Reference no: EM133051539

CLWM4100 Taxation Law - Kaplan Business School

Workshop - Partnerships and Trusts

Questions before workshop

Question 1
Outline a partnership structure.
Does a partnership structure pay tax? Does seem unusual?

Question 2
What is a trust structure?
Does the trust structure pay tax? Does this seem unusual?

Question 3
Name the various parties to a family trust arrangement. Give examples of who these parties may be in real life.

Questions during workshop

Question 1
Mullet, Shark and Starfish operate a business which conducts deep sea fishing trips.
Their partnership agreement states that all profits and losses are to be shared in the ratio of 3:2:1 after allowing for partners' salaries, interest on capital, an interest on drawings.

The receipts and payments of the business for the 2020/21 tax year were as follows.

Receipts
Gross Income - Boat Charters	$491 000
Payments
Boat operating expenses	$ 54 000
Salary - Mullet	$ 60 000
Salary - Shark	$ 18 000
Salary - Employee	$ 36 000
Superannuation - Mullet	$    5 000
Superannuation - Shark	$    4 000
Superannuation - Employee	$    3 000
Interest on Capital - Mullet	$ 14 000
Interest on Capital - Shark	$ 11 000
Interest on Capital - Star Fish	$    6 100
Interest on loan - Stingray Bank	$ 15 000
Interest on loan - Shark	$ 27 000
Drawings - Mullet	$ 20 000
Drawings - Shark	$ 15 000
Drawings - Starfish	$ 10 000
Other deductible expenses	$ 55 000

Other Information
• Interest on drawings is charged at 12% of the total annual drawings
• Decline in Value deduction amounted to $92, 000.
• There was no debtors or creditors as the partnership settled all accounts when issued.
Required
Calculate the partnership net income for the year. Prepare a partnership distribution statement.
Calculate Shark's taxable income (Shark did not have any other income or deductions).

Question 2
Lisa and Monica operate a hairdressing salon as partners where they each are entitled to 50% of the profits after allowing for partner's salaries, interest on capital, interest on advances and interest on drawings.
For the current income year, the partnership derives $89 000 of sales and $8090 in GST and incurred $34 000 of expenses. The expenses included the purchase of a new hair curling mega device which has an effective life of 7 years. However, it has not been unpacked and is not currently operational. The mega device cost $7000.
Lisa and Monica paid themselves wages of $23,000 and $18,500 respectively. In addition, Lisa received $3 000 interest on capital and paid $750 interest on her drawings.
Monica was paid $3 500 interest on funds she advanced to the partnership. Monica also has a capital loss of $5000, $2000 of this is from the disposal of a collectible.

Required
a) Calculate the s90 Partnership Net Income (PNI) and complete a partnership schedule showing the overall distribution to each of the partners.
b) Calculate the taxable income and the tax assessed on taxable income for Monica

Ignore Medicare Levy and the low income tax offset

Question 3
The Alberts Family Trust, an inter vivos trust, had the following beneficiaries: Candy (aged 45; entitled to 40% of trust income)
Dandy (aged30; bankrupt; entitled to 35% of trust income) Landy (aged 17; entitled to 20% of trust income)
The remainder of each year's income was to be retained or distributed at the Trustee's discretion.
During the CIY Tax year trust income was $195 000. A discretionary amount of $7 000 was paid to Landy. This amount was in addition to Lady's entitlement under the Trust Deed.
The trust also had losses of $15 000 in the PIY tax year. These were to be met out of the trust income.
Landy also received interest of $38 000 during the CIY tax year from investments given to him by his parents.

Landy is single and is not covered by private health insurance.

Required
1) Prepare a schedule (covering all beneficiaries) nominating:
• Name of beneficiary
• Whether or not the beneficiary is PRESENTLY ENTITLED
• Whether or not the beneficiary is under a LEGAL DISABILITY
Which sections of the Act apply to make the income assessable? Who is assessed on each amount?
The amount retained or distributed

2) Calculate tax payable by the trustee
3) Calculate tax payable by Landy

Question 4
The Stumbles Discretionary Family Trust realized a net loss of $20 000 in the PIY tax year. The trust had assessable income of $150 000 and general deductions of $30 000 in the CIY year. The loss must be met out of trust income.
The trust deed has two beneficiaries:
Hale who is entitled to 60% of trust income, and 100% of the capital
Dale who is entitled to 40% of trust income, and has no capital interest. Required

1. Calculate the Trust's net income for the CIY tax year.
2. Calculate each beneficiary's entitlement for the CIY tax year.
3. Dale is 17 and at school. She also has $10,000 from a part time job at McJacks. Calculate Dale's taxable income and the tax paid by the trustee on her behalf.

Question 5
Doug Bogus is a 16-year-old fulltime student. During the 2020/21 tax year, Doug had the following assessable income and deductions:

ASSESSABLE INCOME
Wages from part time employment at Safeway (no PAYG withheld)	$ 8 000
Interest from term deposit given by parents	$ 2 000	$10 000
DEDUCTIONS
Uniform relating to part time employment at Safeway	$ 500
Tax Agents Fee	$ 100	$ 600
TAXABLE INCOME		$ 9 400

REQUIRED:

1) Calculate Doug's excepted assessable income.
2) Calculate Doug's eligible assessable income. 3) Calculate net tax payable by Doug.

After workshop questions

Question 1
What is the difference between a fixed and a discretionary trust? Which one would be more useful from the tax planning perspective?

Question 2
How does the tax system view taxpayers with two names on a rental property, a shared bank account or shared ownership of shares?

Question 3
Why do you think the category of eligible income was created?

Attachment:- Partnerships and Trusts.rar