UNIT 2- PROPRIETORSHIPS AND PARTNERSHIPS Flashcards
Business activity
any step in process of creating, producing, delivering a good/service in exchange for payment in money or other valuable consideration
Sole proprietorship
business unincorporated + owned by only 1 person
- simplest for of business
- must carry on business activities
- created by person commencing business activities w/o taking steps to form other business organization
- no legal steps taking to create sole prop.
- unlimited liability
Taxation of sole prop
- net income of biz is incoem of sole proprietor– taxable to proprietor
- property used in biz considered property of sole prop
Partnerships
-relationship between 2 or more ppl carryong on incorporated biz
-must carry on business activity– not passive
investing
- not seperate legal entity from partners
Types of partnerships
- General partnerships
- Limited partnerships
- Limited Liability partnerships
General Partnership
simplest form of partnership
- formed w/o legal formalities
- Just 2 or more ppl carrying out business actibvity together
- unlimited liability
- jointly + severally liable
General Partners
entitled to take on active role in managing thwe busines and unlimited personal liablity
2 ways to view partnership
Entity: partnership seperate and apart from partners
- good if partnership dealing with outsiders
Aggregate: partnership is collection of individuals or proprietors engaged in same biz
Dissolving Partnership
default rules: if 1 partner retires, dies, insolvent–> partnership dissolved, can replace them
Partnership Capital
Default rules; all partnership capital shared equally
Distribution of profits of partnership
Default rules: profit/losses shared equally
cca
deduction permitted for tax purposes to recognize wear and tear nad obselescence of property over time on depreciable assets
-partners must negotiate amt of CCA to claim
Partnership Interest
= joining partnership
- can be acquired by providing capital to partnership if new/expanding , buy interest fro retiring partner
- it is a non depreciable capital property
- sale or disposition can result in CG or CL
Calculating ACB
??? LATER
Calculating CG or CL on distribution
?? LATER
Section 97 rollover
can contribute depreciable/other capital property to partnership instead of cash- @FMV
- may trigger CG/CL/RECAPTURE b/c trf deemed disposition for tax
- can elect to trf at partners ACB/UCC w/o realizing gain/loss
Limited partnerships
1 or more partners have limited liability for debts/liabilities of partnership
- must have at least 1 limited partner and 1 general partner
Limited partner
passive investors- just contributes capital, univolved in business operations
General Partner
manages business + personally liable
Limited Partnership- At risk rules
investor may only make deductions on own tax return w/ respect to specific investment to extent deduction reduces ACB to 0–> cannot be negative
Establishing Limited partnership
formed when partnership files declaration with prescribed information with province registrar in acordance with prov limited partnership act
-must be signed by everyone
Joint ventures
??
Accrual method of accounting
- reports income in fiscal period EARNED regardless when gets paid
- deducts expenses in fiscal period INCURRED whether paid in that period or not
Cash method
- report income in year rec’d cash
- deduct expenses in year paid
Individuals Net Income/loss from biz
share of partnership
- any other deductible amts
- any business use of home expenses
