Revenue Law questions based on Companies and Trust
Question 1 -
Carl's parents operate a restaurant business through a family trust, The Wu Family Trust, which had the following receipts and expenses for the 2016/17 income year (the business uses the accruals basis to account for their income):
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Receipts
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Business income - cash amounts received in the period 1 July 2016 to 30 June 2017(from restaurant customers)
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$550,000 (including GST)
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Business income - accounts invoiced but payment NOT received in the period 1 July 2016 to 30 June 2017(for catering jobs)
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$44,000 (incl. GST)
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Interest income
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$3,000
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Dividend Income (franked to 70%)
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$30,000
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Expenditure
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Operating costs of restaurant
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$406,685 (incl. GST)
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2016/17 depreciation on a new oven costing a total of $9,460 (including GST) that was installed on 1 October 2016.
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$1,291
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Restaurant food ingredients delivered on 29 June 2017, but not paid for until 10 July 2017.
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$9,995 (GST-free)
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Taxation service for preparation of income tax return by a registered tax agent
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$1,100 (incl. GST)
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Assume that the Tax Offset (Discount) for Unincorporated Small Businesses entities does not apply
Carl's father, James, is the trustee of the trust and decides to distribute the 'trust income' to the following beneficiaries (without distinguishing between the different types of income - that is, there is no streaming):
SharniWu, age 14 (who has no other income): $3,000
CarlWu, age 26 (who also has $2,000 of interest income): $78,000
Brie Co Pty Ltd (assume not a small business entity): the balance
Brie Co Pty Ltd also receives the following income during the 2016/17 income year:
- Unfranked dividends from a resident private company $16,000, and
- Partly franked dividends of $2,000 (franked to 60%).
In relation to the above facts about the Wu Family Trust, answer the following:
(A) Discuss and calculate the 'Net Income' of the Wu Family Trust for the 30 June 2017 income year
(B) Determine the taxable income and tax payable for each of the beneficiaries for the 2017 income year- assume that the 'trust income' is $200,000.
(C) Advise the trustee James, of the consequences if he had decided to retain the $78,000 in the trust for future expansion of the business rather making Carl presently entitled to it.
Question 2 -
Bobbi's Bags Pty Ltd is a private company incorporated in Australia, and manufactures handbags. The opening balance of Bobbi's Bags Pty Ltd's franking account on 1 July 2016 was $23,000 (CR).During the 2016/17 income year the events listed in the franking account table below occurred:
Prepare the franking account for Bobbi's Bags Pty Ltd for the income year ended 30 June 2017
Note that as Bobbi's Bags Pty Ltd is incorporated in Australia, in accordance with the definition of 'resident' or 'resident of Australia' in s 6(1) ITAA36, it will be a resident of Australia for tax purposes.
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Date
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Activity
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Provision
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DR
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CR
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Balance
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1 July 2016
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Opening balance
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$23,000 CR
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21 July 2016
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Received fully franked dividend $21,000
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31 July 2016
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Paid FBT $18,000
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10 August 2016
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Received $12,000 dividend franked to 70%
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15 Sept 2016
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Received income tax refund of $4,600
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5 Oct 2016
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Paid PAYG instalment of $12,000
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1 Dec 2016
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Paid $14,000 dividend fully franked
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4 April 2017
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Paid PAYG instalment of $11,000
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Attachment:- Assignment Files.rar