Tax Advice for J & D Partners, Joanne Tran, and Haufmann Pty Ltd

This document provides tax advice for three clients: J & D Partners, Joanne Tran, and Haufmann Pty Ltd. It covers topics such as partnership net income and distribution, trust income and distributions, and calculating the franking account and tax payable. The advice includes step-by-step calculations and explanations based on relevant tax laws and regulations.

Name : Dewi Kartika
Student ID : 144016
Subject : CLWM4000
Introduction
Below are the three clients who required advice based on their cases.
 J & D Partners seeking advice on Partnership Net Income and each partner's taxable income
for 2022.
 Joanne Tran, who needed advice on the tax implications and taxable payable if the trust net
income were distributed to James and Lisa at 50% each
 Haufmann Pty Ltd requires advice on preparing its franking account for the 2021/22 tax year,
its net tax payable (refundable), and the tax consequences arising from its franking account
balance on 30 June 2022.
Case 1 - Partnership net income & distribution
Step 1 Partnership Net
Income
Assessable income
(ordinary income plus
statutory income)
$ $
Gross Income – Sales s.6-5 500,000
Less Allowable
Deductions
Cost of sales s.8-1;
s.70-35
200,000
Lease of the car (90%x$9,000) s.8-1 8,100
Other operating expenses s.8-1 60,000 268,100
Partnership Net Income (s.90) 231,900
Step 2 Adjustment to Net
Partnership Income
before the Distribution
Salary of Dustin 35,000
Interest on Capital Constitution – Jack 7,500
Interest on Capital Constitution – Dustin 7,500 50,000
Amount to be distributed 181,900

Step 3 Amount to be distributed to Partners Jack Dustin
50% ($) 50% ($)
Amount to be distributed (50% x $181,900) 90,950 90,950
Add Adjustments
Partner's salary 35,000
Interest on capital 7,500 7,500
Partner's Taxable Distribution of Net partnership income 98,450 133,450
Capital Gain on sales of Land
Capital Gain ($200,000-$80,000) $120,000
CGT Discount applies (50%) $60,000
Net Capital Gain to be distributed $60,000
Jack Dustin
Partnership Distribution s.90 ITAA36 $ 98,450 $ 133,450
Net Capital Gain ($60,000x50%) s102-5 ITAA97 $ 30,000 $ 30,000
Less Allowable Deductions
Partner's Personal Super Contributions -$ 4,000
Partner's Taxable Income $ 124,450 $ 163,450
Taxable Income 2022 for Jack and Dustin
According to Section 6-5(1) TAA97, ordinary concepts of income are not defined but are considered
what would normally be considered income by the average person, or what would fall within the
concept of common law income.
Under section 8-1 ITAA97, If the expense is incurred in the course of conducting business to gain or
produce assessable income, the deduction is allowed such as Cost of Sales, Lease of the car, and
Other operating expenses.
The Partnership Net Income (PNI) is calculated under section 90 of the ITAA 1936 as assessable
income, excluding capital gains, less all deductions except superannuation contributions and losses
realized previously.
Capital gains are not recognized by partnerships. Hence, each partner must declare their net capital
gains on their individual tax returns. When a capital gain is made by an individual, its cost base does
not bear indexation, and owned for at least 12 months, a CGT discount may be applied. The Land
was purchased 6 years ago, therefore, a CGT discount can be applied.

Case 2 - Trust income and distributions
Due to the fact that trusts are not separate legal entities, they do not have to pay taxes. The
beneficiary distribution must be documented on a tax return. There is no taxable income for the
trust; it calculates a net income or loss on the same basis as a resident taxpayer.
To calculate the Franking dividend, 30% was assumed to be the company tax rate for Joanne Tran
Family Trust.
Beneficiary Presentl
y
Entitled
Distributio
n %
Legal
Disabilit
y
ITAA
Sectio
n
Amount
Presently
Entitled
Tax Paid
by Tax Rate
James
18 years
Yes
(s.101) 50% No s97 (1) $ 31,571.43
Beneficiar
y
Marginal Rates of tax for
an Australian resident
individual
Lisa
16 years
Yes
(s.101) 50% Yes s98 (1) $ 31,571.43 Trustee
Tax will be paid by the
trustee at the rate of
45% under Division 6AA.
$ 63,142.86
According to Section 101, If the trustee distributes the trust to the beneficiary, the beneficiary is
considered to be presently entitled to the trust.
As stated in section 97(1), a beneficiary must be presently entitled to receive benefits and not legally
disabled. Beneficiaries are required to include this income in their assessable incomes.
In accordance with section 98(1), the beneficiary is presently entitled to and under a legal disability.
The beneficiary gets a tax credit from the trustee when the trustee pays tax on the beneficiary's
share of income. Taylor v FCT demonstrates the existence of a legal disability when the beneficiary is
unable to give the legal discharge for the benefit received. A person's age, insanity or bankruptcy
may be contributing factors. The legal age in Australia is 18 years old, James is 18 years old, so he is
not legally disabled. However, Lisa is 16 years old, and because of this she is under legal disability.
Net rental income $ 57,000.00
Fully Franked dividend $ 4,300.00
Franking credit ($4,300 x 30/70) $ 1,842.86
Net Trust Income s.95 ITAA36 $ 63,142.86

