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QUESTION 7 Mary has $400,000 in her superannuation fund made up of a tax-free component of $200,000 and a taxable component of $200,000
QUESTION 7
Mary has $400,000 in her superannuation fund made up of a tax-free component of $200,000 and a taxable component of $200,000. Mary, who is 60, retires and receives a superannuation lump sum of the full amount. How much tax is Mary liable for?
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Nil |
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Her marginal tax rate on $200,000 |
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15% on $200,000 |
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15% on $400,000 |
QUESTION 7
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Mary has $400,000 in her superannuation fund made up of a tax-free component of $200,000 and a taxable component of $200,000. Mary, who is 60, retires and receives a superannuation lump sum of the full amount. How much tax is Mary liable for?
Nil
Her marginal tax rate on $200,000
15% on $200,000
15% on $400,000
Expert Solution
7 As the Superannuation fund ($ 400,000) of Mary made-up of a tax-free component of $ 200,000, only the remaining $ 200,000 is taxable. Taxability on Superannuation arises when it is being received. Since Mary, retires and receives the amount ($ 400,000) the taxability arises, but only on $ 200,000 which is taxable. Hence 15% tax on $ 200,000 shall be the taxable amount, which is equal to $ 30,000.
9
According to the taxation laws for Trust, a trust or beneficiary is taxed depending on whether the beneficiary is presently entitled to get a share of the trust income and whether he is under a legal disability.
If a beneficiary is not entitled to get a share of the trust income then the trustee is taxed on that income at the highest Marginal tax rate.
However, if a beneficiary is entitled to get a share of the trust income but under a legal disability the trustee will pay tax on behalf of the beneficiary at marginal tax rates.
Conclusion
Based on above provisions since the beneficiary is entitled to get a share of the trust income but under a legal disability therefore the trustee will pay tax on behalf of the beneficiary at marginal tax rates.
Therefore OPTION B IS CORRECT.
Reasons for Other options are as follows:
Option A: Trustee pays the tax at the highest marginal rate - This provision will be applicable only if beneficiary is not entitled but in the question it is given that beneficiary is entitled to get a share of the trust income therefore this option is not true.
Option C: Beneficiary pays the tax at the highest marginal rate - Since the beneficiary is under a legal disability in the question therefore he will never be personally liable for tax therefore this option is not true.
Option D: Beneficiary pays the tax at marginal rates - Since the beneficiary is under a legal disability in the question therefore he will never be personally liable for tax therefore this option is not true.
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