AUSTRALIAN TAXATION LAW

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 inclusive 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 include 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 25,800

Dividends from
• Plastics Australia Pty Ltd                                             175,000
• Commonwealth Bank of Australia Ltd (CBA)                       85,000
• Dell Computers Inc                                                       47,600

Rental from commercial shops                                         125,080

It also spent cash on the following items:
• Legal expenses on the loan to acquire a new shop               5,800
• Lease preparation costs paid to a Solicitor                          7,700
• Interest paid on the loan                                               125,000
• Salary paid to Mr Chan, a director of the Chan Family Trust   75,000

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:
(a) Calculate the net partnership income of the SCL partnership; and

(b) In the question there are certain items where GST is relevant. Identify those items and calculate the amount of GST that is owing to the Australian Taxation Office or refundable to the partnership.