Reference no: EM133354112

Case Study: David created an inter vivos trust (the Trust) under which the net income is to be distributed: To Ross aged 50 years 50% To be accumulated for the benefit of Johan aged 15 years to vest on him attaining the age of 21 years 50% The Trustee has a discretion to pay or apply part or all of Johan's share of net income for his education, welfare, betterment, or advancement in life. During the 2020/21 income year, the Trust carried on a number of income-earning activities. The Trust's trading business in Australia had sales of AUD$600,000 and allowable deductions of AUD$300,000. The Trust's office building in New Zealand generated AUD$200,000 in rent and incurred AUD$80,000 in deductible expenses. In accordance with the terms of the Trust deed, on 30 June 2021 the Trustee distributed the net income of the Trust, 50% to Ross. During the 2020/21 income year, the Trustee paid Johan's school fees of AUD$25,000 and provided him with a living allowance of AUD$10,000. Ross and Johan are Australian resident individuals for tax purposes. Ross is an undischarged bankrupt and has income from another trust. Johan earned AUD$5,000 from working part-time at a cafe.

Question: (a) Explain and calculate the net income of the Trust. (b) Explain who is liable to pay the tax on the net income of the trust, on what basis and at what rates. (In your answer, you do not need to calculate any actual income tax payable.)