Jawad and Neal are new clients of Devos Business Consulting. They are seeking to have their tax
Question:
Jawad and Neal are new clients of Devos Business Consulting. They are seeking to have their tax compliance work completed for their newly started business for the 2021 tax year. They have explained that they have conducted a taxi-cab business in partnership since 1 July 2020 and have also invested in three rental properties jointly. Prior to this, Jawad had carried on a taxi-cab business for several years. Despite the commencement of the partnership, the business continues to be known as 'Jawad's Cabs'. Third parties, including drivers employed in the business, are not aware that the business is conducted by both Jawad and Neal.
Jawad further explains that on the 1 July 2020, in order to formalise the partnership, they entered into a written partnership agreement. The agreement provides that the profits of the taxi-cab business and rental properties are to be divided equally, whilst 100 per cent of any rental losses are to go to Neal. The bank account used for the taxi business continues to be the bank account held under Jawad's name. Neal did not contribute any capital to the partnership.
During the year, Jawad and Neal spent $58,000 on repairs to the properties recently purchased. This was made up of $30,000 to rewire one property and $28,000 was incurred in installing a second bathroom of the third property. Jawad and Neal also spent $8,000 travelling to the rental properties to inspect the repairs.
REQUIRED:
Advise Jawad and Neal as to the tax consequences arising from the above fact situation by answering the following four questions.
1. Advise Jawad and Neal as to whether their tax-cab actibites amount to a partnership
2. Advise Jawad and Neal as to whether their rental activities amount to a partnership
3. Advise Jawad and Neal as to the deductibility of the $58,000 spent on repairs
4. Advise Jawad and Neal as to the deductibility of the $8,000 spent on travel to the rental properties
You are required to include references to appropriate legistlations, case law and tax rulings.
Expert Answer:
1From the information provided it appears that Jawad and Neal have conducted their taxicab business ... View the full answer
