Reference no: EM133062520
Partnerships
Question 1. Peter and Jill are in a partnership as retailers of electrical goods. The partnership records, exclusive of GST, for this income year disclose:
Receipts ($):
300,000 Gross receipts from trading
Payments ($):
100,000 Purchases of trading stocks
30,000 Partners' salaries (each)
2,000 Interest on cash advance made to the partnership by Peter
60,000 Salaries for employees and rent paid
2,000 Legal expenses in recovering bad debts
Other details:
• Peter and Jill share partnership profits equally
• Trading stock on hand 1 July: $10,000
• Trading stock on hand 30 June: $20,000
• Peter's personal records disclose:
• Gambling winnings: $2,000
• Net salary as a part-time instructor (excluding PAYG tax instalments of $2,000):
$5,000
• Subscription to professional journals: $500
• Peter is a member of a private health fund
Calculate Peter's taxable income for the income year explaining your treatment of each item in this question.
Question 2. Alasdair 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 Carol, who is aged 35. They form a partnership of three called "Carol's Gift Shop".
Alasdair and Tracy contributed $40,000 each to fund the purchase of the shop. The partnership agreement provides:
• Both Alasdair and Tracy are to receive interest at the rate of 10% pa on their capital contribution of $40,000.
• Carol will receive a salary of $25,000 for the management of the shop, as well as superannuation contributions of $6,000.
• A car will be leased by the business and provided to Carol.
• All profits and losses are to be shared equally between the three partners.
The accounts for this income year show the following:
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Income ($)
|
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Sales (excluding GST)
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240,000
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|
Expenses ($)
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Cost of goods sold
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130,000
|
|
Interest on capital paid to Alasdair and Tracy
|
8,000
|
|
Salary to Carol
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25,000
|
|
Superannuation to Carol
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6,000
|
|
Lease payments on car (excluding GST)
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7,000
|
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Other deductible operating expenses (excluding GST)
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14,000
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The leased car was used 80% of the time for business and 20% of the time for private purposes.
With reference to the facts above:
1 Calculate the net income of the partnership. Show the allocation of net income to each of the three partners.
2 Explain if the provision of the motor vehicle by the partnership to Carol imposes any fringe benefits tax liability on the partnership.
3. Johnny and Leon are adult partners in a business selling sporting goods.
The partnership records, excluding GST, for the current income year disclose the following:
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Receipts ($):
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400,000
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Sales of sporting goods (see Note 3)
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|
10,000
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Interest on bank deposits
|
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21,000
|
Dividend franked to 60% received from an Australian resident company
|
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10,000
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Bad debts recovered
|
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50,000
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Exempt income
|
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30,000
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Capital gain from the disposal of shares acquired in 2009 and sold in June this income year (see Note 4)
|
|
Payments ($):
|
|
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10,000
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Salary to Johnny
|
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15,000
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Salary to Leon
|
|
16,000
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Fringe benefits tax
|
|
2,000
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Interest on capital provided by Johnny
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|
4,000
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Interest on loan made by Johnny to the partnership
|
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3,000
|
Johnny's travelling expenses from home to work and return (see Note 5)
|
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2,000
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Legal fees for the renewal of lease of the office building
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1,200
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Legal expenses for preparation of a partnership agreement
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700
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Legal expenses for preparation of new lease of business premises
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500
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Debt collection expenses paid to a solicitor
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500
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Council rates on business premises
|
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25,000
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Staff salaries (see Note 6)
|
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30,000
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Purchase of sporting goods supplies
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20,000
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Rent on retail shop
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30,000
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Provision for doubtful debts (see Note 10)
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10,000
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Business lunches (see Note 11)
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Notes
1. Partnership profits and losses are shared between Johnny and Leon on an equal basis.
2. The partnership is registered as a Small Business Entity (SBE).
3. On 1 January this income year the partners discovered that an employee had stolen
$3,000 cash in respect of money received from sales to customers.
4. Johnny and Leon made a capital loss of $15,000 from the disposal of shares acquired in 2006 and sold in 2011.
5. Johnny often takes work home as he finds it convenient to plan the next day's work in his home study.
6. Staff salaries include $10,000 paid to Johnny's son Johnny Jr for washing the partners' cars. The Commissioner considers $5,000 to be a reasonable commercial rate for washing the cars.
7. Stock at beginning of the year was: $20,000.
8. Stock at end of the year was: Cost $16,000
(a) Market selling value $18,000
(b) Replacement $17,000
9. Johnny and Leon did not make an election under s 328-285(2) of ITAA 1997.
10. Johnny and Leon are owed $30,000 by a debtor who is bankrupt. They believe it is very unlikely that they will recover any money from the debtor, and do not take any action to recover the money.
11. Johnny and Leon spent $10,000 on business lunches with overseas buyers at expensive restaurants.
12. In the last income year, Johnny and Leon made a net partnership loss of $40,000.
13. Johnny and Leon wish to minimise their tax liabilities for the income year.
Calculate the net income for the partnership for the income year.
Question 4. Gary and Matt are partners in a partnership running a Thai restaurant. They share profits and losses equally under the partnership agreement. In addition, Gary receives salaries of $30,000 every year from the partnership for taking on the daily management role in the restaurant. In this income year, the partnership makes a loss of $45,000 after deducting the salaries paid to Gary.
Explain the tax implications of Gary and Matt in this income year.
Question 5. Peter and Paul are partners in a partnership. Their shares of the partnership profits and losses are 60% and 40%, respectively. Peter is a resident and Paul is a non-resident. In this income year, the partnership derived the following income:
- interest income from an Australian bank account: $30,000;
- interest income from an overseas bank account: $18,000.
Calculate the net income of the partnership and explain how that amount will be allocated and assessed in the hands of Peter and Paul.