In April 2019, Michelle Yee establishes a trust called the MY Family Trust (the MY Trust). The Trustee is a company, MY Pty Ltd (Trustee). Michelle is the sole director of MY Pty Ltd and the sole employee of the business carried on by MY Trust. Michelle, her 10 year old son Harry and her husband Pierre are the beneficiaries of the MY Trust. The Trustee starts a business importing expensive kitchen ovens from France and selling them to architects in the Sydney area. The business is carried on from one of the rooms in Michelle's house in Sydney. The Trustee is the sole Australian Distributor for Le Cook, a high quality oven manufacturer with a factory just outside of Paris. The Le Cook oven is the only oven sold by the business.

The Trustee sold 15 ovens during the period from July 2019 to March 2020 for $50,000 each. The expenses of the business are $250,000 over this period, which are deductible for tax purposes. On 1 April 2020, Le Cook, contacts Michelle and tells her that they are opening their own store in Sydney to service the growing Australian market for their ovens. Le Cook sells the oven through their Sydney store at a price significantly less than the price at which the Trustee sells the same oven. The Trustee can't sell the oven for any less as it will not make any profit. The Trustee has to stop selling the Le Cook oven and closes the business. The Trustee sues Le Cook for loss of profits as a result of the competition. Le Cook offers to settle the Trustee's claim as they are concerned about the bad publicity if the Trustee complains to the newspapers about the way Le Cook does business in Australia. On 30 June 2020, the Trustee receives a compensation payment of $500,000 from Le Cook. The following month Michelle receives a phone call from Le Cook's competitor Le Chef and agrees that the Trustee will become the Australian distributor for Le Chef oven for the next five years. The MY Trust earns a profit of $1m in the 2020 income year from the oven distribution business carried on in Australia. The Trustee of the MY Trust decides on 30 June to distribute the income of the trust in this way:

(a) 20% to Michelle ($200,000); (b) 10% to Michelle's 10-year old son Harry ($100,000); (c) The rest of the income of the trust is to be retained in the MY Trust as working capital for the oven distribution business ($700,000).

Required: Using relevant legislation and caselaw, explain to the Trustee of the MY Trust:

a. Whether the income from selling ovens and the compensation payment received by the MY Trust constitutes ordinary income and assessable under section 6-5 of the ITAA 1997.

b. Calculate the net income of the MY Trust. c. How the distributions made by the Trustee of the MY Trust will be treated for income tax purposes.