In $2019$ Kate purchased an investment property in the Blue Mountains for $$700,000.$

$($Kate paid a $10\%$ down payment and borrowed the balance of the purchase price

from BigBank at market rates.$)$ Kate also paid transfer $($stamp$)$ duty of $$50,000$ and

legal fees of $$2,000$ in relation to the purchase. At the time of the purchase, the

property was already rented out to tenants who continued to live in the property

following the purchase. During the $2020/21$ year of income, in relation to the

property, Kate received rent of $$40,000,$ and incurred the following expenses: council

rates of $$2,500,$ water rates of $$500,$ insurance premiums of $$1,000,$ agent$$s fees of

$$7,000$ and $$40,000$ interest on the loan. Kate also arranged to use the property

herself as a holiday home for four $(4)$ weeks during the year, as she enjoys

bushwalking in the Blue Mountains.

Kate is also a potential beneficiary of the Smith Family Trust $($SFT$),$ an Australian

resident trust. The beneficiaries are Bob and his wife Bernice, and their two children,

Kate $(30$ years$)$ and Kim $(25$ years$).$ Bob, Bernice, Kate and Kim are Australian

residents for tax purposes. The trustee is a close family friend, Mercy. The SFT trust

deed provides that:

$$the Trustee may distribute all or any of the trust income to such one or more or all of

the beneficiaries Bob, Bernice, Kate or Kim in such proportions as the Trustee shall

in their unfettered discretion determine$.$

During the $2020/21$ year, the trust estate earns income calculated under trust law

principles of $$275,000.$ Mercy, the trustee, allocated the trust law income under a

trustee resolution made on $27$ June $2021$ as follows:

Beneficiary: Share:

Kate $40\%$

Kim $20\%$

Bob $30\%$

Bernice $10\%$

SFT$$s tax law income $($net income calculated under s$95$ ITAA$36)$ for the $2020/21$

income year was $$284,000.$

Required:

Advise Kate regarding the income tax implications arising from the above

facts. In your answer make sure you refer to any relevant cases, legislative

provisions, tax rulings and principles of tax law.

Asnwer this using the HIRAC method