Tax paid by the Trustee for Lisa is calculated using the tax rate for residents who are under 18
Distribution of Trust Net Income $31,571.43
Due to Lisa's age, she is a prescribed person under Div. 6AA ITAA36. In the case of trust distributions,
they are considered eligible income and are taxed at the top marginal rate of 45% under the ITAA
1936, Division 6AA.
Tax paid by Trustee $14,207.14 ($ 31,571 x 45%)
Tax payable (refundable) by Lisa
Assessable
income Tax paid
Wages from
employment $4,000.00 $0.00 ($4,000 x 0%)
Income is taxed at adult rates, $4,000 is
inside the tax-free threshold bracket
Trust distribution $31,571.43 $14,207.14 ( $ 31,571 x 45%)
Total $35,571.43 $14,207.14
Less: Tax credit -$14,207.14
The beneficiary gets a tax credit for the tax
paid by the trustee on the trust distribution
Less: Franking Credit -$921.43 ($1,843 x 50%)
Tax refundable -$921.43
Wages from employment at Restaurant is excepted assessable income under the Div 6AA rates. The
taxable income is taxed at ordinary rates.
Trust distribution is included in eligible assessable income for Div 6AA rates. The taxable income is
taxed at Div 6AA rates.
Tax paid by James is calculated using the ordinary marginal rate
Job seeker payment $ 8,890.00
Distribution of Trust Net Income $31,571.43
Total Taxable Income $40,461.43
Tax Payable on $40,461
= (40461 - 18200) *19% $ 4,229.59
Less Franking credit -$ 921.43 ($1,843 x 50%)
Tax payable $ 3,308.16

Case 3 - Calculate the franking account and tax payable by Haufmann Pty Ltd.
Haufmann Pty Ltd
Franking Account
for the income year ended 30 June 2022
30/08/202
1 Refund of company tax $ 4,500 1/07/2021 Opening Balance $ 2,400
28/12/202
1 Paid 100% Franked dividend
20/10/202
1 PAYG Instalment $ 1,900
10,000 x 25/75 x 100% $ 3,333 11/11/2021 PAYG Instalment $ 1,300
28/06/202
2 Paid 60% Franked dividend 2/02/2022 Fully Franked dividend
10000 x 25/75 x 60% $ 2,000 6000 x 25/75 x 100% $ 2,000
Under franking debit 27/02/2022 PAYG Instalment $ 1,300
10,000 x 25/75 x 40% $ 1,333 25/05/2022 PAYG Instalment $ 1,300
Franking Deficit Tax $ 967
$ 11,167 $ 11,167
Haufmann Pty Ltd, a private company with an Australian resident director, has a corporate tax rate
of 25% for the 2021/22 income year.
The benchmark franking percentage must be applied to all frankable distributions during the
franking period by corporations subject to section 203-25. For Haufmann Pty Ltd, 100% is the
benchmark franking percentage.
Corporate entities whose franking percentage deviates from the benchmark are subject to either
over-franking tax or under-franking debit. On June 28th, 2022, Haufmann Pty Ltd paid 60% franked
dividend. As the dividend is paid less than the benchmark, the company will be subject to an under-
franking debit calculated at the dividend percentage differential between the dividend that has been
paid and the benchmark. In this case, under-franking debit is calculated at 40%.
There was a debit balance at the end of the financial year for the company. The Franking Deficit Tax
results from an income year with more debits than credits. The company must lodge a Franking
Account Return because it was liable to pay Franking Deficit Tax under section 205 ITAA97 to the
ATO on June 30th,2022. By doing this, the company will be able to open the new fiscal year with a nil
franking account balance.
Taxation is the only purpose of keeping a franking account. The payment of $1,300 via PAYG for the
quarter of June 2022, which was scheduled for August 25th, 2022, did not generate any franking
credits since all entries for the franking account are cash basis.

Companies obtain franking credits when they pay income tax and PAYG installments, receive franked
distributions from other companies, or incur franking deficit tax liabilities. A franking debit occurs
when you receive a refund of income tax, make a franked distribution, or under-frank a distribution.
The taxable income for the company for 2021/2022 is $27,000 with a tax rate of 25%.
The tax credit is PAYG instalments for the year ended 30 June 2022, as follows:
 PAYG instalment paid relating September quarter of 2021 of $1,300
 PAYG instalment paid relating December quarter of 2021 of $1,300
 PAYG instalment paid relating to March quarter 2022 of $1,300
 PAYG instalment for June quarter 2022 of $1,300
Taxable Income $ 27,000
Tax payable $ 6,750 ($27,000 x 25%)
Less Franking credit -$ 2,000
Net Taxable Payable $ 4,750
This payment would be carried forward to the 2023
financial year
Less PAYG instalment $ 5,200 ($1,300 x 4)
Tax refundable -$ 450