George Gingero is a one-third partner in Sweet Tooth, a restaurant that specializes in desserts. Gingero maintains a full-time job and earns a salary of $140,000. In the evenings and on weekends, he works at the restaurant, as do the other partners.

The partnership year end is December 31.The financial results for 20X1 are provided in the table below. Other information is provided below.

1. The amortization expense relates to the restaurant’s equipment. At the end of the previous year, the undepreciated capital cost of the class 8 equipment was $30,000, and of the class 43 equipment was $20,000.

2. During the year, Gingero received cash distributions of $10,000 from the partnership. In addition, the donations paid by the partnership were designated one-third to each partner.

3. One of the other partners recently offered to buy Gingero’s partnership interest for $100,000. Gingero refused the offer, as he plans to continue working in the restaurant. The partnership’s accountant informed George that the adjusted cost base of his partnership interest was $40,000 on January 1, 20X1.

Sales    ……………………………………………….		$600,000
Cost of sales …………………………………………….		210,000
Gross profit …………………………………….		390,000
Expenses:
Salaries …………………………………………….	150,000
Rent ………………………………….	50,000
Maintenance ………………………………….	8,000
Amortization         ……………………………….	12,000
Donations              ………………………………….	3,000
Supplies                 ………………………………….	10,000
Other                     ………………………………….	17,000	250,000
……………………………………………………………		140,000
Other income:
Capital gain on sale of previous franchise ………...		60,000
Dividends (non-eligible) from Canadian corporation..		9,000
Net income      …………………………..		$209000

Required:

1. Calculate Gingero’s net income for tax purposes for the 20X1 taxation year.

2. If Gingero had sold his partnership interest on January 1, 20X2 for $300,000, how would his net income for tax purposes have changed?

3. Would it be worthwhile for Gingero to set up a corporation to be the partner in the restaurant? Explain.

4. If Gingero sells his partnership interest in Sweet Tooth to his own corporation, how will this affect his tax position?