Question: jill and Tilly Masterson share the same last name but are not related. They met each other a number of years previously when they attended
jill and Tilly Masterson share the same last name but are not related. They met each other a number of years previously when they attended the Canadian Memorial Chiropractic College in Toronto. Last year they discovered that both had moved to Edmonton and, over coffee, they learned that neither was happy in the practice where they work. They decided to creates a partnership and go out on their own. Masterson Chiropractic Services started business at the beginning of the current year.
Jill contributed most of the capital for the new partnership so it was determined that she will receive 80 percent of any capital gains or dividends received by the partnership. The partnership agreement was set up at the beginning of 20XX and calls for business income to be shared equally. Because local interests are important to both of them, the partnership makes some charitable contributions, which are also shared equally per the agreement.
For the year ending December 31, 20XX, their results, prepared on a GAAP basis are as follows:
Masterson Chiropractic Services
Partnership Income Statement
Year Ending December 31, 20XX
Revenues
$800,000
Expenses:
Office rent
$84,000
Office supplies
15,000
Amortization
32,000
Business meals and entertainment
16,000
Charitable donations
28,000
Staff salaries
70,000
Salary to Jill
150,000
Salary to Tilly
150,000
545,000
Net Business Income
$255,000
Other income:
Capital gains
$10,000
Eligible Dividends Received
15,000
25,000
Accounting net income
$280,000
Other Information
- Jill and Tilly have decided to use the ITA 34-election to report Taxable income on a billed basis. Included in the revenue reported for accounting purposes is $56,000. This is the first year of operation; therefore, there was no unbilled WIP balance on January 1.
2 Jill and Tilly wish to deduct maximum CCA for the year, which has been calculated at $41,000.
Required
- Calculate the amount of income from the partnership that would be included in the Net Income for Tax Purposes for Jill and Tilly.
- Indicate the amount of any federal tax credits that would be available to Jill and Tilly as a result of their interest in the partnership.
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