Taxation of Trust Income and Beneficiaries: Finance Assignment

This assignment solution addresses the calculation of net income for a discretionary trust estate and the subsequent tax liabilities for its beneficiaries. The solution begins by calculating the trust's total income, including rental income, interest, dividends, and other investment income, and then subtracts the expenses incurred to arrive at the net income. The solution then analyzes the tax implications for beneficiaries Karen, Jason, and Florence, considering their individual income and the distribution of 25% of the trust income to each. The solution calculates each beneficiary's taxable income and tax liability. Finally, the solution touches upon tax-free income and the handling of international tax implications, such as the case of a beneficiary living in Tokyo. The assignment references relevant taxation literature.

Tax computation
Taxation
Taxation

Answer given to the question no-1
Calculate and explain the net income of the trust estate.
The net income of the trust estate would be as fellow
Calculate and explain the net income of the trust estate.
Rental income $ 53,000.00
Interest Income $ 3,500.00
Unfranked dividends $ 15,000.00
Fully franked dividends $ 8,600.00
Overseas dividends (foreign tax paid $150) $ 600.00
Other investment income $ 14,850.00
Total income $ 95,550.00
Expenses incurred in earning rent $ 7,800.00
Interest paid on money borrowed to invest $ 500.00
Total Expense $ 8,300.00
Net income $ 87,250.00
(Figot, & Conitsiotis, 2011).

Answer given to the question no-2
It is analyzed the if the trustee decides to distribute its 25% of its trust income to
beneficiaries named Karen, Jason and Florence then the taxable liability of these
person would be as below (Cham, E. (2016).
First of all distributed net income of the trust would be calculated
= Taxable Income - Capital Gain + Exemption
$ 87250
Income of the Karen Gibbs
$21812.5 +$2000
$231812.5
Tax liabilities of the Karen Gibbs
Till $ 18200 Income of the Karen Gibbs will not be taxable
After that 231812.5- 18200= $5612.5
It will be taxable at 19%
Taxable liability of the Karen Gibbs= $1006.38
Income of the Jason
$21812.5 +$2100
$23912.5
Tax liabilities of the Jason
Till $ 18200 Income of the Jason will not be taxable
After that 231812.5- 18200= $5712.5

It will be taxable at 19%
Taxable liability of the Karen Gibbs= $1085.38
Income of the Jason
$21812.5 +$2100
$23912.5
Tax liabilities of the Florence Gibbs
Till $ 18200 Income of the Florence Gibbs will not be taxable
After that 21812.5- 18200= $3612.5
It will be taxable at 19%
Taxable liability of the Florence Gibbs = $683.2
Answer given to the question no-3
The 25% of the trust income will be tax free and will not be charged for the tax purpose.
However, the taxable income of the trust is computed for the purpose of avoiding the double
taxation avoidance (Martin, Morse, & Hocking, 2011).
Answer given to the question no-4
If the Jason was living the Tokyo then the amount of tax liability on the distributed trust
income to Jason would be firstly checked for the Tax deducted at source purpose then only
the rest of the amount would be given to him (Woellner., Barkoczy, Murphy, Evans, &
Pinto, 2010).

References
Cham, E. (2016). Trustee companies: Their role in Australian philanthropy (Doctoral
dissertation).
Figot, B., & Conitsiotis, T. (2011). Why your SMSF should have a sole purpose corporate
trustee. Taxation in Australia, 46(3), 109.
Martin, F., Morse, B., & Hocking, B. (2011). The taxation exemption of Canadian Indians as
governments and individuals: How does this compare with Australia and New
Zealand?. Common Law World Review, 40(2), 119-143.
Woellner, R. H., Barkoczy, S., Murphy, S., Evans, C., & Pinto, D. (2010). Australian
taxation law. CCH Australia.