ACCG3020 Taxation Law and Practice
Question:
Q1. Trust The Harmony Trust was established in 20017/18 by Sonya who wanted to make sure that there was income for the education and general support of her grandchildren. The beneficiaries of the trust were stated to be “my grandchildren” and the trustee was Omar who was a solicitor. Although Sonya is very interested in the trust, the trust deed gives Omar absolute discretion to
distribute trust income from year to year as he chooses.
In 2020/21, the Harmony Trust received income from the following sources:
• Net capital gain of $40,000 from sale of a property
• Australian Interest of $25,000 from investments
• Income of $55,000 from share trading activities
• Fully franked dividend of $21,000.
The following expenses were incurred by the trust in 2019/20:
• Legal fees of $3,000
• Management fees of $7,000
• Bank fees of $2,000
• Salaries of $58,000.
Sonya had three grandchildren at 30 June 2021:
Karl, aged 23, who was studying commerce at university and earned $10,000 from his part-time job at a supermarket.
Marta, aged 21, who is resident in the United States, and Peta, aged 17, a school student who earned $2,000 from working at Macdonalds.
Omar exercised his discretion to distribute 25% of the trust income each to Karl, Marta and Peta, and decided to hold the other 25% in the trust.
Required:
You MUST also provide specific legislative references.
(a) Calculate the net income of the trust and
(b) Explain how the net income of the trust would be taxed.
(c) What difference would it make if Sonya had died and the trust was set up under her will?
Q2. Sam had been employed as an accountant for 10 years when he decided in June 2021 to start up his own accounting business. He seeks your advice on GST matters relating to the business. Sam provides the information below concerning how he expects his business to operate:
(a) He will work as a sole practitioner and expects his fees from advice to clients to be at least $200,000 in the first year.
(b) He will need to borrow about $50,000 at 9% interest to cover his expenses in setting up his business.
(c) He will operate his business from rented premises and expects the rent to be about $800 per week.
(d) He will purchase various items for use in his business, such as computers, computer software and desks, and expects this initially to cost about $10,000.
(e) He will have ongoing expenses, such as for telephone, internet access, electricity, personal liability insurance and income protection insurance. He can’t say what the exact amount of these expenses will be.
(f) He will need to attend an accountant’s conference each year and undertake continuing professional education courses to keep his skills up to date.
(g) His spouse will be employed to carry out the administrative tasks for the business and will be paid $800 a week.
(h) He intends to purchase two cars that will be garaged at the family home. One will be used 100% as a work car for visits to clients etc. The other will sometimes be used for work purposes, but his spouse will also use it about 70% of the time for private purposes.
(i) He expects to spend about $400 a week taking clients to lunch to promote his business.
(j) If he needs to lodge a business activity statement, he would like to do that quarterly rather than monthly, but doesn’t know if that is allowed.
REQUIRED:
Advise and explain to Sam any GST issues in respect of the information provided at (a) to (j) concerning the proposed accounting business, including but not limited to GST registration, GST input tax credits and GST payment obligations.
