A partnership gives another entity contractual rights (CGT event D1). The capital gain or loss of each partner is computed by assigning an appropriate share of the capital proceeds from the event as well as the incidental costs associated with the event to each partner (according to the partnership agreement, or partnership law if there is no agreement).

The company has faced major constraints in attracting customers during the Covid lockdown due to the inability to entice customers through the delicious smell of deep fried food, pumped into public areas. Since its former marketing strategy is no longer proving to be effective, and due to intense price competition from other major food production companies, SouthernFriedis forced to increase its advertising expenditure quite significantly compared to previous years. In previous years, the advertising expense was only around $50,000 per year. In 2021/22, it came to $150,000. The directors of SouthernFriedhowever felt that this was necessary in order to retain market share. The directors of the company are hoping that the advertising budget can return to its normal level in the next income year.

During the 2021/22 income year, SouthernFriedmade three frankable distributions. The first distribution ($1m) is franked at 70%, the second distribution ($2m) is franked at 80%, and the third distribution ($1m) is franked at 50%.(Assume a corporate tax rate for imputation purposes of 30%).

In October 2021, SouthernFrieds CEO, Colonel takes a trip to Texas after meeting a native Texan, Pollyanna, on the Internet and promising to visit her. Colonel spends two weeks in Texas sampling authentic southern fried foods at restaurants as part of the companys product development project, and takes Pollyanna along with him to the restaurants. The total cost of their meals is $1200, and the total cost of Colonels travel, airfares and accommodation for the trip is $5,000.

Colonels are also a potential beneficiary of the SouthernFamily Trust (SFT), a discretionary family trust which carries on a business of providing project management services in relation to major projects in Australia. SFT is an Australian resident trust. The beneficiaries are Sanders and his wife Sally, and their two children, Colonel(30 years) and Bill(25 years). Sanders is a foreign resident for tax purposes. Sally, Colonel and Bill are Australian residents for tax purposes. The Trustee is a close family friend. During the 2021/22income year, the trust estate earned income calculated under trust law principles of $206,000. The Trustee allocated the trust law income under a trustee resolution made on 15 July 2022, as follows:

Beneficiary, Share: Colonel40% Bill30% Sanders10% Sally20%

SFTs tax law income (net income calculated under s95 ITAA36) for the 2021/22income year was $214,000.

The SFT trust deed also includes a default distribution clause which provides that:In the event that the Trustee does not exercise the power to accumulate or to distribute all or part of the income prior to midnight on 30 June in the relevant income year, then the undistributed or unaccumulated income will automatically be distributed to beneficiaries Sanders, Sally, Colonel and Bill in equal shares.

Required: Advise SouthernFried, Ernestand Colonelregarding the income tax implications arising from the above facts in relation to the 2021/22income year. In your answer make sure you refer to any relevant cases, legislative provisions, tax rulings and principles of tax law.