Ms. Sarah McLean has a 50 percent interest in a partnership that was acquired on January 1, 2020 at a cost of $40,000. The partnership's Net Business Income (for tax purposes)for the taxation year ending December 31, 2020 was $50,000, a figure that included a CCA deduction of $36,000. The 2020 Net Business Income figure did not include taxable capital gains of $10,000 realized by the partnership. During 2020, Ms. McLean withdrew $15,000 from the partnership. The adjusted cost base of Ms. McLean's partnership interest at January 1, 2021 is:
A)$55,000.
B)$88,000.
C)$50,000.
D)$60,000.

Question

Quizplus · Accepted Answer

To calculate the adjusted cost base (ACB) of Ms. McLean's partnership interest at January 1, 2021, we need to consider the following:

1. The cost of the partnership interest: $40,000
2. Ms. McLean's share of the partnership's net business income for 2020: $50,000 x 50% = $25,000
3. Ms. McLean's share of the partnership's CCA deduction for 2020: $36,000 x 50% = $18,000
4. Ms. McLean's share of the taxable capital gains realized by the partnership in 2020: $10,000 x 50% = $5,000
5. Ms. McLean's withdrawal from the partnership in 2020: $15,000

Therefore, the ACB of Ms. McLean's partnership interest at January 1, 2021 is:

$40,000 + $25,000 + $18,000 + $5,000 - $15,000 = $63,000

However, the question is asking for the adjusted cost base at January 1, 2021, which means we need to subtract the $15,000 withdrawal from the 2020 figures:

$40,000 + $25,000 + $18,000 + $5,000 = $88,000

Therefore, the correct answer is D) $60,000.

Ms Sarah McLean Has a 50 Percent Interest in a Partnership