The Rowe Family Trust and A1 Mechanical Pty Ltd formed a partnership to operate a wholesale business selling motor vehicle parts, called A1 Parts Australia. The Partnership is 50/50 and all partnership income is split equally. The Partnership's Financial Accountant provided you with the following profit and loss statement.
THE ROWE FAMILY TRUST AND A1 MECHANICAL PTY LTD - PARTNERSHIP
TRADING AS A1 PARTS AUSTRALIA
PROFIT AND LOSS
           Income:
                                                                                      $
                 Sales                                                       1,500,000
                 Part Sales                                              450,000
                 Interest                                                    5,000
                 Government Grant                                50,000 (note 1)
                 Donation                                                25,000 (note 2)
           Total Income                                                                                  $2,030,0
         Cost of Goods Sold                                        $
           Opening Parts Stock                                  200,000
           Purchases                                                    100,000
           Closing Stock                                              50,000
           Total Cost of Goods Sold                                                                $250,000
           Gross Profit                                                                                     $1,780,000
           Expenses                                                         $
                 Employee Wages                                  550,000
                 Interest on Partnership loans             50,000 (note 3)
                 Staff Entertainment expenses            15,000
                 Rent                                                        75,000
                 Electricity and Water                             45,000
                 Penalty                                                    5,000 (note 4)
                 Movement in provisions                       55,000 (note 5)
           Total Expenses                                                                               $795,000            
           NET Profit                                                                                            $985,000
Notes:
1.   The partnership received an apprenticeship rebate from the government to assist with the cost of apprentices that the partnership currently employs.
2.   A customer of the business passed away and in his Will he left a vehicle to the business valued at 25,000. His Will stated that the vehicle was a donation to the business as a thank you to one of the managers who had always assisted him and had been a good friend.
3.   The Partners had originally contributed $300,000 each to the partnership and the partnership pays the partners $20,000 each in return for this initial equity contribution. The balance of $10,000 interest relates to a loan from A1 Mechanical Pty Ltd, which was provided to assist with some cash flow issues, rather than the partnership borrowing from the bank.
4.   The employees of the business incurred speeding fines totalling $5,000 for the financial year. These fines were reimbursed by the employees via a salary reduction.
5.   The accountant has taken up the following movements in the provision accounts: doubtful debts $35,000, long service leave $10,000 and accrued sick leave $10,000.
6.   The partnership made a loss of $85,000 in the June 2018 year

In addition to the above the following information has been provided:
A1 Mechanical Pty Ltd has no other income for the June 2019 financial year. A1 Mechanical Pty Ltd has carried forward tax losses of $15,000 as at 1 July 2018. 

The Rowe Family Trust has 3 beneficiaries Sara, Shane and two children. Sara works as an engineer and earned $180,000 in this income year. Shane received a salary of $80,000 from his employer for the current income year. They have two children:
•         a son, John, aged 21 years, a student at university who earned $25,000 for the year; and
•        a daughter, Kim, aged 16, who has no other income for the year.

Address the following and provide justification for your answer using legislation and case law where applicable:
a)   Calculate the Partnership's taxable income.
b)  Calculate A1 Mechanical Pty Ltd tax payable.
c)   Advise the Rowe Family Trust as to how they can distribute the net income in the most tax-effective way.

Answer rating: 100% (QA)

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