Partnerships
Applied questions written from the supplied partnership coverage.
Applied Questions
Question 1 — Tax-law partnership
Two siblings jointly own a rental property but conduct no broader business. Explain why the tax definition of partnership still needs to be considered.
Question 2 — Net income
A three-partner firm has accounting profit of $900,000 but includes non-deductible private expenses of $30,000. Explain why the partners cannot simply divide accounting profit by three.
Question 3 — Partner drawings
A partner draws $180,000 cash during the year but is entitled to only 25% of partnership net income. What is the significance of the drawings?
Question 4 — Admission of a partner
A sole trader admits a new partner in return for cash and transfers a 40% interest in business assets and goodwill. Identify the principal tax issues.
Question 5 — Retirement
A retiring partner receives cash and a business vehicle in satisfaction of the partner’s interest. Explain the asset and partner-level questions.
Question 6 — Dissolution
A partnership distributes land to one partner and cash to the other. Identify why market values and CGT consequences must be tested.