Australian Tax Law
The Alice in Wonderland Family Trust commenced in 2005 when it was settled by a family friend, White Rabbit. The trust has a number of investments and also operates a business. The trustees had employed a full-time manager who managed the business and one full-time staff member.
The income and deductions for the current year are as follows:
Income
Dividends from a number of companies 150,000
Franking credits attached to these dividends 90,000
Unfranked dividends 110,000
Business income 780,000
Interest 36,000
Sale of a factory building which had been used in the business. The building had been sold on 17 July 2015. Commission on sale was $7,500. It had been bought on 1 July 2007 for $230,000. The trust completely repainted and rewired the property at a cost of $15,000 immediately after purchase. Stamp duty on purchase was $5,200. 450,000
Expenses
General operating expenses of the business 430,000
Provision for annual leave 15,000
Salary to Caterpillar, one of the beneficiaries who didn’t receive any distributions from the trust but worked in the business during her university holidays 30,000
Notes to expenses
Annual leave taken by the Manager and the staff member was $20,000.
On 10 November 2014 the Manager had launched a takeover of a business. The takeover attempt cost $22,000 but was unsuccessful.
SBE Elections are to be used
Beneficiaries
The net income of the trust was distributed as follows:
1) Capital gains to Mad Hatter. He is 22 years of age and has no other income but has a capital loss of $45,000 from the sale of shares in the previous financial year.
2) Queen of Hearts who is 17 years old is entitled to the interest which is to be accumulated until she turns 18 years of age. If she should die before turning 18 the accumulated funds will be donated to a charity selected by the settlor in the trust deed. In the current year the trustee spent $25,000 buying Queen of Hearts a car when she turned 17. Queen of Hearts also earned $12,000 from her part-time job at the local rose nursery.
3) Franked Dividends and $66,240 of the unfranked dividends to Alice. She is also 17 years of age. Alice also has $3,000 interest from a bank account started by her grandparents the day she was born and $16,000 from the deceased estate of her great aunt. The trustee of the great aunt’s deceased estate had paid tax of $1,500 on this income. Alice is a double orphan due to the unexplained deaths of her parents
4) 50% of the net business income to Cheshire Cat who is 26. He has no other income.
5) Any remaining income was retained by the trustee.
QUESTION
a) Calculate the net income of the trust and the Div 6E net income, setting out the income excluded from the Div 6E net income.
b) Calculate the taxable income and net tax payable of the beneficiaries
c) Calculate the net tax payable by the trustee
d) Provide the legislative references from the Income Tax Assessment Act 1997 and 1936.