Alan and Ian have two children, Lex (aged 16), Tim (aged 12). The Amber Trust was established

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Question:

Alan and Ian have two children, Lex (aged 16), Tim (aged 12).

The Amber Trust was established as an investment entity. Alan and Ian act as joint trustees and appointors for the Amber Trust. The Trust has not made a family trust election. Money Bin Pty Ltd was incorporated for use as a corporate beneficiary of the Amber Trust.

The trust deed of Amber Trust contains the following clauses:

Income is defined as accounting profit to be calculated in accordance with accounting principles.
Income can be separately identified into the following categories:
- Franked income
- Capital gain
- Other income
Prior to 30 June, the trustee can resolve in its absolute discretion, to distribute the income of the Trust including separate categories of income, to the Primary Beneficiary, any General beneficiary and any other entity the Trustee resolves is an eligible beneficiary.
Where the Trustee does not exercise its discretion, the income of the trust will be distributed to the Primary Beneficiary.
Primary Beneficiaries: Alan
General Beneficiaries are defined as:
- Parents of the Primary Beneficiary
- Spouse of the Primary Beneficiary
- Siblings of the Primary Beneficiary
- Children of the Primary Beneficiary
- Lineal descendants of the Primary Beneficiary
- Any trust where any of the Primary Beneficiary or General beneficiaries are eligible beneficiaries.
- Any corporation where any of the Primary Beneficiaries or General beneficiaries are a director of the corporation.
The appointor has the power to replace the Trustee.

For the year ended 30 June 2022, Amber Trust had the following income and deductions:	Amber Trust
Franked income	$0 ¹
Net capital gain (after discount)	$50,000 ²
Other income	$70,000
All other expenses	$30,000
Carry forward losses	$0

¹Assume the corporate rate is 30%.

² The capital gain is eligible for the 50% CGT discount.

Alan's friend Dennis operates a caf in the CBD through a discretionary trust called Park Trust. For the year ended 30 June 2022, Park Trust had current year losses of $100,000. Alan and Dennis have come to an arrangement where Amber Trust can distribute its income (excluding franked income and capital gains) to Park Trust to utilise its losses. Amber Trust would retain the funds in the trust and Park Trust's unpaid present entitlement would be converted to an at call loan.

For the year ended 30 June 2022, Alan and Ian, as Trustees of Amber Trust, resolved that the Park Trust is an eligible beneficiary, and the income would be distributed as follows:

Entity	Franked income	Gross capital gain	All other income
Alan	25%	50%	0%
Ian	25%	50%	0%
Lex	25%	0%	0%
Tim	25%	0%	0%
Park Trust	0%	0%	100%
Money Bin Pty Ltd	0%	0%	0%

Ian's father passed away on 10 July 2020. At the time of death Ian's father held a portfolio of listed shares and a commercial property. Under his will, he established a Testamentary Trust for the commercial property to be held for the benefit of Ian's children, Lex and Tim. The share portfolio was left to Ian. After receiving the share portfolio, Ian decided to transfer the portfolio to the Testamentary Trust so that Lex and Tim would benefit from the income.

For the year ended 30 June 2022, the Testamentary Trust had the following income and deductions:

	Testamentary Trust
Fully franked dividend	$35,000 ¹
Net rental income	$20,000
All other expenses	$0

¹Assume the corporate rate is 30%.

Question 7 [15 marks]

Alan and Ian have come to you seeking your advice on the application of the Australian taxation law for the year ended 30 June 2022, specifically:

Identify and explain what type of trust the Amber Trust is. Your answer should refer to the clauses of the trust deed.	(1 marks)
Calculate the trust income and section 95 income of the Amber Trust for the year ended 30 June 2022 and explain your answer.	(3 marks)
Explain to Alan and Ian the tax implications of the Amber Trust distributing to the Park Trust for the year ended 30 June 2022.	(4 marks)
Advise Alan and Ian on the tax implications of the Capital Gains distributions from the Amber Trust to the beneficiaries, including the amount of trust income that needs to be included in the beneficiary's taxable income.	(2 marks)
Assume the income from the Testamentary Trust is distributed equally to Lex and Tim. Advise Ian on how the income from the Testamentary Trust for the year ended 30 June 2022 will be taxed.	(5 marks)