Mohamed Khan and Aaron Grieve are equal partners in a small business which received the following income in 2020: business income of $150,000, non-eligible dividends of $4,000, and a capital gain of $10,000.Mohamed withdrew $20,000 from the partnership during 2020 and Aaron withdrew $25,000.Which of the following is correct for the 2020 taxation year?
A)Mohamed's net income for tax purposes from the business is $59,800 and Aaron's net income for tax purposes is $54,800.
B)Both partners have a net income for tax purposes from the business of $79,500.
C)Both partners have a net income for tax purposes from the business of $79,800.
D)Both partners have a net income for tax purposes from the business of $82,000.

Question

Quizplus · Accepted Answer

Each partner's share of the business income is $75,000 ($150,000/2). The capital gain is split equally, so each partner has a $5,000 capital gain, which is a $2,500 taxable capital gain (50% inclusion rate). The non-eligible dividends are also split equally, giving each partner $2,000. Therefore, each partner's net income for tax purposes is $75,000 + $2,500 + $2,000 = $79,800. Withdrawals do not affect the net income for tax purposes.

Mohamed Khan and Aaron Grieve Are Equal Partners in a Small