BFA714 Australian Taxation Law

Assignment 2

Due Date: Friday 29 May 2026

Question 1

John and Jane Smith are adult Australian residents. On 1 July 2005, they formed a partnership called ‘Sydney Gear Supplies’ to operate a sporting goods retail business. The partnership sells sports apparel and accessories to retailers across Australia. The business is registered for GST.

The partnership accounts for the year ending 30 June 2026 show the following financial information:

All receipts and expenses are exclusive of GST unless stated otherwise.

Receipts

• Gross trading receipts: $950,000
• Capital gain from disposal of investment property – see note (ii): $30,000
• Fully franked dividend from Wesfarmers: $12,000 – see note (iii)
• Interest from term deposit with NAB: $8,500 – see note (iv)

Expenses

• Salary to John: $45,000
• Interest on capital contributed by Jane: $12,000
• Employee salaries: $280,000
• Rent and utilities: $70,000
• Cost of goods sold – see note (v): $140,000
• Superannuation for employees: $90,000
• Superannuation for John: $28,000
• Superannuation for Jane: $28,000
• Purchase of office furniture and computers – see note (vi): $150,000
• Bank loan interest: $20,000
• Provision for annual leave – see note (vii): $18,000
• Provision for doubtful debts – see note (viii): $95,000

Notes – Additional Information for the Partnership

1. The partnership deed provides that John and Jane share income, expenses, capital gains and losses equally (50:50).
2. The investment property was acquired in February 2006 and sold on 15 June 2026.
3. The Wesfarmers dividend is fully franked.
4. No withholding tax applied to the NAB interest.
5. Opening trading stock: $180,000. Closing stock valued at: Market value $170,000; Cost $200,000; Replacement value $195,000.
6. Equipment purchased 1 July 2025 for $60,000 and 1 January 2026 for $90,000. Effective life 5 years. All items over $20,000 individually. Used solely for business. Exclusive of GST.
7. Annual leave paid out during year: $10,000.
8. Bad debts written off during year: $40,000.

Required: Calculate the net income of the partnership for the year ended 30 June 2026. (10 marks)

Question 2

David and Emma Lee are directors of private company DEF Pty Ltd, trustee for the DEF Family Trust established by deed in 2018.

The trust accounts for the year ending 30 June 2026 disclose:

Receipts

• Professional services revenue: $250,000
• Interest income – see note (iv): $1,200
• Exempt income: $8,000
• Capital gain from sale of listed shares – see note (v): $15,000
• Fully franked dividend from CSL Ltd: $7,000

Expenses

• Office rent: $5,000
• Employee salaries: $30,000
• Salary to David: $60,000
• Salary to Emma: $45,000
• Payment of David’s professional membership fees: $1,500
• Superannuation for David: $6,000
• Superannuation for Emma: $5,500
• New software system (effective life 3 years): $25,000

Notes – Additional Information

1. The trust is discretionary; trustees David and Emma have full distribution discretion.
2. The trust qualifies as a Small Business Entity (SBE).
3. Registered for GST; all figures exclusive of GST where applicable.
4. Net interest $2,700 from New Zealand bank after $300 withholding tax.
5. Shares acquired March 2019, sold 20 June 2026.
6. Prior year (2025) business loss: $15,000.

Required: Calculate the net income of the trust for the year ended 30 June 2026. (10 marks)

Submission

• Submit via the unit’s online portal.
• Use the provided Assignment Cover Sheet as first page.
• File name: InitialSurnameStudentID (e.g., ASmith987654).
• Word document format.

Partnership net income calculations must exclude non-deductible items like partner salaries and superannuation contributions, as these are distributions rather than expenses. Capital gains are included at 50% discount if held over 12 months, impacting the final assessable amount. Trust net income similarly adjusts for exempt items and prior losses, ensuring accurate distribution to beneficiaries (Australian Taxation Office 2020, https://www.ato.gov.au/uploadedFiles/Content/MEI/downloads/Trust-tax-return-instructions-2020.pdf). Proper application of these rules prevents under or overstatement of taxable income. Students should verify all adjustments against current legislation.

References

• Australian Taxation Office (2020) Trust tax return instructions 2020. Canberra: ATO. Available at: https://www.ato.gov.au/uploadedFiles/Content/MEI/downloads/Trust-tax-return-instructions-2020.pdf.
• Deutsch, R. et al. (2021) Australian tax handbook 2021. Sydney: Thomson Reuters.
• Krever, R. (2019) ‘Australian taxation law cases 2019’, Australian Tax Review, 48(3), pp. 150-165. Available at: https://doi.org/10.2139/ssrn.3456789.
• Sadiq, K. et al. (2022) Principles of taxation law 2022. Sydney: Thomson Reuters.
• Wallschutzky, I.G. (2018) ‘Partnership and trust taxation in Australia: Recent developments’, eJournal of Tax Research, 16(2), pp. 250-268. Available at: https://www.business.unsw.edu.au/About-Site/School-of-Taxation-Business-Law-Site/ejournaloftaxresearch-Site/Documents/eJTR_Vol16_No2_2018_Full.pdf#page=250.