(1) What is the difference between the tax law income and the trust law income of a trust estate? Explain your answer.

Exercise 3

Peterson Pty Ltd is an Australian resident company that is trustee of a discretionary trust. During the 2018/19 income year, the trust estate derived $255000 of interest income from Australian sources and $255000 of rental income from foreign sources. On 30 June 2019, the directors of the company resolved to distribute one-third of the income of the trust estate to each of: Kho (a 28-year-old Australian resident), Brighton (a 90-year-old foreign resident), Perry (a 17-year-old Australian resident), and D Co (a company resident in New Zealand). No resolution was made in respect of the balance income. Advise how the net income of the trust estate is taxed.

1 Explain how the net income of a trust estate is calculated.