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Final

Chapter 18 summary notes Chapter 18–Partnerships and Trusts Summarized version of chapter 18 to quickly read through and understand. Useful for reading over before exams and as a refresher.


Department
Accounting & Financial Management
Course Code
AFM 461
Professor
Stanley Laiken
Study Guide
Final

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Chapter 18 Partnerships
2 factors suggesting partnership
Joint and several liability with respect to debts incurred by the partnership
An agreement indicating the method by which profits and losses are to be shared
Partnership vs joint venture
Partnership is a separate entity, while joint venture is PART of the person
o So if the owner wants to give assets to company, it will need rollover, where
venture you do not
o CCA is deducted by the partnership where ventures the OWNERS deduct the
own portion of their asset’s cca
Joint venture conditions
Joint property interest in the subject matter
A right of mutual control and management of the enterprise
A limitation of the objective to a single undertaking or a limited number of
undertakings
Partnership income
Income under division B is calculated at the partership level, then divied off to
owners based on contract to be TAXED
That owner may take the income/losses allocated to them and manage it with their
OWN income/losses (offset partnership rental income with personal rental losses)
“at-risk” rules page1045
Partnership allocations: anti avoidance (103(1))
you cannot allocate partnership income/loss in a way that is to avoid taxes
where partners do no deal at arms length, each person’s capital contribution, work
performed, and other factors will be considered in determining a reasonable
splitting
computation of taxable income
charitable gifts 118.1(3)
o deductible by partners who are corporations
o individuals will include their share of the donation in their personal income
tax
losses are not deducted by partnership but is split off to owners to carry in their tax
returns(ITA 111)

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personal tax credits generated by partnership
charitable donation tax credit flow through to partners according to share of
partner’s income
dividend income maintains source characteristics when allocated
o dividend tax credit may be received in respect to partner’s share of taxable
dividend received
political contribution, investment tax, and foreign tax credits are allowed to be
deducted based on (foreign) income allocated
Partnership interest
considered capital property
o will have ACB and POD + CG/L when sold
ACB = tax free basis, or the tax paid investment of the business
additions:
o partner’s share of income of partnership for fiscal period 53(1)(e)(i)
except that 100% of gains on capital property disposition is added
(untaxable portion)
o partner’s share of capital dividends 53(1)(e(ii)
o partner’s share of net proceeds on death of life insurance policies received by
the partnership 53(1)(e)(iii)
o partner’s contribution of capital to the partnership 53(1)(e)(iv)
deductions:
o partner’s share of loss of partnership for the fiscal period 52(2)(e)(i)
except limited partnership losses
except disposition of capital property losses that are deducted 100%
o partner’s share of charitable gifts or political contributions made by the
partnership 53(2)(c)(ii)
because the benefits (tax deductions) of making the contribution are
passed on to the partner, so you must take out the tax free portion of
ACB
o partner’s drawings of his/her share of partnership income or capital
53(2)(c)(v)
o amount of any investment tax credit used by the partner in respect of
expenditures made by the partnership 53(2)(c)(vi)
similar reasoning to donations
Negative ACB
all capital property other than partnership interest that has a negative balance at
the end of the year is deemed to be disposed to recognize the capital gain 40(3)
o does not apply to partnership interest unless it is fa limited liability
partnerships
Sale of interest

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POD is decreased by the expenses that the partner contributed
Reorganization of Partnerships
Similar rules of prior chapters where partnership interest is assumed as share
capital
Transfer of partnership property to a corporation
Partners may wish to encorporate partnership assets
They can the partnership give assets to a CCPC, and in return get shares of the
corportion so that the partnership now owns the corporation
Can achieve this using 85(1) joint election required by all members of the
partnership and the corporation
The partnership may also be wound up after, having the partners hold the shares of
the corporation directly
o Can be done on a tax-deferred basis using automatic rollover 85(3)
To use this, the partnership must have:
Wound up 60 days after transfer 85(3)(b)
Received consideration for the transfer of only shares and cash
85(3)(c)
Transfer of property to a partnership
a rollover exists because there is a transfer of ownership but there is not change in
economic interest 97(1)
conditions for the rollover:
o partners must elect
o property must be capital property (ECC, inventory, resource properties)
Terminal loss 13(21.2)
like previous rollovers, terminal losses are denied upon a transfer between entities
that are related
o the loss is accrued by the transferor until the asset is transferred to a person
who is not an affiliated person
superficial losses loss will be added to ACB of the transferee
Non-arms length transfer
if a non-arms length person transfers depreciable property to a partnership where
UCC for transferor < UCC for partnership
o UCC for partnership is deemed = UCC for transferor
o However, ACB is not bumped up
Capital loss
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