Problem
Problem I
Annabel is a resident of Australia for tax purposes and Sally is a non-resident of Australia for tax purposes. They are partners in a partnership. Their shares of the partnership profits and losses are 60% and 40%, respectively. During the income year of 2021/22, the partnership derived the following income:
i. Interest income from an Australian bank account: $30,000
ii. Interest income from an overseas bank account: $18,000
Task
Calculate the net income of the partnership under s 90 of the Income Tax Assessment Act 1936 and explain how that amount would be allocated and assessed in the hands of Anna and Sarah under s 92 of the Income Tax Assessment Act 1936.
Problem II
For the purposes of avoiding double taxation for companies in Australia, what is the role of the imputation system and how does it work?
Task
You have to conduct a self-direct research and refer to case law and the Income Tax Assessment Acts 1936 and 1997 to support your answers and use an example to illustrate the mechanism of the imputation system.
Problem III
Paramatta Pty Ltd is the trustee of a discretionary family trust. During the income year of 2021/22, the trust estate received interest income of $30,000 from ANZ Bank in Sydney and rental income of $60,000 from an investment property in Sydney. On 30 June 2022, the directors of Paramatta Pty Ltd resolved to distribute the trust income to the beneficiaries as follows:
i. $30,000 to Patrick who is a 50-year-old resident of Australia for tax purposes
ii. $30,000 to Johnny who is a 15-year-old resident of Australia for tax purposes
iii. No resolution was made in respect of the balance income of $30,000
Task
Explain the tax implications of the above trust distributions with reference to the case law and the Income Tax Assessment Act 1936.