Australian Tax Law:

John and Mary are equal partners in Cooper Associates, a resident accounting partnership. Mary contributed partnership capital of $200,000 to establish the partnership. John does all the accountancy work for the business and receives a salary of $150,000 per year. Both John and Mary are Australian residents for tax purposes.

The accounts of the partnership for the 2020 income year have the following data:

Business income (all assessable): $450,000

Business expenses: General expenses (all deductible) $ 80,000

Repairs (note 1) 7,400

Car expenses (note 2) 15,705

Interest expense (note 3) 31,150

Salaries and wages (note 4) 250,000

Notes please read these items BEFORE attempting the Assignment.

Note 1 this item related to a repair that was carried out to the partnership offices. A leak in the hot water system (that was present when John and Mary purchased the office building) became steadily worse, and eventually led to the collapse of the ceiling. The ceiling was replaced with comparable material to the original ceiling.

Note 2 the car expenses include the total costs of running Johns car. The car was purchased on 1 September 2019 for $46,000, and this amount excludes the depreciation. However, according to Johns log book, the vehicle was used 60% for the business and 40% for his private use.

Note 3 the interest expense was made up as follows: $10,000 paid to Mary in respect of the partnership capital that she contributed. $10,000 paid to the BNZ Bank for a loan to fund working capital. $11,150 paid to John in respect of a loan he made to the partnership for the purchase of the car.

Note 4 the Salaries and Wages expense consisted of: $150,000 paid to John in relation to his work in the partnership. $50,000 paid to Alice (a junior accountant employed by the partnership)$50,000 paid to Joan (the office manager).

Required: Citing ALL relevant legislation, case law and (where appropriate) tax rulings:

(a) Explain and determine the Section 90 (ITAA36) partnership net income for the 2020 income year.

(b) Determine the share of the partnership net income (or net loss) that should be included in Marys and Johns personal tax returns according to Section 92

(c) Determine Johns tax payable for the 2020 income year assuming that he did not have any private health insurance. Note that in addition to his share of the partnership income, he has also received a fully franked dividend of $7,000 from a company that was NOT a small business entity or Base rate Entity (The $7,000 excludes the franking credit).