Gary, Ying and Michael carry on business in a professional partnership. The written partnership agreement includes the following statements:

1. All partners are to be paid interest on their contributed partnership capital at the rate of 5% per annum.
2. All partners are entitled to receive an equal share of the s 90 partnership income.
3. Gary is to receive a salary of $240,000 in recognition of his management of the partnership every year.

For the tax year ending 30 June 2020, the partnership accounts show the following (please note, all amounts exclude GST):

Receipts

Fees from clients $2,500,000

Cash dividends (see note 1) 140,000

Capital proceeds from the sale of land (see note 2) 1,200,000

$3,840,000

Outgoings

Business expenses including depreciation (all deductible) $1,100,000

Salary paid to Gary 240,000

Legal fees in relation to the sale of the land 15,000

Interest on partnership capital 300,000

Cost base of the land that was sold 700,000

Interest on loan from Michael (see note 3) 10,000

$2,365,000

Accounting Profit $1,475,000

Other information:

SBE General Pool opening balance $1,105,000

Depreciating assets purchased during the year:

Car $70,000

Laptop computers x 3 @ $10,000 each 30,000

New reception counter 40,000 140,000

Depreciating assets sold during the year

Car (book value $12,000) $15,000

Office furniture (book value $20,000) 18,000 33,000

Notes – Please read all three notes before attempting this question:

Note 1: The dividends were all fully franked.

Note 2: The land was purchased by the partnership on 15 July 2012 for proposed future offices of the partnership. Council did not approve their planning application, so they sold the land under an agreement entered into on 4 May 2020. The sale contract was settled on 26 July 2020.

Note 3: On 1 July 2019, Michael lent the partnership an amount of $200,000 for a period of 2 years. The interest charged was an arm’s length commercial rate of interest.

Question 2 is continued on the next page

Required:

1. Citing relevant legislation, case law and rulings (where appropriate), calculate the s 90 net income of the partnership for the year ending 30 June 2020
2. Citing relevant legislation, case law and rulings (where appropriate), calculate Gary’s taxable income and tax payable for the year ending 30 June 2020. Assume that no PAYG instalments were paid during the year.

(c) Citing relevant legislation, case law and rulings (where appropriate), calculate the closing balance for the SBE general pool as at 30 June 2020.