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PoTL_2017_Chapter_20_Answers_(Final).docx

PoTL_2017_Chapter_20_Answers_(Final).docx - Principles of...

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Principles of Taxation Law 2017 Answers to Questions CHAPTER 20 — TRUSTS AND BENEFICIARIES Question 20.1 Why are discretionary trusts popular as a structure to protect assets and used extensively in estate planning? Answer The beneficiaries of a discretionary trust are not entitled to any assets of the trust. This means that if they become bankrupt, the asset in general could not be claimed by the trustee to be used to pay creditors. Question 20.2 The Li Family Trust is a discretionary family trust with two adult resident beneficiaries, Emma and Peter. During this income year, the activities of the trust gave rise to the following: $ Loss from rental property (6,000) Interest income from term deposits 4,000 Cash received from fully franked dividends 14,000 A capital gain from the sale of BHP shares that had been held for two years 10,000 The trustee of the trust resolved to distribute 100% of the trust income to Emma. Emma also has the following income: Salary of $200,000 from which PAYG withholding tax instalments of $60,000 have been deducted. Work-related expenses of $275. Emma has private hospital cover. Based on the facts above: 1 Calculate the taxable income and tax payable or refundable for Emma for the income year. 2 Would your answer differ if the Li Family Trust made a rental loss of $40,000? 1 © 2017 Thomson Reuters (Professional) Australia Limited
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Answer (1) Net income of the trust: interest income $4,000 Dividend 14,000 imputation credit ($14,000 x 30 / 70) 6,000 Capital gain (50% discount) 5,000 rental loss (6,000) 23,000 Taxable income of Emma: assessable income from trust: s 97 $23,000 salary ($200,000 + 60,000) 260,000 work-related expenses (275) 282,725 Tax liability 100,458.25 Add: Medicare levy 5,654.50 Less: PAYG withholding (60,000) imputation credit (6,000) Tax payable 40,112.75
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  • Progressive Tax, Taxation in the United States, beneficiary, Discretionary trust

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