The partnership agreement between Paul Richardson and his wife Kylie provided that a salary of $80,000 pa is to be paid to Kylie for secretarial services and thereafter any residual profit or loss is to be shared equally between Paul and Kylie.

The accountant has provided the following information in relation to the 2019/20 tax year for the partnership:

$

Sales 800,000

Cost of sales 300,000

Other expenses (including Kylie’s salary of $80,000) 200,000

Capital gain on the disposal of shares 100,000

After the partnership was exposed to an audit, the Commissioner of Taxation amended Kylie’s salary to just $55,000 with regard to what was deemed a fair market value for secretarial services in the 2019/20 tax year.

Required:

Briefly discuss the tax implications of disallowing a portion of Kylie’s salary and calculate the s. 90 net partnership income and partnership distribution.