Question

The will of the Nguyen family patriarch established the Nguyen Family Trust after his death in 2018. In financial year 2019-20 the trust carried on a number of income earning activities. These included running a trading business with sales of $100,000 and allowable deductions of $30,000 as well as leasing an office in Singapore which provided $35,000 in rent. The trust incurred $5,000 in deductible expenses and investment income from Australian shares for which it received $7,000 in fully franked dividends. There are three (3) beneficiaries of the trust and all are Australian resident individuals:

• Duc (the father) aged 45 – who is to be paid 25% of the net income of the trust

• Hue (the mother) aged 42 – who is also to be paid 25% of the net income of the trust

• An (the son) aged 17 – who is to have the balance of the trust income accumulated for his benefit and distributed to him if he attains 25 years of age – subject to the trustee being able to pay, in its absolute discretion, such amounts as it deems fit for An’s education, maintenance and advancement in life.

In accordance with the terms of the trust, on 30 June 2020 the trustee distributes the net income of the trust 25% each to Duc and Hue. Duc is an undischarged bankrupt and has other income of $30,000. Hue has no income. During the tax year the trust paid An’s university fees of $10,000 and provided him with a living allowance of $8,000.

a) Calculate the net income of the trust

b) Explain who will pay the tax on the net income of the trust, on what basis and at what rates.

Answer 1

(a) Calcution of Net income:

Income Statement of Nguyen Trust for the year 2019-20
Revenue:	Amt	Amt
Sales	$100000
less: Allowance deduction	$30000
	$70000
Office Rent	$35000
Dividend	$7000
Total Revenue		$112000
Expense:
Deductible Expense(It can directly deducted from total revenue)	$5000
University fees of An	$10000
Living Allowance of An	$8000
Total Expense		$23000
Earring Before Tax		$89000
Tax Rate (19% as per Austrilian laws)		$16910
Net income of Nguyen Trust		$72090

(b)

• Duc will pay the tax on net income of the Trust.
• According to australia's law, The trustee is generally taxed on the trust income at the highest marginal rate that applies to individuals except for some types of trusts (including deceased estates), which are taxed at modified individual rates.
• In case of Nguyen trust, Duc is senior member of family and have other income sources too.Therefor,he will pay the tax on net income of the trust.
• Hue has no income source and An is a minor as per Australia's laws.
• Due will pay tax on net income of the trust at 19% Tax rate.