QUESTION 3 - Trusts(20 Marks)

You are the trustee for the Thompson Discretionary Trust (TDT), which was established under the will of Ethel Thompson to benefit her two grandchildren Gomez and Morticia. A term of the will is that the nominated beneficiaries are entitled to receive 50% each of the annual trust income once they have attained the age of 21 or as the trustee in his/her discretion directs.

Gomez is 20 years old and is in full time employment as a magician. He earned $40,000 during the year ended 30 June 2021. Morticia is 15 years old and still at school and earned no income during the current income year.

During the year ended 30 June 2021, the Trust received a fully franked cash dividend of $70,000 from shares held by TDT in a large ASX-listed Australian company and paid $15,000 in management fees.

As the trustee, you decide to distribute 40% of the net income of the trust to each of Morticia and Gomez for year ended 30 June 2021. All the income was sourced in Australia and both beneficiaries are Australian residents.

Required:Discuss the tax consequences from the above transactions for tax year ended 30 June 2021:

i. Calculate the net income of the trust,

ii. Calculate the tax payable by Gomez,

iii. Calculate the tax liability for Morticia, and

iv. Calculate the tax liability for the Trustee (if any)