Seminar 10

Question 1

Justin's parents operate a restaurant business through a family trust, The Pepper Family Trust, which had the following receipts and expenses for the year ended 30June 2018 (the business uses the accruals basis to account for their income):

Receipts

Business income - cash amounts received in the period 1 July 2017 to 30 June 2018 (from restaurant customers)

$550,000 (including GST)

Business income - accounts invoiced but payment NOT receivedin the period 1 July 2017 to 30 June 2018 (for catering jobs)

$44,000 (including GST)

Interest income

$42,000

Expenditure

Operating costs of restaurant

$406,685 (including GST)

New oven costing $8,800 (including GST) was delivered was delivered on 25 September 2017, but could not be installed until 1 October 2017.The effective life was 10 years.Other costs incurred at the time of delivery were:transit fees $220 (including GST), transit insurance $110 (including GST), and installation costs of $330 (including GST).

$9,460 (including GST)

Restaurant goods delivered on 29 June 2018, but were not paid for until 10 July 2018.

$11,000 (including GST)

Taxation service for preparation of income tax return by a registered tax agent

$1,100 (including GST)

Justin's father, John, is the trustee of the trust and decides to distribute the trust's income to the following beneficiaries (without distinguishing between the different types of receipts):

Mandy Pepper, age 14 (who has no other income): $416

Justin Pepper, age 26: the balance

Justin also the following receipts in 2017/18:

$2,000 of interest income

A capital gain from the sale of a yacht of $3,000; this asset had been held for 11 months prior to the CGT (A1) event on 30 June 2018 and Justin had purchased it for $5,500 (no GST). Justin does not have any other capital gains or losses in 2017/18 and he does not have any capital gains carried forward.

Referring to the above facts about the Pepper Family Trust, answer the following:

(A)Discuss and calculate the 'Net Income' of the Pepper Family Trust for the 30June 2018 income year

The net income of a trust is the total _______________ of the trust calculated as if the trustee were a _______________ taxpayer in respect of that income, less all _______________(s _________ ITAA 1936).

The trust is using the _______________ method to account for income, so they will be assessed on the total of the business income in____________________________________________________________.

In relation to GST: The business would be making _______________ supplies in relation to the provision of their restaurant meals and catering services. GST charged/collected is or is not assessable income: s __________ ITAA97, so they would be assessed on the GST inclusive or exclusive amount of their business income.

Assume that the expenses that include GST would be _______________acquisitions for the trust and that they hold valid tax invoices. Therefore the business would claim the GST inclusive or exclusive amount of the expenses as a tax deduction as they are entitled to claim the input tax credit on the expenses: s _______________ ITAA97.

Net Income of Pepper Family Trust for the year ended 30 June:

Assessable IncomeGSTs 95 amount

Business income (received)$______$______ s _______

Business income (invoiced)$______$______s _______Interest income$______s _______

Total assessable income$______

Continuing to calculate the 'net income' of the trust....

DeductionsGSTs 95 amount

Operating costs $______$______s _______

Oven decline in value *$______$______s _______

Other goods**$______$______s _______'

Tax agent fees$______$______s _______

Total allowable deductions$______

Net Income$______s _______

Note because there is no capital gain or franked dividend amount in the net income of the trust we do not have to consider the Division 6E adjustment.

* Decline in value on the oven.

The oven is a __________asset - it has a limited effective life and is reasonably expected to decline in value over the life of the asset: s __________.

The Trust owns the oven so they hold it for the purpose of s __________.

The Trust uses the oven in their restaurant business to produce assessable income so they have a 100% __________ purpose: s __________.

Start time is __________, when the oven was ______________________________: s __________.

Here number of days: __________

Cost: the initial cost of acquisition (includes ____________________): s __________. Here $__________.

