Question 7

Sally created a trust (the Trust) under which the net income is to bee distributed:

To Ben aged 50 years old - 50%

To be accumulated for the benefit of David aged 15 years old to vest on his attaining the age of 21 years - 50%

The Trustee has a discretion to pay or apply part of all of David's share of net income for his education, welfare, betterment or advancement in life.

During the 2019/20 income year, the Trust carried on a number of income earning activities. The Trust's trading business in Australia had sales of AUD$200,000 in rent and incurred AUD$80,000 in deductible expenses.

In accordance with the Terms of the Trust deed, on 30 June 2020 the Trustee distributed the net income of the Trust 50% to Ben. During the 2019/20 income year, the Trustee paid David's university fees of $25,000 and provided him with a living allowance of $10,000.

Ben and David are Australian resident individuals for tax purposes. Ben is an undischarged bankrupt and has income from another trust. David earned $5,000 from working part time at a cafe.

a. Describe the net income of the Trust.

b. Explain who is liable to pay the tax on the net income of the Trust, why? what is the rate of tax payable? (In your answer, you do not need to calculate any actual income tax payable).