2: Toni works as a taxation partner for a large Christchurch-based accountancy practice. Three years ago Toni decided to set up a trust, principally to provide for her son James, who will be attending university in the future. Toni transferred a rental property (valued at $350,000) and other assets she personally owned into the trust.

The trustees of the trust are Toni and Alex (an audit partner of the same firm). Since the trust was settled, it has been liable to tax in New Zealand on all its trustee income. Toni and Alex, as trustees, have ensured that tax on the trust income has always been paid on time.

Toni and Alex have wide discretion in deciding the amount of trust income that James will receive each year to help him with his education and living expenses. Any trust income not applied to James is accumulated by the trust. When James reaches the age of 20 he will receive the balance of the trust fund. James is currently 17 years old.

For the year ended 31 March 2022 the trust derived rental/investment income of $48,000. During that financial year Toni and Alex applied $16,000 for James education and board, and $4,000 for clothes and food. They placed $9,000 into a savings bank account in James name. Toni and Alex also bought Government Stock, in James name, for $7,000. (Payment of tax on behalf of a beneficiary will also constitute a distribution of income. For simplicity you can ignore this in your answer).

James also earned $4,000 during the year through actively trading in shares.

Toni and Alex each derived $112,000 of income for the year, being their share of the partnerships profit. They received no other income.

Required:

Is the family trust a complying trust, a foreign trust or a non-complying trust?

(b) How will the trust income be taxed?

(c) Calculate the tax payable by Toni and James (excluding any tax credits).

(d) Would your answer to (b) and (c) differ if instead, James was 13 years of age?

Note: for the calculation use the following individual income tax rates:

Income bracket	Tax rate
$0$14,000 $14,001 - $48,000	10.5% 17.5%
$48,001$70,000	30.0%
$70,001and over	33.0%