Arthur Peters and Martha Murray carry on a small mixed business in partnership. Gross income for the 2020-21 tax year is $60,000, of which $10,000 is made on sales outside Australia.

The Expenses incurred in deriving the business income are as follows:

Expenses related to Australian source income

• Purchases $8,000
• Rates $350
• Business Insurance $1210
• Other expenses $40
• Improvements to business premises (1 Jan 2021)

Expenses relating to overseas source income

• Purchases $2,400
• Other expenses $600
• Ex-Australian import duties $240

Required:

Calculate the s 90 net partnership income and the partnership distribution to both Arthur (assuming he is an Australian resident) and Martha (assuming she is a non-resident). What difference would it make if it was alleged that Martha’s daughter Karen aged 14 years was a third partner? Assuming Karen was a full -time student and only worked in the business on weekends. 

Show all calculations and cite relevant legislation to support your answer.