Deck 15: Partnerships

Question 1

Which of the following statements regarding partnerships is TRUE?

A)Partnership income is taxed in the partnership.
B)Partnership losses cannot be offset against the partners' other income.
C)Partnerships may earn business income, property income, and capital gains.
D)Partnership income does not have to be reported to the Canada Revenue Agency.

Answer 1

C

Question 2

Small Corp. and Big Corp. are equal partners in Medium Enterprises. The partnership has a net worth of $210,000, split 50/50 between the two corporations. Size Co. has been asked to join the partnership in a manner that will not have a potential tax consequence
To the existing partners. When the transaction is complete, all three partners will have an equal interest. To accomplish this structural change, Size Co. must

A)contribute $105,000 to the partnership treasury.
B)contribute $210,000 to the partnership treasury.
C)pay $70,000 to each of the partners.
D)pay $105,000 to each of the partners.

Answer 2

A

Question 3

ABC Co. and XYZ Co. have entered into a partnership for business purposes. Both companies are CCPCs and they share the profits and losses of the business equally. During the year, the partnership earned $200,000 of active business income, and ABC Co. earned $450,000 in business income from operations other than the partnership. All of the companies have a December 31st year-end. How much of ABC Co.'s share of the partnership profits will be eligible for the small business deduction?

A)$0
B)$50,000
C)$200,000
D)$100,000

Answer 3

B

Question 4

Green Co. and Blue Co. are equal partners in Turquoise Paint. Turquoise Paint had a net income for tax purposes this year of $300,000, before deducting capital cost allowance.
Green Co. is a CCPC owned by Bob Green. Green Co.'s net income for tax purposes is $200,000. Blue Co. is a CCPC owned by Sally Blue. Blue Co. has suffered net losses the past two years. This year Blue Co. had a loss of $150,000, and the company has non-capital losses of $200,000 from previous years
The capital cost allowance for Turquoise Paint this year is $72,000. Required:

A)Calculate the partnership's net income for tax purposes that Bob would likely prefer to use, and
explain why.
B)Calculate the partnership's net income for tax purposes that Sally would likely prefer to use, and explain why.

Question 5

John Brown and Alice Green want to start a business together. They will have equal ownership of the company. Alice would like to know whether a partnership or a corporation would be the best form of business for her particular situation, strictly from a tax perspective. Alice would not take any form of payment from the company in the first year.
The following information is available for Alice. Alice Green:
Employment income = $100,000
Interest income = $5,000
A loss of $25,000 is anticipated for Year 1 of the business. Assume a constant personal tax rate of 41%.
The corporate tax rate is 15%. Required:
Based solely on minimizing Alice's Year 1 tax liability, which form of business will be most beneficial to Alice? Support your answer with calculations.

Question 6

Sharon is a 40% partner in Green Nursery. She also works full-time as an engineer, earning a gross salary of $100,000 annually. Green Nursery's net income for tax purposes is $210,000. During the year, Green Nursery received $10,000 in non-eligible dividends from a CCPC. The company sold a capital asset and recognized a gain of $16,000. (The dividend income and taxable capital gain
income have been included in the net income for tax purposes.)Sharon withdrew $20,000 from the
partnership during the year. The ACB of Sharon's partnership interest was $75,000 at the end of the previous year.
Required:

A)Calculate the partnership's business income for the year.
B)Calculate Sharon's net income for tax purposes for the year.
C)Calculate the ACB of Sharon's partnership interest for the year for the year.

Question 7

Which of the following statements regarding partnerships is true?

A)Partners must contribute equal portions of capital to the partnership.
B)A general partnership is a protected legal entity, separate from the partners' affairs.
C)It is possible that a minority partner will have significant influence over the partnership.
D)A holding corporation cannot act as a partner.

Question 8

Small Corp. and Big Corp. are equal partners in Medium Enterprises. The total partnership has a net worth of $210,000, split 50/50 between the two corporations. Size Co. has been asked to join the partnership. When the transaction is complete, all three partners will have an equal interest. To accomplish this structural change, Size Co. will contribute $105,000 to the partnership treasury. This transaction will

A)increase the original partners' interests.
B)dilute the original partners' interests.
C)result in a capital gain for the partners.
D)result in a capital loss for the partners.