7. Em and Fifty formed a tax consulting partnership on February 1, 2018. Each partner contributed $50,000 in return for an equal share of the profits from the partnership. On January 1, 2022, Fifty sold his interest to Julie for $150,000. The following is the income statement of the partnership: Em and Fifty Income Statement For the year ended December 31, 2021 Gross revenue $424,400 Expenses: Office expenses $69,000 Rent 58,300 Office salaries 74,300 Charitable donations 10,600 Amortization (Note 1) 23,300 Meals and entertainment 15,000 250,500 173,900 Other income: Gain on sale of shares (Note 2) $84,800 Dividends from Canadian-resident public corporations 40,000 Capital dividends 17,000 141,800 Net income $315,700 Notes: Capital cost allowance (CCA) for 2021 was $40,300. The capital gain for tax purposes is the same as the financial accounting gain. In 2021, each partner drew $132,000. Prior year financial statements of the partnership provided the following information for the following years ended December 31: 2018 2019 2020 Business income (loss) $(70,000) $127,300 $159,100 Taxable capital gains - 12,800 - Charitable donations - 4,200 8,400 Drawings — Em 24,000 48,000 60,000 Drawings — Fifty 24,000 48,000 72,000 What are the tax implications of the following? 1. What is the partnership income for the year for tax purposes? 2. What is Fifty's share of the partnership income from the year 3. What is Fifty's adjusted cost base (ACB) of the partnership interest immediately before the sale? 4. What is Fifty's taxable capital gain on the disposition of the partnership interest?
7. Em and Fifty formed a tax consulting
The following is the income statement of the partnership:
Em and Fifty
Income Statement
For the year ended December 31, 2021
Gross revenue $424,400
Expenses:
Office expenses $69,000
Rent 58,300
Office salaries 74,300
Charitable donations 10,600
Amortization (Note 1) 23,300
Meals and entertainment 15,000 250,500
173,900
Other income:
Gain on sale of shares (Note 2) $84,800
Dividends from Canadian-resident public corporations 40,000
Capital dividends 17,000 141,800
Net income $315,700
Notes:
- Capital cost allowance (CCA) for 2021 was $40,300.
- The
capital gain for tax purposes is the same as the financial accounting gain.
In 2021, each partner drew $132,000.
Prior year financial statements of the partnership provided the following information for the following years ended December 31:
2018 2019 2020
Business income (loss) $(70,000) $127,300 $159,100
Taxable
Charitable donations - 4,200 8,400
Drawings — Em 24,000 48,000 60,000
Drawings — Fifty 24,000 48,000 72,000
What are the tax implications of the following?
1. What is the partnership income for the year for tax purposes?
2. What is Fifty's share of the partnership income from the year
3. What is Fifty's adjusted cost base (ACB) of the partnership interest immediately before the sale?
4. What is Fifty's taxable capital gain on the disposition of the partnership interest?
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