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Compare the total income tax paid under the current partnership
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Compare the total income tax paid under the current partnership structure:

  • Assume the amounts are GST exclusive
  • Under the existing partnership the net income is

Income

Item

Amount

 

Business Income

193,000

 

Rental Income

79,500

Deductions

Business Expenses

-56,400

 

Rental Expenses

-13,750

Net income partnership

 

202,350

  • From this income of $202,350, $24,000 is paid to Seo as salary and the remainder $178,350 is split: $89,175 each to Seo and Jin

b) Now calculate the total income tax if a trust was used for the rental property income. To do this you need to separate the business income, do the same distribution as above, then determine the net rental income which will be within the trust structure. The trust then distributes the income in the most effective way within the family.

c) You will find (or should) that the trust is more tax effective. What disadvantages are there though if they wanted to go ahead and set up the trust structure for the rental properties?

 







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