Kasinda is a partner in Twins Partnership. At January 1, 2015, her 25% partnership interest has an adjusted cost base of $35,000. During 2015, she withdraws $85,000 from the partnership. During 2015, the partnership has business income for tax purposes of $400,000. What is her adjusted cost base on December 31, 2015, and what tax consequences will result from the transactions during the year?
The adjusted cost base on December 31, 2015 is nil. Because Kasinda has withdrawn more than her adjusted cost base from the partnership, she will report a taxable capital gain of $25,000. Her partnership business income is $100,000.
The adjusted cost base on December 31, 2015 is $50,000. Kasinda will report partnership business income of $100,000.
The adjusted cost base on December 31, 2015 is nil. Kasinda will report partnership business income of $100,000.
The adjusted cost base on December 31, 2015 is negative $50,000. Because Kasinda has withdrawn more than her adjusted cost base from the partnership, she will report partnership business income of $50,000.