QUESTION -
Your client, David Smith runs a small IT consulting business specialising in computer software and technology for the retail sector in Melbourne. The business is structured as a discretionary trust with his company, IT Consulting International Pty Ltd as the trustee of the 'Smith Family Trust'. David Smith and his wife Jane are the two Directors of the trustee company. The trust not only has an ABN, TFN but is also registered for GST. All amounts shown are exclusive of GST.
Receipts:
$
467,000 Consulting income
17,000 Rental income from an income producing investment apartment
1,000 Interest on Bank deposits.
32,000 Fully franked dividend from BHP
58,000 Capital gain on Commonwealth Bank shares purchased in 2001 and sold May 2016
Payments:
$
5,000 Body Corporate fees on income producing property
15,000 Interest on money borrowed to purchase the income producing investment apartment
5,500 Legal expenses relating to a new loan to acquire the investment apartment.
1,100 Fees paid to a registered Tax Agent in May 2016
7,700 New computer with an estimated life of 4 years
3,300 New photocopier with an estimated life of 3 years
1,000 Travel to and from work
60,000 Other operating expenses including David's salary of $45,000
65,000 New motor vehicle for the trust and used solely for business purposes. Effective life 5 years
Additional Information:
(a) The Trust has a carry forward tax loss from an earlier income year of $10,000.
(b) The Trust is not using the Small Business Entity Tax System (SBE).
(c) The investment apartment was purchased new, and is part of a hotel complex. The apartment was purchased on 1 July 2015. The real estate agent provided the trust with a certificate from a quantity surveyor stating that the construction cost of the apartment was $267,000 and that the depreciation on the chattels in the apartment was $15,600 for the financial year.
(d) As at 30 June 2015 the trust had no depreciating assets. On 1 July 2015 the trust purchased 2 new depreciating assets used 100% for business purposes and the motor vehicle. These are recorded in the payments information listed above. The trust wishes to maximise the tax deduction from the depreciation of the assets.
(e) The trust deed allows for the trustee to exercise absolute discretion when distributing ordinary income, statutory income and imputation credits. David Smith and his wife Jane have resolved to distribute all of the net income of the trust to each in equal shares.
REQUIRED:
Calculate the net income of the trust based on taxation law only for the year ended 30 June 2016. Then show the breakup of the income that is distributed to each beneficiary, such as capital gain and imputation credits. You should explain your treatment of each item in this question. Figures can be rounded to the nearest dollar. Note the above figures exclude GST.
750 words
5 references.