Assignment Details
QUESTION ONE
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.
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Receipts
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$
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467,000
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Consulting income
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17,000
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Rental income from an income producing investment apartment
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1,000
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Interest on Bank deposits.
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32,000
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Fully franked dividend from BHP
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58,000
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Capital gain on Commonwealth Bank shares purchased in 2001 and sold May 2016
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Payments
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$
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5,000
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Body Corporate fees on income producing property
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15,000
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Interest on money borrowed to purchase the income producing investment apartment
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5,500
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Legal expenses relating to a new loan to acquire the investment apartment.
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1,100
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Fees paid to a registered Tax Agent in May 2016
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7,700
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New computer with an estimated life of 4 years
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3,300
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New photocopier with an estimated life of 3 years
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1,000
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Travel to and from work
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60,000
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Other operating expenses including David's salary of $45,000
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65,000
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New motor vehicle for the trust and used solely for business purposes. Effective life 5 years
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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.
QUESTION TWO
The SCL Partnership is a partnership of three discretionary family trusts, the Smith Family Trust, the Lee Family Trust and the Chan Family Trust, and is the shareholder in Plastics Australia Pty Ltd.
During the year the partnership received the following items of cash:
- Interest income from term deposits with the ANZ Bank
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25,800
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Dividends from
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- Plastics Australia Pty Ltd
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175,000
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- Commonwealth Bank of Australia Ltd (CBA)
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85,000
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47,600
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Rental from commercial shops
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125,080
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It also spent cash on the following items:
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- Legal expenses on the loan to acquire a new shop
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5,800
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- Lease preparation costs paid to a Solicitor
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7,700
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- Interest paid on the loan
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125,000
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- Salary paid to Mr Chan, a director of the Chan Family Trust
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75,000
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Further information
• The dividend from the CBA is franked to 100%.
• The dividend from Plastics Australia Pty Ltd was only franked to 65%
• The dividend from Dell Computers Ltd, a USA company, has had withholding tax of the equivalent of AUD 8,400 deducted.
• The partnership is registered for GST and has an ABN number.
• The partnership agreement stated that Mr Chan was entitled to a salary of $75,000 for looking after the partnership and doing the administration work.
REQUIRED:
Calculate the net partnership income of the SCL partnership.