Conquest Enterprises is a partnership that operates a small wares wholesale firm. The partners are Cameron Traders Ltd. and Kando Construction Ltd. They share profits equally.

The partnership business has improved this year, and it is anticipated that by year end, profits before capital cost allowance will amount to $620,000 (compared with $290,000 the previous year). During the year, the partnership acquired two additional delivery vehicles for $80,000. At the end of the previous year, the partnership held the following property:

Class	Undepreciated capital cost
1 …………………………….	$800,000
8 …………………………..	100,000
10 …………………………….	100,000

Cameron Traders is a Canadian-controlled private corporation owned by George Cameron. The company operates an import/export business and earns trading commissions from a wide range of customers. For years, it has earned a modest profit ($30,000 last year, after a reasonable salary to Cameron). However, his years of hard work establishing international contacts have finally paid off, and he expects this year’s profits to be $250,000 and future years’ profits to continue at least at this level.

Kando Construction is owned by Sheila Hampton. Kando has suffered major losses over the past years even after earnings have been allocated from the partnership. Currently, the company has unused non-capital losses of $600,000, of which $300,000 will expire in two years. The company appears to have its losses under control and is not in serious financial difficulty, although cash flow has been tight.

The partnership has been seeking to acquire a new warehouse building. Coincidentally, Hampton personally owns a warehouse property, which will be vacated by its tenant in six months. The property has appreciated in value and is worth $80,000 more than its original cost. Hampton has claimed capital cost allowance of $30,000 over the years. She is willing to sell the property to the partnership, as she could use the cash to strengthen Kando. However, she needs all the cash she can get and is not anxious to pay tax on the sale.

The partnership and the two partners have December 31 fiscal year ends.

Required:

1.  Determine the minimum and maximum business income for tax purposes that might be earned by the partnership (Conquest Enterprises) for the current year and allocated to the partners.

2. Which amount of income from the partnership would Cameron Traders and Kando prefer? Explain.

3. Estimate the tax liability of Cameron Traders for the current year.

4. If you owned Cameron Traders, would you recommend that Conquest Enterprises be incorporated? Explain.

5. How would the incorporation of the partnership affect Kando?

6. What can Hampton do to avoid tax on the sale of the warehouse property to the partnership and generate the maximum amount of cash to help Kando?