Partnerships
Model Answers
Question 1 — Tax-law partnership
The tax definition of partnership extends to persons in receipt of income jointly, so co-owners can be treated as a tax partnership even if the general-law business test is not met. The rental activity, income and deductions must therefore be analysed through the tax partnership framework.
Question 2 — Net income
Section 90 requires a tax calculation, not an accounting-profit allocation. Non-deductible items are adjusted before partnership net income is determined. If the only adjustment is $30,000, partnership net income is $930,000. Each partner’s share is then included under s 92 according to the relevant partnership interests.
Question 3 — Partner drawings
Drawings are a cash/equity movement and do not by themselves determine the partner’s taxable share. The partner is taxed on the statutory share of partnership net income under s 92, even if cash drawings are more or less than that amount.
Question 4 — Admission of a partner
Identify whether the change creates a disposal of interests in individual business assets/goodwill, determine consideration and market value, apply CGT and any balancing/trading-stock rules, and then establish the new partnership profit/ownership interests. The mere label “admission” does not resolve the tax consequences.
Question 5 — Retirement
Analyse the retiring partner’s disposal/realisation of partnership interests, any direct asset transfers, market values, CGT/balancing consequences and how the continuing partners’ ownership/cost bases change.
Question 6 — Dissolution
Distribution in specie is not tax-neutral merely because no third party buys the property. Disposal/market-value rules can apply to the land, while each partner’s interest and any cash equalisation must be considered separately.