earning a salary of $400,000 for the year;
• Shafi, a 40-year-old non-resident; and
• John, a 15 year-old Australian resident with no other income or expected income.

The trust deed does not contain a default beneficiary clause to automatically receive trust distributions if the trustee fails to distribute all trust income by year end.

(a) Calculate the net income of the trust estate, showing your workings and supporting your answer with relevant legislation.
(b) Assuming the trustee resolves to distribute the net income of the trust estate equally among the three beneficiaries, explain the tax implications for each beneficiary. You are not required to compute the tax liabilities of the beneficiaries, but you should identify the relevant provisions and
case law. In your answer, discuss the concepts of present entitlement and legal disability.

2. Taxation of superannuation

Sonia receives an inheritance of $450,000. She decides to contribute this to a complying superannuation taxed fund for the 2025-26 income year, nominating a part of it as concessional (up to the maximum threshold). She made a personal contribution in the 2024-25 income year of $25,000, nominating it as concessional. She made no other contributions in the five income years prior to the 2024-25 income year.

• Advise Sonia on the taxation treatment of the superannuation contributions made by her, taking into consideration concessional and non-concessional contribution caps. Please support your answer with relevant legislation and case law.

3. Taxation of small business entities 

Clayton Pty Ltd carries on a business of lawn mowing and gardening services. The company’s voting rights are held as follows:

• Thanushi: 32%
• Sachindra: 23%
• Peninsula Pty Ltd (unrelated entity): 45%

Thanushi and Sachindra are responsible for the day to day management, operational and strategic affairs of Clayton Pty Ltd. They often meet to make joint decisions in relation to all affairs of Clayton Pty Ltd, and have a formal agreement in place to act co-operatively on these issues. Separately, Thanushi operates a café and Sachindra operates a restaurant business. In practice, Sachindra regularly consults Thanushi about decisions in relation to her restaurant business (e.g., marketing and productivity etc.), but Thanushi does not seek advice from Sachindra in relation to her café.

(a) Determine which entity ‘controls’ Clayton Pty Ltd under section 328-125 of the Income Tax
Assessment Act 1997. Please explain your reasons, considering all the control rules under this
section.

(b) Determine if Thanushi and Sachindra are affiliates under section 328-130 of the Income Tax
Assessment Act 1997. Please explain your reasons.

(c) Based on your answer in (a) and (b), determine if Thanushi’s café business satisfies the definition of ‘small business entity’ for the income year ending 30 June 2026. In your advice you need to consider Thanushi’s affiliates and connected entities (if any). Please support your answer with relevant legislation and tax rulings. You may assume that the annual turnover for each business (that is for Thanushi’s café, Sachindra’s restaurant, Clayton Pty Ltd and Peninsula Pty Ltd) for the previous income year is $4 million (that is, for the income year ending 30 June 2025).

4. Taxation of small business entities 

Assume Emilia is a sole trader operating a small business entity. She seeks your advice on how to calculate her pool balance based on the following financial information for the income year ending 30 June 2025:

• Opening balance of the pool - $60,200
• Acquired a new commercial fridge for $23,000 (used for 100% business purposes)
• Capital improvement to a computer already in the pool - $4,000 (representing the “cost addition amount”)
• Acquired a new commercial oven for $38,000 (used for 80% business purposes)
• Acquired a new commercial dishwasher for $18,000 (used for 100% business purposes)
• Proceeds from the disposal of an old bread machine that had been in the small business pool on 30 June 2025 - $9,000 (used for 100% business purposes).

(a) Calculate the closing balance of the small business general pool for the income year ending 30 June 2025. In your answer, you need to consider which assets are added to the pool and which assets are entitled to an immediate deduction under the instant asset write off threshold for small businesses. You must show and explain all your calculations with relevant legislation.

Assessment brief what you must cover (concise)

This assignment tests technical knowledge across four core areas of Australian taxation: trusts, superannuation contributions, small-business control/affiliates, and small-business depreciation (general pool). For each task you must analyse the facts, identify relevant statutory provisions and authorities, show your workings (where numeric answers are required), and explain practical tax consequences.

