Richard is a retired solicitor. His wife Tracy is a retired school teacher. Both wish to remain active and they invest in a gift shop that is to be managed by their daughter Alice, who is aged 35. They form a partnership of three called Alice's Gift Shop.

Richard and Tracy contributed $40,000 each to fund the purchase of the shop. The partnership agreement provides:

• BothRichardandTracyaretoreceiveinterestattherateof 10% p.a. on their capital contribution of $40,000.

• Alicewillreceiveasalaryof$25,000forthemanagementof the shop, as well as superannuation contributions of $6,000.

• AcarwillbeleasedbythebusinessandprovidedtoAlice.

• Allprofitsandlossesaretobesharedequallybetweenthethreepartners.

The accounts for this income year show the following:

Income ($)

Sales (excluding GST)

Expenses ($)

Cost of goods sold Interest on capital paid to Richard and Tracy Salary to Alice

Superannuation to Alice

240,000

130,000 8,000 25,000

6,000

Lease payments on car (excluding GST) 7,000 Other deductible operating expenses (excluding GST) 14,000

The leased car was used 80% of the time for business and 20% of the time for private purposes.

With reference to the facts above:

Calculate the net income of the partnership. Show the allocation of net income to each of the three partners. You must refer to relevant legislation and/or case law in your answer.