ACB Ltd is an ordinary company. Belina, a New Zealand resident, is its sole shareholder.
XZY Ltd is a look through company. Yingy, a New Zealand resident, is its sole shareholder.
Belina and Yingy are not related, and so ACB Ltd and XZY Ltd are not associated companies.
Both Belina and Yingy each have only one source of income, being the dividend derived from ACB Ltd and XZY Ltd respectively.
ACB Ltd and XZY Ltd each derived $150,000 taxable income and $30,000 of realised capital gains in their first year of operation.
ACB Ltd must therefore pay residual income tax of $42,000 at the rate of 28% on taxable income.
Neither company intends to cease trading in the short to medium term.
ACB Ltd has chosen to pay provisional tax in its first year of business, rather than become liable for use of money interest. ACB Ltd has coincidentally estimated and paid its provisional tax for the first year to be exactly equal to its eventual resident income tax of $42,000 for the year. ACB Ltd therefore has credit balance of $42,000 in its imputation credit account, $108,000 in its retained earnings account, and $30,000 in its capital reserves account at the time it is ready to pay its first ever dividend on 1 April of its second year.
ACB & XZY Ltd intend to pay out all their taxable income and realised capital gains from the first year of operation as dividend to their sole shareholder.
ACB Ltd intends to attach all its currently available imputation credits of $42,000 with its dividend payment.
You have been asked to determine the income tax treatment of the following transactions for Wonderland Enterprises Ltd, a property investment firm located at central Auckland. Please explain their income tax treatment and whether they are assessable income or deductible expenses. Please also advise whether they can be depreciated and at what depreciation rate.
The firm had the following transactions during the year:
Vince and Cameila, both are New Zealand residents, set up a family trust two years ago. The beneficiaries include themselves and their three children, age 18, 15 and 10. Vince named himself as a trustee, and their family lawyer was appointed as another trustee. The trust has met all the tax obligations in New Zealand.
Vince is a dentist and his income for the year ended 31 March 2016 was $200,000. Cameila works as a part time teacher as she needs to spend time at home to take care of her two younger children. Her income for the 2016 year was $20,000.
The trust made a distribution of trustee income in September 2016 to Vince of $20,000 and Cameila of $10,000.
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