Cost will be inclusive or exclusive of GST as the Trust would be entitled to ____________________: s __________.So the cost will be $__________

Decline in value for 2018 is: ________________________________________

** The cost of the goods delivered of $11,000 (including GST) is an outgoing necessarily __________ in carrying on a business, as actual payment is or is not required: (case)___________.The trust is definitely committed to the expense even though it remains unpaid at the end of the year of income: (case)__________

(B)Determine the taxable income and tax payable for each of the beneficiaries for the 2018 income year

Mandy

Generally, a resident beneficiary of a trust who is __________entitled to trust income must include that income in their ____________________: s __________.However, where the beneficiary is presently entitled to income from a trust and is under a __________ disability, the income is assessable in the hands of the __________: s __________.

Mandy is under a __________disability as she is ____________________, and is therefore a __________.Therefore John Pepper, the __________ is assessable on the $416 as if he were Mandy: s __________.

In this case, the special taxation rules for minors will apply as a trust distribution is __________ income (Eligible Taxable Income) of a minor for the purposes of Div __________ of the ITAA36.Mandy would be a __________ person for the purposes of Div 6AA.

Trustee assessed (as if he were Mandy)

Trust income(ETI)$_______s __________

Less Allowable deductions__________s __________

Taxable income $__________

BITL$__________Div __________,

Less non-refundable offsets:

Low Income tax offset($__________) s __________ (T.I $_______,

BUT the __________________

Net Tax Payable$______

Plus Medicare levy$______s ______ ITAA 36

(T.I $______)

____

Less refundable offsets/ tax credits

($ ______)

Tax Payable$ ______

Justin

If there are any amounts below that should not be included, briefly explain why here:

____________________________________________________________

A resident beneficiary of a trust who is presently entitled to trust income and is not under a legal disability must include that income in their ____________ income s ______.

Trust income$______s ______

Interest income$ ______s ______

Net capital gain$ ______s ______

Total assessable income$ ______

Less Allowable deductions ______s ______

Taxable income $______

BITL$______

Less non-refundable offsets:

Low Income tax offset($______) s ______ ITAA 36

(T.I > $______)

Net Tax Payable$______

Plus Medicare levy$ ______s ______ ITAA 36

(T.I > $______)

(T.I x ______%)

Medicare Levy surcharge$ ____________ ISP ______

$______

Less refundable offsets and tax credits

($______)

Tax Payable$______

(C)Advise the trustee of the consequences if he had decided to retain the amount allocated to Justin in the trust for future expansion of the business, rather than making Justin presently entitled to it.

If the trustee were to retain the amount in the trust, instead of distributing it to Justin, it would be net income to which no ______________________________.

Where there is no beneficiary presently entitled, the ______ would be assessed at the __________________rate plus ____________under s ______ or (s ______ at the relevant marginal tax rate if the trust resulted from a will or a bankrupt property).

That means tax payable at ______% plus ______% (s ______)

(D)Advise Justin if there would be any change to his liability for tax on his proportionate share of trust income in the event that he did not receive his share of trust income in his bank account in 2017/18.

____________________________________________________________

____________________________________________________________

Question 2

Leigh had the following income and deductions in 2017/18:

Salary $92,000

Work-related general deductions $4,120

Dividend from EXT Ltd (franked to 40%) $5,950

Dividend from DRC Ltd (unfranked) $12,566

Dividend from LPE Ltd (fully franked) $5,880

Bank Interest $3,225

All deductions are allowable and Leigh has the necessary documentary evidence. Leigh has never had private health insurance of any kind. PAYG withheld from her gross salary was $23,700. Calculate Leigh's tax payable/refundable.

Assessable income

_____$______s ___

_____$______s ___

Dividend from _____$ _____ s _____

_____$ ___s _____

Dividend from_____$ ___ s _____

___$ ____s _____

Dividend from_____$ ___s _____

Total assessable income$ _____

Less Allowable deductions $ ______s ______

Taxable income $______

BITL$______

Less non-refundable offsets:

Low Income tax offset($______) s ______ ITAA 36

(T.I > $______)

Net Tax Payable$______

Plus Medicare levy$ ______s ______ ITAA 36

(T.I > $______)

(T.I x ______%)

Medicare Levy surcharge$ ______

ISP ______Tier______Rate ______

$______

Less refundable offsets and tax credits

______($______)s ______

______ ($______)

Tax Payable/Refundable$______