Statement of Advice 2 Advice on company franking account and distributions (10 marks for technical and calculation accuracy; refer to marking rubric for more guidance)

Julia and John seeking your advice regarding Smart Solutions Pty Ltds franking account. (Please note: use all figures/information provided from Statement of Advice 1 above to construct the franking account for 2021/22. Opening balance is provided below).

Required,

1) 1 July 2021, the balance in Smart Solutions Pty Ltds franking account was $18,721. Construct Smart Solutions Pty Ltds franking account for the 2021/22 financial year. You also need to calculate the franking account balance as at 30 June 2022.

2) Smart Solutions Pty Ltd wishes to pay a final fully franked dividend of $40,000 on 30 June 2022. However, Julia and John are concerned about the franking account to go into deficit. Calculate and advise the maximum frankable distribution amounts that Smart Solutions Pty Ltd can pay as fully franked dividend. What are the tax consequences if Smart Solutions Pty Ltd goes ahead and pays $40,000 fully franked dividend on 30 June 2022?

3) Assuming Smart Solutions Pty Ltd paid $40,000 fully franked dividend on 30 June 2022 (only dividend paid for the year), comment on the tax treatment of the dividend to the following four (4) shareholders:

Julia and John Smart receive a dividend of $15,000 each. They are Australian residents at the highest marginal tax rate.

$5,000 to Justin Smart, the son of Julia and John, who has been studying in London for three years and is a foreign resident.

$5,000 to Leaf Pty Ltd, an Australian private company with a 30% company income tax rate.

Advise how each of the above four shareholders of Smart Solutions Pty Ltd would be taxed on the distribution received in 2021/22.