Question

Question 6 - Week 12

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:

Income ($)
Sales (excluding GST)	240,000
Expenses ($)
Cost of goods sold	130,000
Interest on capital paid to Richard and Tracy	8,000
Salary to Alice	25,000
Superannuation to Alice	6,000
Lease payments on car (excluding GST)	7,000
Other deductible operating expenses (excluding GST)	14,000

The leased car was used 80% of the time for business and 20% of the time for private purposes.

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.

Answer 1

A) NET INCOME OF PARTNERSHIP

under section 90 of ITAA36 assessable income of the partnership were a taxpayer who was resident , less all allowable deductions expect deduction allowable under section 290-150 or division 36 of the act 1997.

INCOME AMOUNT

SALE ( assessable v/s 6-5 IAA97)	2,40,000
EXPENSES
CGS ( deductible v/s 8-1) int. on capital ( not deductive part of the share of profit)	1,30,000
salary ( net deductible part of the share of profit )	-
superannuation to carel ( not dedutable v/s 90	-
lease payment on car ( deductive v/s 8-1 that the car wasd used for partnership business i.e 7000 * 80% ether expenses	5600 14000
net income	90,400
ALLOCABLE PROFIT
net income	90,400
deduction
- I.O.C	8,000
- SALARY	25,000
- SUPERANNUATION	6000
- LEASE PAYMENT (Drawing )	1400
total	50,000

Allocation of the net income

	richard	tracy	alice
Net income / allocable profit (50000/3)	16667	16667	16666
Int. on capital	4000	4000	-
Super annuation	-	-	6000
Lease payment	-	-	1400
TOTAL	20667	20667	49066