Jill and Tilly Masterson share the same last name but are not related. They met each other a number of years previously when they attended the Canadian Memorial Chiropractic College in Toronto. Last year they discovered that both had moved to Edmonton and, over coffee, they learned that neither was happy in the practice where they work. They decided to create a partnership and go out on their own. Masterson Chiropractic Services started business at the beginning of the current year.

Jill contributed most of the capital for the new partnership so it was determined that she will receive 80 percent of any capital gains or dividends received by the partnership. The partnership agreement was set up at the beginning of 20XX and calls for business income to be shared equally. Because local interests are important to both of them, the partnership makes some charitable contributions, which are also shared equally per the agreement.

For the year ending December 31, 20XX, their results, prepared on a GAAP basis are as follows:

Masterson Chiropractic Services

Partnership Income Statement

Year Ending December 31, 20XX

Revenues $800,000

Expenses:

Office rent $ 84,000

Office supplies 15,000

Amortization 32,000

Business meals and entertainment 16,000

Charitable donations 28,000

Staff salaries 70,000

Salary to Jill 150,000

Salary to Tilly 150,000

545,000

Net Business Income $255,000

Other income:

Capital gains $ 10,000

Eligible Dividends Received 15,000

Accounting net income $280,000

Other Information

1. Jill and Tilly have decided to use the ITA 34-election to report Taxable income on a billed basis. Included in the revenue reported for accounting purposes is $56,000. This is the first year of operation; therefore, there was no unbilled WIP balance on January 1.
2. Jill and Tilly wish to deduct maximum CCA for the year, which has been calculated at $41,000.

Required

1. Calculate the amount of income from the partnership that would be included in the Net Income for Tax Purposes for Jill and Tilly. (24 marks)
2. Indicate the amount of any federal tax credits that would be available to Jill and Tilly as a result of their interest in the partnership. (6 marks)