Tutorial: Trusts

1. Xs will created a trust under which the income is to be distributed as follows:

To his widow - 50%

To his 25 year old insane son - 25%

To be accumulated for the benefit of his 17

year old daughter to vest upon her attaining

the age of 21 - 25%

The trustee also has a discretion to pay or apply part or all of the daughters share of the income for her education, welfare, betterment or advancement in life.

During the last tax year the trust had net income of $50,000. The trustee paid $7,500 towards the cost of the daughters education.

The widow received, as other income, net rents of $10,000. The son received $15,000 under a trust created by his grandfathers will and the daughter earned $3,750 from working part time in a cafe.

Who is assessable on the income of the trust estate? Indicate the basis upon which they would be assessed and calculate the taxable incomes (indicating any entitlements to credits) of the widow, son and daughter.

2 Jack creates a trust under which the beneficiaries are his two infant children. The children both receive distributions. How may the Commissioner assess those distributions? How might Jack avoid this result?

3 Under the terms of the Golf family trust (which earns half of its $160,000 income from Australian sources (business profits from a permanent establishment) and the balance from overseas sources), 25% of the trust's income is to be paid to Harry Golf, a 24 year old accountant in practice in Townsville. An additional 25% is paid to Ian Golf, Harry's 17 year old brother who lives in New Zealand with his mother and the balance is to be paid, at the trustee's discretion, to Jim Golf, a cousin who has been an Australian resident since he turned 21 on 31st December last year. The trustee did in fact exercise his discretion in Jim's favour and decided to pay him the same amount that Harry and Ian were receiving. The trustee retained the balance of the trust's income for reinvestment.

Who will be taxed, on what amounts, at what rates and subject to what credits

(if any)? Provide detailed reasons for your answer.