(Tax law)

Advance Pty Ltd (Advance), is a parent company and sole shareholder of Kensington Pty Ltd (Kensington). All companies are tax resident and neither is a base rate entity.

The only items of assessable income derived by Advance relate to dividends received from Kensington during the year ended 30 June 2019. The relevant amounts were as follows:

o Fully franked dividend received on 10 July 2018: $210,000;

o 50% franked dividends received on 2 March 2019: $260,000;

o Interest revenue received on 15 June 2019: $20,000

The following expenses were incurred by Advance during the year ended 30 June 2019:

o Interest on a loan taken out to purchase the shares in Kensington $56,000;

o Accounting fees $20,000.

On 15 May 2019, Sonic declared a dividend distribution of $600,000 from its after-tax profit. The dividends paid to shareholders on 20 June 2019 had a franking percentage of 90%. The dividends paid to the shareholders were as follows:

o $150,000 paid to Raymond Webster, an Australian resident;

o $150,000 paid to Evelyn Webster, a Singapore resident;

o $60,000 to Priceline Ltd (Priceline), an Australian resident public company which is not a base rate entity;

o $240,000 paid to the Webster Family Discretionary Trust. The only beneficiaries of the trust are Raymond Websters three children aged 11, 18 and 21 years of age (as at 30 June 2019) and each were allocated 1/3 of net trust income.

The following taxes were paid by Advance for the year ended 30 June 2019:

o Fringe benefits tax paid on 15 April 2019: $56,000;

o Three company tax instalments of $25,000 each paid on 20 October 2018, 20 January 2019 and 20 April 2019; o Opening balance of franking account balance as at 1 July 2018 is zero

a) Calculate Advances taxable income for the year ended 30 June 2019 (3 Marks)

b) PREPARE the franking account for Advance for the year ended 30 June 2019. ANY exclusions must be separately explained. (4 Marks)

c) Assuming Raymond, Evelyn, Priceline, the Trust and Raymonds children derive no income other than the amounts detailed above, advise the shareholders on the tax treatment of the dividends received from Advance in the 2018/19 tax year. (13 Marks)