Key pointers by question

1. Taxation of trusts (Varma Holdings)

   • Determine the trust estate’s net income for 2025–26 (include Australian & foreign income as required by IT legislation; apply allowable deductions).
   • Explain tax consequences of an equal distribution among the three beneficiaries, addressing present entitlement, legal disability (minor, non-resident issues), and identify the relevant provisions/case law that determine where tax is assessed (trust vs beneficiary).

   • Show workings and state assumptions (e.g., foreign tax offsets ignored as instructed).

2. Taxation of superannuation (Sonia)

   • Classify Sonia’s $450,000 inheritance contributions into concessional and non-concessional components, applying the relevant contribution caps, bring-forward rules, and any carry-forward concessional cap relief.

   • Explain the tax treatment (assessable contributions, contributions tax inside fund, potential excess cap consequences) and cite relevant legislation/rulings.

3. Taxation small business control & affiliates (Clayton Pty Ltd)

   • Apply the control rules (s.328-125 style guidance) to identify who “controls” Clayton Pty Ltd given shareholdings and cooperative decision-making.
   • Assess whether Thanushi and Sachindra are affiliates (s.328-130 style analysis) given their agreement and joint decision-making, and the implications.

   • Determine whether Thanushi’s café qualifies as a small business entity for 2025–26, considering affiliates/connected entities and aggregated turnover thresholds; support with legislation/rulings.

4. Small business pool (Emilia)

   • Compute the closing balance of the small business general pool for the year, determining which assets join the pool, which may qualify for an immediate write-off (instant asset threshold), and accounting for business-use percentages and disposal proceeds.

   • Show step-by-step calculations with legislative references.

How the Academic Mentor guided the student step-by-step

1. Scoping & fact-map

   • Mentor had the student extract and summarise the fiscal facts (residency status, income sources, ownership percentages, business use %). They logged explicit assumptions (e.g., foreign tax offsets ignored).

2. Identify legal framework

   • Mapped each question to the relevant statutory area (ITAA 1997 trust rules, superannuation caps & rules, small business control/affiliate definitions, small business depreciation rules) and identified key ATO rulings/cases to consult.

3. Analytic checklist for each task

   • Trusts: determine assessable trust income, allowable deductions, then allocate by trustee resolution; check present entitlement rules and legal disability implications for minors/non-residents.
   • Super: calculate concessional vs non-concessional allowances, check prior-year contributions and any carry-forward eligibility.
   • Control/affiliates: apply each control test (voting, capacity to control, formal agreements, effective control in practice).
   • Pool: classify assets (pool vs instant write-off), adjust for business use and disposals.

4. Workings & presentation

   • Mentor required full numeric workings in spreadsheets and clear annotation linking steps to statutory provisions. Emphasis on showing where figures come from and why a deduction/entry is allowed or disallowed.

5. Case law & rulings integration

   • For conceptual points (present entitlement, legal disability, affiliate tests), mentor directed the student to summarise leading cases/rulings in one paragraph per point using them to justify conclusions rather than as filler.

6. Drafting policy-style answers

   • Mentor coached concise, exam-style answers: short issue, law, application, conclusion (ILAC), and ensured calculations were separate, labelled, and easy to follow.

7. Quality control

   • Final review for consistency (e.g., beneficiary residency vs withholding consequences), reasonableness checks on numbers, and a short assumptions list appended for markers.

Outcome & how it was achieved

• Deliverables produced: clean calculations for trust net income and Emilia’s pool, a structured legal analysis for beneficiary tax outcomes and superannuation caps, a reasoned control/affiliate determination for Clayton, and well-cited legal/ruling support for all conclusions.
• How achieved: by systematic fact mapping → statute/ruling identification → stepwise numeric computation → ILAC-styled explanations → mentor review iterations.

Learning objectives covered

• Apply ITAA and superannuation rules to real scenarios and compute taxable outcomes.
• Interpret and apply control and affiliate definitions to corporate/shareholding facts.
• Distinguish concessional vs non-concessional super rules and identify cap consequences.
• Prepare compliant small-business pool calculations (treatment of disposals, proportionate business use, instant write-off eligibility).
• Integrate case law and ATO guidance to justify tax positions and clearly present technical reasoning and workings.

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