4. Taxation of Partnerships

Alice and Brian are in partnership together. The partnership derives income (before expenses) of $125,000 for the year. Payments were made as follows:

$

Rates on the building 5,000

Wages to employees 30,000

Advances (loans) to Alice 24,000

Advances (loans) to Brian 8,000

Repairs and maintenance on the building 15,000

Lease payments on two cars 4,000

Accounting fees 3,000

Electricity 5,000

Alice and Brian share profits in the ratio 3:1 (based on their respective partnership shares). Both cars are of the same value and are used for business purposes. Alice, however, also uses her car 50% of the time for private purposes. The lease agreements do not qualify as finance leases (i.e. they do not have the opportunity to acquire these vehicles).

Required:

Calculate the net income of the partnership for tax purposes and income attributable to the partners of the partnership (if any).

(ii) Briefly outline why a partnership must file a tax return.