Question 1: On 3 October 2008, Carlos and Urmilla give instructions to their Hong Kong solicitors to settle a discretionary trust with a corporate trustee resident in Hong Kong. They settle $100,000 on the trust. The beneficiaries are Carlos, Urmilla and their children Dorcas, aged 14 and Most , aged 12 at the time of settlement.
On 20 June 2010, the trustees distribute $20,000 to each object of the trust. The money represents capitalised income of the trust.
a) Advise the parties as to their tax position (Consult Section 99B of ITAA 1936)
b) For the year ended 30 June 2010 the trust earned $20,000 in interest. This money was not remitted to Australia nor was any distribution made to the objects of the trust. What are the tax consequences of this decision?
Question 2: Mr. Robinson, a resident of the Bahamas, settled $100,000 on a discretionary trust under which the beneficiaries were Mr Robinson and his wife (also a resident of Bahamas), his married daughter Sophie (aged 19 and resident in London, England), and his unmarried son Simon (aged 17 and attending school in Sydney)
The trustee was a company incorporated in New South Wales, the directors of which were an accountant and a solicitor, both residents of Sydney. The trust moneys were invested in commercial properties in Sydney, from which a net rental income of $20,000 was derived during the year ended 30 June 2010.
The trustee applied $2,000 in purchase of gifts on behalf of Mrs Robinson for her Australian friends, remitted $5,000 to Sophie in London, paid $6,000 for Simon\’s eduction $2,000 to Mr Robinson and retained the reminder.
DISCUSS THE MANNER IN WHICH THE INCOME OF THE TRUST WOULD BE ASSESSED FOR THE YEAR ENDED 30 JUNE 2010, INCLUDING REFERENCE TO ANY SPECIAL RATES WHICH MAY APPLY TO ANY PART OF THE INCOME.
WOULD YOUR ANSWER DIFFER IF THE TRUST INCOME WERE DERIVED FROM A HONG KONG SOURCE?
Question 3: The taxpayer Davis is a property developer who has been in business since 1990. on 23 June 1980 Davis purchased 100 ha of land in rural New South Wales which he has since used as a hobby farm. On 10 December 2012, when the land has a market value of $3 million, he decides to use the land as a part of his property development business and proceed to take steps to get planning permission and develop the land for the purposes of sale to the public.
A) What elections or choices are available to Davis under the trading stock provisions and in order to minimise his taxation liability how would you advise him?
B) Would your advise be different if Davis had inherited the land on 23 June 1990 when its market value was $750,000. The land had been purchased in 1980 by the deceased for $400,000. All other facts being the same?
C) Alternatively the land had been purchased by the deceased in 1988 for $500,000 and on 23 June 1990 Davis inherited the land with a market value of $750,000. All other facts being the same?
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