Reference no: EM132660504
Question 1: Discuss the ATO's 'Test Case Litigation Program'
Question 2: Richard is a retired solicitor. His wife Tracy is a retired school teacher. Both wish to remain active and they invest in a gift shop that is to be managed by their daughter Alice, who is aged 35. They form a partnership of three called "Alice's Gift Shop".
Richard and Tracy contributed $40,000 each to fund the purchase of the shop. The partnership agreement provides:
• Both Richard and Tracy are to receive interest at the rate of 10% p.a. on their capital contribution of $40,000.
• Alice will receive a salary of $25,000 for the management of the shop, as well as superannuation contributions of $6,000.
• A car will be leased by the business and provided to Alice.
• All profits and losses are to be shared equally between the three partners.
The accounts for this income year show the following:
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Income ($)
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Sales (excluding GST)
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240,000
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Expenses ($)
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Cost of goods sold
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130,000
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Interest on capital paid to Richard and Tracy
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8,000
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Salary to Alice
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25,000
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Superannuation to Alice
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6,000
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Lease payments on car (excluding GST)
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7,000
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Other deductible operating expenses (excluding G5T)
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14,000
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The leased car was used 80% of the time for business and 20% of the time for private pu poses.
Required:
With reference to the facts above:
A.Calculate the net income of the partnership.
B.Show the allocation of net income to each of the three partners.
C.You must refer to relevant legislation and/or case law in your answer.
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