Kasinda is a partner in Twins Partnership. At January 1, 2020, her 25% partnership interest has an adjusted cost base of $35,000. During 2020, she withdraws $85,000 from the partnership. During 2020, the partnership has business income for tax purposes of $400,000. What is her adjusted cost base on December 31, 2020, and what tax consequences will result from the transactions during the year?
A)The adjusted cost base on December 31, 2020 is nil. Because Kasinda has withdrawn more than her adjusted cost base from the partnership, she will report a taxable capital gain of $25,000. Her partnership business income is $100,000.
B)The adjusted cost base on December 31, 2020 is $50,000. Kasinda will report partnership business income of $100,000.
C)The adjusted cost base on December 31, 2020 is nil. Kasinda will report partnership business income of $100,000.
D)The adjusted cost base on December 31, 2020 is negative $50,000. Because Kasinda has withdrawn more than her adjusted cost base from the partnership, she will report partnership business income of $50,000.

Question

Quizplus · Accepted Answer

The adjusted cost base on December 31, 2020 is nil because Kasinda withdrew more than her adjusted cost base during the year. However, there is no taxable capital gain because her partnership business income of $100,000 is less than her total withdrawals of $85,000. Kasinda will report partnership business income of $100,000 on her personal tax return.

Kasinda Is a Partner in Twins Partnership