Question 1 Aaron created a trust under which the family trust has business both in Singapore and Australia. Shelley Ora Co is the trustee of the...

upon her reaching the age of 21

The Shelley Ora Co also has a discretion to pay or apply part or all the daughter's share of the income for her education, welfare, betterment, or advancement in life.

During the last tax year, the trust had net income of $500,000. Shelley Ora paid $75,000 towards the cost of Laurie's education in law school.

Patsy received, as other income, net rents of $100,000. Devin received $150,000 under a trust created by his grandfather Sidney's will and Laurie earned $37,500 from working as the junior sales executive in Sidney's toy shop, in which due to her exceptional sales performance, she was awarded a car valued at $20,000.

Who is assessable on the income of the trust estate? Indicate the basis upon which they would be assessed and calculate the taxable incomes (indicating any entitlements to credits) of the Patsy, Devin, and Laurie.

(10 marks)

Question 2

Hank and Irma have run a potato business in partnership since 1990. To establish itself, the partnership initially borrowed heavily, and Hank and Irma only contributed a small amount of capital themselves. The partnership now owns a warehouse and leases three trucks. It is very profitable.

Hank and Irma have three children: Twins Tim aged 17, Anne aged 17 and eldest daughter Jane aged 28. Tim is finishing his final year in law school, Anne is currently pursuing her MBA but is interested in working in the business and Jane is working as a private banker in Singapore for the past 5 years and she married a Singaporean.

In 2014, Hank and Irma have decided to make their kids partners with Hank and Irma, with all of them taking equal shares in the partnership. In 2015, the business expanded to New Zealand and from 2016, 30% of the income comes from New Zealand while 70% of the business income comes from Australia.

Irma is entitled to draw $20,000 from the business every year for her to manage the household expenses and though the final figures are not out, but it looks like the business may be making a $10,000 loss in 2017.

2

Although they do not have the final figures, but it seems that 2017, the year's net accounting loss, after paying Irma's $20,000 was $10,000.

Briefly discuss the income and CGT implications of each of those two options.

(7 marks)

Question 3

It is a common tax planning technique for small businesses to incorporate, transfer the business premises into a superannuation fund and then lease / license back the premises to the company.

Explain the tax advantages of such a technique. Identify the primary tax law considerations and limitations.

(3 marks)