Question

Part A

Required: Advise as to the tax implications for these facts regarding the Kim Family Trust. You do not need to calculate the exact amount of tax payable.

The Kim Family Trust is a discretionary trust that, for the current year, earned dividend income (unfranked) of $50,000 and rental income of $20,000. It paid interest of $10,000 on the loan used to purchase its rental property and shares. It has a corporate beneficiary, K Pty Ltd. During the current tax year, it made the following distributions:

• $20,000 to Mark, a 21-year-old beneficiary.
• $25,000 to Jane, a 17-year-old beneficiary.

Part B:

Required: Advise Jake of the tax payable due to the receipt of the dividends.

Jake receives the following dividends on 1 August 2020:

• $8000, fully franked from ABC Ltd.
• $3000, 50% franked, from DEF Ltd.

Jakes is on the top (45%) marginal tax rate. Ignoring Medicare Levy, calculate the impact of the dividends on Jake’s tax liability.

Answer 1

Dividend income of $50000 and rental income of $20000 will be taxable in hands of trust. it will be allowed a general deduction of $300, if it a simple trust or $100. Interest on loan of $ 10000 taken to purchase of property would not be allowed as deduction. Distributions to beneficiary of $20000 and $25000 is paid out of income of trust so trust will be allowed a deduction of $45000 but if it is principal returned these contributions will not be allowed as deduction.

Dividend Income will be taxable at the rate of 20% or higher as Jake is in the top marginal tax rate.