Question 1(10 marks)

In April 2022, Juliet Long establishes a discretionary trust called the JL Family Trust (the JL

Trust).

The Trustee is a company, JL Pty Ltd (Trustee). Juliet is the sole director of JL Pty Ltd and the sole employee of the jewellery shop business carried on by the JLTrust. Juliet, her 12 year old daughter Kate and her husband Fred are the beneficiaries of the JL Trust. Fred is an undischarged bankrupt.

In addition to the income earned from the jewellery shop, the Trustee receives $70,000 fully franked dividends from a share investment in BHP.

The Trustee repairs the walls in the jewellery shop at a cost of $10,000 as there was water damage from a severe storm.

For the 2023 financial year, the JL Trust earns a profit for trust law purposes of $1m. The net income of the Trust for the 2023 income year is also $1m. On 30 June 2023, the Trustee of the JL Trust distributes the profit of the trust in this way:

• 30% to Michelle ($300,000):
• 10% to Fred ($100,000):
• 10% to Kate ($100,000);|
• The rest of the income of the trust is to be retained in the JL Trust as working capital for the jewellery shop business ($500,000).

Required:

Using relevant legislation and case law, please answer the following questions:

1. Are the $70,000 fully franked dividends paid to the Trustee assessable income? How much is the franking credit?

2.Is the money paid by the Trustee to repair the walls in the jewellery shop an allowable deduction?

3.How are the distributions made by the Trustee treated for income tax purposes?