Margaret Jones established the Jones Family Trust in 2000 with XYZ Pty Ltd as the corporate trustee. Margaret and her husband Dean are the directors of the trustee company. The trust holds a variety of investments in property and cash. The trust was established to protect investments as Dean is always concerned that he could be sued for negligence.

The trust records for the 2019-20 income tax year disclose the following:

Receipts ($)

95,000 Rent from investment properties

5,000 Interest from a bank account

Payments ($)

1,500 Accounting expenses for tax return

12,000 Repairs to investment properties

8,000 Interest on a loan for the investment property

2,000 Legal expenses incurred in defending a claim by a tenant

Margaret does not work. Dean is a senior tax manager and received a salary of $180,000 in 2019-20 income tax year.

They have three children:

a son, Paul, aged 22 years, a student at university who earned $10,000 for the year;

a daughter, Racheal, aged 18, also a university student who earned only $3,000 for the year; and

a second daughter, Kate, aged 14 years, a full time high school student with no other income.

Dean has his grandfather living with him and he had no income for the year. All family members are beneficiaries of the trust and Dean had also established a corporate beneficiary which was able to receive trust distributions.

Required:

Advise as to how the net income can be distributed in the most tax-effective way citing relevant legislation to support your answer.