Determine total assessable income in the family trust

Reference no: EM132736697

Question - Terry and Kevin are joint beneficiaries in the discretionary Goode family trust. For the 2019-20 income tax year, the trustee has decided that Terry will receive 55% of trust income and Kevin will receive 35%. The remaining income will be undistributed. Income through the trust included:

Rental income $45,000

Unfranked dividend $15,000

Fully franked dividends (based on a 30 per cent company tax rate) $70,000

Carer's allowance paid by the Australian government of $22,000

During the current tax period the trust sold an investment property for $970,000. The property was purchased on 1 May 1992 for $100,000. On 5 July 1993 the trust built a granny flat for additional accommodation which cost $29,000. The property was sold at auction for a cost of $4,500. The property has incurred prior interest expenses over the lifetime of holding the asset of $77,000.

The trust also sold other property items it had been holding including: -

A sculpture for $45,000 which had been purchased on 3 April 1987 for $21,000.

- A vase for $3,000 originally purchased on 28 July 1989 for $8,000.

- Heirloom cufflinks for $90,000. The cufflinks were placed into the trust on 29 December 1995 as gift from Terry's grandmother. At the time the cufflinks were worth $20,000.

- A yacht for $50,000, originally purchased on 22 September 2012 for $59,000.

- A 12 piece dining table for $44,000, which had cost $55,000 on 28 April 2015.

- A home theatre system for $12,000, which had cost $9,750 on 7 March 2017.

- Shares for $56,000, purchased on 4 August 1985 for $500

One of the trust's buildings worth $300,000 was destroyed by fire in January 2020. The insurance company will payout $350,000 of insurance on the 1 July 2020. The trust has a previous year tax loss of $20,000.

Both Terry and Kevin are single, resident taxpayers who do not have private health insurance. Terry is a full-time student and receives a $26,000 scholarship. Kevin is employed and earns $54,000 per year. He has a HELP debt of $50,000 and he has a legal disability.

Required -

a) Determine total assessable income in the family trust.

b) Determine the present entitlement and total tax payable for Terry.

c) Determine the present entitlement and total tax payable for Kevin.

d) Outline how the trust could be structured to lower the overall taxable income from the trust.

Reference no: EM132736697

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