AP 18-6 (Partnership Income and Sale of a Partnership Interest) Michael Masterson and Martin Minton were competitors providing heating and cooling products and services within the same geographical region near Edmonton, Alberta. An influx of workers to the nearby oil fields brought in increased competition, causing Michael and Martin to agree to join forces by forming a general partnership registered as the Double M Partnership. They have both contributed all of their business properties, including vehicles, tools, and equipment, which have become partnership property. In addition, capital cash contributions were required to provide the partnership with much needed working capital. The general partnership was established on November 12, 2021, after signing a formalized written partnership agreement. The agreement required an initial cash contribution from each partner of $125,000, which was made in December 2021. The agreement further provides that each partner can draw up to a maximum of $10,000 per month to meet personal needs and expenditures beginning January 1, 2022. Profit and loss allocations will be determined at the end of each fiscal period based on a formula that considers the number of hours worked and fees invoiced. Any capital gains or capital losses realized will be allocated on a 5050 basis unless the gain or loss is connected to a contribution of property to the partnership by a specific partner, in which case all of the gain or loss will be allocated to that partner. In addition, any investment income or capital gains or capital losses realized on investments purchased by the partnership with surplus cash will be allocated equally. Finally, any charitable donations made by the partnership will also be allocated equally. The partnership operates through leased business premises where the employees and partners carry out the day-to-day management and administration of the business. The partnership uses a calendar-based fiscal period. The partnershin's 2022 income statement, prepared in accordance with ASPE, is as follows: Note I IvIaximum LCA tor 2022 is $17,400. Note 2 In 2022 the partnership realized a capital gain of $13,300 from partnership property contributed by Martin and a second capital gain of $8,900 from the sale of some of the share investments purchased by the partnership. None of the capital gains would qualify for the capital gains deduction. In 2022, Michael's only income was from the partnership and his only federal tax credit, other than those allocated from or attributable to the partnership, is the BPA. On January 1,2023, Michael sells his interest in the partnership to an arm's-length individual for $875,000. Selling costs related to the sale are $7,400. Assume that the ACB of his partnership interest on January 1,2022 , is $222,160. Arditinnal Imfnwmatinn. A. At December 31, 2022, the partnership accountant determines that Michael worked more hours and invoiced more than Martin. The result is that Michael will be allocated 58.7% of any business income or loss while Martin will be allocated the remaining 41.3%. B. In February of 2022, the partnership used some surplus cash to purchase shares in a large private corporation that manufactures the type of furnaces the partnership installs and services. The partnership received $13,000 in non-eligible dividends and $4,200 in capital dividends from that investment in December 2022. C. Both Martin and Michael have offices in their homes to prepare and accumulate monthly paperwork before bringing the documents and summaries to their business premises. The business premises have sufficient office space, but the two partners prefer to prepare some business documentation in their homes. The partnership pays them each $1,250 per month for the use of that office space, and those amounts are deducted by the partnership in determining its business income. Neither of the partners would qualify to deduct home expenses because of the limitations of ITA 18(12). D. In late December of 2021, Michael and Martin met with their accountant to discuss working capital requirements. The accountant advised that they could use an additional $200,000. Michael agreed to,loan that amount to the partnership at 3.5% interest, which is paid monthly. There is a written loan agreement that only requires the monthly payment of interest with no principal payments until January 2024. E. Neither Michael nor Martin made any capital contributions to the partnership in 2022. F. Each of Michael and Martin withdrew the maximum monthly amount of $10,000 in every month of 2022. G. The partnership made a donation of $10,000 to the local food bank, a registered charity, in May 2022. Required: AP 18-6 (Partnership Income and Sale of a Partnership Interest) Michael Masterson and Martin Minton were competitors providing heating and cooling products and services within the same geographical region near Edmonton, Alberta. An influx of workers to the nearby oil fields brought in increased competition, causing Michael and Martin to agree to join forces by forming a general partnership registered as the Double M Partnership. They have both contributed all of their business properties, including vehicles, tools, and equipment, which have become partnership property. In addition, capital cash contributions were required to provide the partnership with much needed working capital. The general partnership was established on November 12, 2021, after signing a formalized written partnership agreement. The agreement required an initial cash contribution from each partner of $125,000, which was made in December 2021. The agreement further provides that each partner can draw up to a maximum of $10,000 per month to meet personal needs and expenditures beginning January 1, 2022. Profit and loss allocations will be determined at the end of each fiscal period based on a formula that considers the number of hours worked and fees invoiced. Any capital gains or capital losses realized will be allocated on a 5050 basis unless the gain or loss is connected to a contribution of property to the partnership by a specific partner, in which case all of the gain or loss will be allocated to that partner. In addition, any investment income or capital gains or capital losses realized on investments purchased by the partnership with surplus cash will be allocated equally. Finally, any charitable donations made by the partnership will also be allocated equally. The partnership operates through leased business premises where the employees and partners carry out the day-to-day management and administration of the business. The partnership uses a calendar-based fiscal period. The partnershin's 2022 income statement, prepared in accordance with ASPE, is as follows: Note I IvIaximum LCA tor 2022 is $17,400. Note 2 In 2022 the partnership realized a capital gain of $13,300 from partnership property contributed by Martin and a second capital gain of $8,900 from the sale of some of the share investments purchased by the partnership. None of the capital gains would qualify for the capital gains deduction. In 2022, Michael's only income was from the partnership and his only federal tax credit, other than those allocated from or attributable to the partnership, is the BPA. On January 1,2023, Michael sells his interest in the partnership to an arm's-length individual for $875,000. Selling costs related to the sale are $7,400. Assume that the ACB of his partnership interest on January 1,2022 , is $222,160. Arditinnal Imfnwmatinn. A. At December 31, 2022, the partnership accountant determines that Michael worked more hours and invoiced more than Martin. The result is that Michael will be allocated 58.7% of any business income or loss while Martin will be allocated the remaining 41.3%. B. In February of 2022, the partnership used some surplus cash to purchase shares in a large private corporation that manufactures the type of furnaces the partnership installs and services. The partnership received $13,000 in non-eligible dividends and $4,200 in capital dividends from that investment in December 2022. C. Both Martin and Michael have offices in their homes to prepare and accumulate monthly paperwork before bringing the documents and summaries to their business premises. The business premises have sufficient office space, but the two partners prefer to prepare some business documentation in their homes. The partnership pays them each $1,250 per month for the use of that office space, and those amounts are deducted by the partnership in determining its business income. Neither of the partners would qualify to deduct home expenses because of the limitations of ITA 18(12). D. In late December of 2021, Michael and Martin met with their accountant to discuss working capital requirements. The accountant advised that they could use an additional $200,000. Michael agreed to,loan that amount to the partnership at 3.5% interest, which is paid monthly. There is a written loan agreement that only requires the monthly payment of interest with no principal payments until January 2024. E. Neither Michael nor Martin made any capital contributions to the partnership in 2022. F. Each of Michael and Martin withdrew the maximum monthly amount of $10,000 in every month of 2022. G. The partnership made a donation of $10,000 to the local food bank, a registered charity, in May 2022. Required