Q1

Net income of the partnership for 2015/2016

Assessable income:
Cash receipts during the year
$650,000
Bank Interest
$3,500
Total
$653,500
Less deductions:
Wages to employees
(84,000)
Capital works allowance (2.5% * 54000*350/365) Note 1
(1,294)
Drawings Nicole Note 2
0
Salary to Neil Note 3
0
Interest on capital to Nicole Note 4
0
Superannuation contributions for the partners Note 5
0
Other (all allowable deductions)
(94,000)
Total
(179,295)

Net income of the partnership

$474,205

Note:
1. The deduction reate for capital works is 2.5% (s43-35 (2)(b) ITAA97).
 2. Drawings by Nicole are not deducible as it can be regard as capital in nature
(s8-1 (2)(a) ITAA97)
3. Salary is merely a part of agreement to share profits of partnership not
an allowable deduction to the partnership (s92 ITAA36)
4. Interest on partners capital is not allowable deduction (be treated the
same as salary).
5. Because partner is not an employee of partnership, the partnership cannot
claim a deduction for Superannuation contributions for the partners (s290-
60 ITAA97).

The distribution to each partner

Total
Neil Nicole
Net income of the partnership $474,205
Salary 45000
45000
Interest on capital 2500
2500
Profit of the partnership $426,705
213,352 213,352
After salaries and interest
Total
258,352 215,852
Nicoles Tax liability for 2015/2016
Taxable income
Share of Partnership Net income
$215,852
Dividends
1,200
Gross-up of franked dividends:
($1,200 * 30/70) s202-60(1) ITAA97
514
Interest from Canada
810
Tax withheld in Canada
90
Less:
Superannuation contributions s290-170 ITAA97
(10,000)
Total taxable income
$208,466
Gross Tax Liability
Primary tax assessed:
$54,547 + 47% * (208,466 180,000) =
$67,926
Less:
Foreign income tax offset:
(90)
Franking rebate
(514)
Gross Tax liability
$67,322
Plus:
Medicare levy (2% * 208,466)
$4,169
Net Tax payable
$71,491
Question 2
Net income of the trust (s95 ITAA1936)
Assessable income
Rental income
$53,000
Interest income
3,500
Unfranked dividends
15,000
Fully franked dividends
8,600
Franking credit (8,600 * 30/70)
3686
Overseas dividends
850
Tax withheld on overseas dividends
150
Other investment income
14,850
Total assessable income
99,636
Less: Allowable deductions
Expenses incurred in earning rent
(7800)
Interest paid on money borrowed to invest
(500)
Net income of the trust
$91,336

Tax liability of Karen, Jason and Florence

Karen:
Aged 16 years, receives $22,834 (25% * 91,336) from the trust and $2000
interest from government bond that had been given to her.
Because she is a minor (under 18 years), she is a prescribed person for the
purpose of Div 6AA (s 102AC ITAA1936). We dont have information to show
that she is an excepted person (e.g. that she is in full-time work on the last
day of the year).
Karen is presently entitled to the $22,834 from the trust (s 101 ITAA 1936),
but she is under a legal disability because she is minor, and therefore the
trustee pays tax on her behalf (s 98 ITAA1936).
$22,834 is not taxed at Div 6AA rates because the trust was created under a
will (on the death of father) and the income is excepted assessable income
(s 102AE ITAA1936). The $22,834 is instead taxed at ordinary rates.
Medicare levy is 10% * (22,834 21336 )= $149.8
The $200 from the government bonds is taxed at Div 6AA rates because it is
eligible assessable income (s 102AD ITAA1936) of a prescribed person. The
tax rate would be 47% on the whole amount, making tax of $940.
Karen must lodge a tax return showing her income from the trust and her income
from the bonds, she can claim a credit for the tax already withheld by the
trustee.
 Entitle to a low income tax offset of $445 because her taxable income is below
$37,000
Entitle to a franking credit of $921.5 (25% * $3686) and a foreign income tax
offset of $37.5 (25% * $150).

Jason:
Aged 20 years, receives $22,834 (25% * 91336) from the trust and $2100
wages from fruit picking.
Jason is presently entitled to $22,834 from the trust (s 101 ITAA1936) and is
not under a legal disability. Therefore, he pays tax under s 97 ITAA1936 at
ordinary rates.
The $2100 from employment is also taxed at ordinary rates.
Jason must lodge a tax return showing his income from the trust and from
employment.
Entitled to a low income tax offset of $445 because his taxable income is below
$37000.
Entitled to a franking credit of $921.5 (25% * $3686) and a foreign income tax
offset of $37,50 (25% * $150).

Note, if Jason is non-resident then:

the trustee would have to deduct the appropriate tax at non-resident rates per
s98.
Jason would not be assessed on franked dividends and foreign income.
He does not have to pay Medicare levy.
No entitle to tax offsets.

Florence:
Aged 45 years, receives $22834 (25% * 91336) from the trust and has no other
income.
Florence is presently entitled to $22834 from the trust (s 101 ITAA1936) and is
not under a legal disability. Therefore, she pays tax under s 97 ITAA1936 at
ordinary rates.
Florence must lodge a tax return showing her income from the trust.
Entitled to a low income tax offset of $445 because his taxable income is below
$37000.
Entitled to a franking credit of $921.5 (25% *$3686) and a foreign income tax
offset of $37.50 ( 25% * $150.