Sample exam question 3 - May 2015

76 marks

The Woof Woof Family Trust was settled by a friend of the family Miss Kitty. The trust operates a business of manufacturing luxury dog beds for sale to owners of pampered pets. The trust has also invested in shares from which it derives dividend income.
For the current year ended 30 June 2014, the trust derived the following income:

Net trading income (after expenses) from sale of dog beds - $250,000

Dividends franked to 100% with attached franking credits of $21,429 - $50,000

Capital gain on the sale of the goodwill of a branch of the business
(after applying both the general and active asset discount) - $55,000

Capital gain on the sale of some shares that have been owned
for more than 12 months (after applying the general discount) - $5,250

Interest received on bank term deposits - $3,500

At the annual meeting the trustee of the trust resolved to distribute the net income of the trust for the year ended 30 June 2014 as follows:

1. Hooch who is 41 years old is specifically entitled to all the capital gains. Hooch has a carried forward capital loss of $14,000.  He has no other income and no CGT events for the current year.

2. Lassie who is 17 years old is specifically entitled to all the franked dividend income and attached franking credits. Lassie is also to receive 20% of the other income. Lassie had left school in December 2013 and had started working full- time since February 2014 as an intern veterinary nurse whilst studying for her veterinary degree at the University. Her salary from her employer was $27,500 (PAYG withheld of $2,200).  Lassie also received interest of $2,000 from monies she invested from a legacy left to her from her grandmother’s deceased estate.

3. 15% of the other income is to be accumulated for Benji who is 10 years old until he reached the age of 21. However, if he dies before attaining that age, his share would be given to charity.  During the year the trustee paid $10,500 towards Benji’s school fees.

4. Snoopy who is 16 years old is to receive 20% of the other income. Snoopy had a part-time job from which he earned wages of $7,000 during the year. No PAYG withholding tax had been deducted from his wages. Snoopy also received dividends of $2,200 with franking credits of $943 attached.  The dividends were from shares bought for Snoopy by his grandfather when he won a scholarship to a prestigious high school.

5. Scooby Doo who is 45 years old is to receive 45% of the other income. He has no other income.

Required:

1. Calculate the net income of the trust, the Division 6E net income of the trust, setting out the income excluded from the Division 6E net income.
(11 marks)

2. Calculate the taxable income and net tax payable for each of the beneficiaries and/or the trustee. Explain and state under which sections of the legislation the beneficiaries and/or the trustee will be assessed.
(65 marks)

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