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RSM424H1 Lecture Notes - Lecture 9: Capital Gain, Tax BracketExam


Department
Rotman Commerce
Course Code
RSM424H1
Professor
Matthew Roman
Study Guide
Final

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RSM424 Tutorial 9 Mar. 30/20
1
Ch. 15 Partnerships
[P15-2]
Part 1. Calculate George’s net income for tax purposes for the 20X1 taxation year.
Partnerships are not tax-paying entities. Each partner’s income is determined by the share of the
partnership’s income NOT how much they take out of the partnership.
Step 1) Calculate the NI for tax purposes for the partnership
NI for accounting purp. 209,000$
Add:
Donations 3,000$ Not deductible
Amortization 12,000$
TCG 30,000$ Tax treatment for CG
Deduct:
Accting capital gain (60,000)$ Remove accounting treatment for CG
CCA (class 8) (6,000)$ =30000*-20%
CCA (class 53) (10,000)$ =20000*-50%
NI for tax purposes 178,000$
Step 2) Determine George’s share of income by source
Partnership George (1/3)
Business income 139,000$ 46,333$ =139000*(1/3)
Non-elig div income 9,000$ 3,000$ =9000*(1/3)
TCG 30,000$ 10,000$ =30000*(1/3)
Total NI for tax purp 178,000$ 59,333$
Note: Given that the partnership’s net income for tax purposes is $178,000, business income will
be the plug.
The non-eligible dividend will need to be grossed up by 15% when received by an individual
George's Taxable Income
Employment income 240,000$
Business income 46,333$
Non elig div - 15% gross-up 3,450$ =3000*1.15
TCG 10,000$
Taxable income 299,783$
Part 2. If George sold his partnership interest on Jan. 1/X2 for $300,000, how would his net
income for tax purposes change?
- Dividend gross-up is NOT included since it would increase ACB
- Donation was added back to partnership income which artificially increased ACB. Deduct
donations in calculating ACB.
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