question 2 of the examFrom the following, you are required to calculate the Jumble Family Trust’s Net income (if any) for the income year ended 30 June 2020, giving brief reasons to support your calculation. Background The Jumble Family Trust is a discretionary trust that opened business as Jumble Joints on 1 July 2019, a small store in Adelaide that substantially sells new storage furniture in flat packs and a few other bits and pieces, with many sales on the internet set up by John and Wendy. The shop displays its furniture, but only about a tenth of its product line is on display, and shows all the different colours and sizes, so that customers have a very good idea of what they will receive when they go to the shop. A small shipment of purchases arrived late on 2 July 2019 to set up as the display. This display constantly changes with new products and floor sales. Jumble Pty Ltd is the corporate trustee of the Jumble Family Trust. The directors of Jumble Pty Ltd are John and Wendy Jenkins. The beneficiaries of the trust are John and Wendy and their child Jack who is 16 years of age. The trust’s account balances for the income year ended 30 June 2020 show the following income and expenses amounts, all of which are GST exclusive. INCOME Gross Sales $380,000 Other Receipt $9,400 EXPENSES Advertising $4,000 Electricity $1,600 Rent $10,000 Telephone $1,000 Purchases $240,000 Entertainment $800 Repairs $2,000 Gift to R.A.H. $100 Salary and Wages $100,000 Lease Document Expenses $2,000 The following additional information is provided: 1. The Jumble Family Trust trading as Jumble Joints is a small business entity. Course ID 102238 Page 5 of 8 PLEASE SEE NEXT PAGE 2. ‘Gross Sales’ – John has calculated gross sales based on the cash and credits sales having been received. Debtors outstanding amount to $20,000. It is clear the appropriate system should be accruals for this small business. 3. ‘Other Receipt’ – The State Government provided a subsidy to get small businesses started of $9,400. 4. ‘Trading stock’ on hand at year-end was $50,000 at cost. 5. ‘Advertising’, ‘Electricity’, ‘Rent’, and ‘Telephone’ were all regular outlays to meet the continuous demand of operating the business. Similarly, ‘Purchases’ of trading stock are a regular outlay. 6. ‘Entertainment’ expenses were incurred by the business to improve working relationships with suppliers and encourage discounts. 7. ‘Repairs’ were incurred on 1 June 2020 to replace a laminate bench (movable), which was provided by the landlord. The old bench top was chipped and worn. The replacement bench top is made of granite, which is a considerably stronger and more durable surface than the laminate. 8. ‘Gift’ of $100 paid by the business to the Royal Adelaide Hospital (R.A.H). 9. ‘Salary and Wages’ included $100,000 paid to John who worked full-time in the business. 10. ‘Lease Document Expenses’ were incurred for preparing and registering a lease of the business premises in July 2019. 11. John asked that a deduction be allowed of 3% for the provision for doubtful debts – to encourage sales, he had authorised a number of them on credit, but found the customers were not paying in a timely manner. QUESTION 2 Part 2 (5 marks) Advise how the directors of the corporate trustee should use their discretion to distribute the net income to the family beneficiaries in the most effective tax manner and explain why giving brief reasons. The following additional facts are provided: Jack – attends high school and earns $5,200 working independently at McDonalds. John –has received the wage from the business and also investment income yielding $80,000. Wendy – has no income.
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