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For partners

The following are some important information on what a partnership needs to know in fulfilling its tax obligations.

Decide the accounting period

The accounting period is the period of trade for which the business calculates profits or losses. The partnership should decide on its accounting period when it first starts business.

Most businesses choose accounting periods that end on 31 December each year. The partnership may also choose accounting periods that end on a date other than 31 December.

For example

If business commences on 1 Apr 2010, and you choose your accounting period to end on 31 December every year, relevant accounting periods and the respective Years of Assessment (YA) will be:

1st Accounting Period 1 Apr 2010 to 31 Dec 2010 YA 2011
2nd Accounting Period 1 Jan 2011 to 31 Dec 2011 YA 2012
3rd Accounting Period 1 Jan 2012 to 31 Dec 2012

YA 2013

However, if you choose to prepare your accounts to a date other than 31 December, for example, 31 March, then the relevant accounting periods and the respective YA will be:

1st Accounting Period 1 Apr 2010 to 31 Mar 2011 YA 2012
2nd Accounting Period 1 Apr 2011 to 31 Mar 2012 YA 2013
3rd Accounting Period 1 Apr 2012 to 31 Mar 2013 YA 2014

Prepare a 4-line statement

From your statement of accounts, you have to extract the relevant figures and prepare a 4-line statement summary as follows:

First line : Revenue
Second line : Gross Profit
Third line : Allowable Business Expenses
Fourth line : Adjusted Profit/Loss

Calculate the divisible profit

As a precedent partner, you need to calculate the divisible profit of your business in order to allocate it to the partners. Divisible profit is the adjusted profit/loss minus partners' salaries, allowances, bonuses, CPF contributions, interest on capital and any other expenses paid on behalf of all the partners.

To illustrate how to arrive at divisible profit:

Adjusted Profit/Loss

Less:

  • Partners' salaries
  • Partners' allowances
  • Partners' Bonuses
  • Partners' CPF contributions
  • Partners' share of interest on capital
  • Expenses paid on behalf of partners

Divisible Profit

Example

ABC partnership is made up of partner A and B. It was agreed between A and B that a yearly salary of $6,000 and $4,800 will be paid to them respectively and the basis of sharing of divisible profit is 60:40.

For the year ended 31 Dec 2011, the partnership made a profit of $24,000 (after deducting partners’ salaries). Partner A and B have decided to retain the profit in the partnership for business use. The income for A and B will be as follows:

Partner

A

B

                        Total

Basis of Sharing

60%

40%

  100%

Salary for year ended 31.12.2011

$6,000

$4,800

  $10,800

Balance: Divisible Profit

$14,400

$9,600

  $24,000

Total Adjusted Profit

$20,400

$14,400

  $34,800

 

Partner A and B are allocated with a share of partnership income of $20,400 and $14,400 respectively and the income will be assessed in their names even though the divisible profit of $24,000 was retained in the partnership account.

File income tax

While a partnership does not pay tax, it still has to file an annual income tax return (called the Form P) to show all income earned and business expenses deducted by the partnership during the year. The partnership is required to file the Form P if it has received the paper Form P or invitation to e-File, even if it has not commenced business in the year.

The Form P is usually sent to the precedent partner by mid March every year for the precedent partner to file on behalf of all the partners. The precedent partner is required to inform all the partners of their share of income from the partnership to enable them to declare it in their Individual Income Tax Returns.

The Form P is not available for downloading from the website. If you require a copy of the Form P, please call us on the Individual Income Tax Helpline at 1800-356 8300.

See the Explanatory Notes (145KB) for more details on how to complete Form P.

Allocation of profit and loss to partners

After IRAS processes Form P, we will send the 'Allocation of Profit/Loss to Partners' to the precedent partner.

The precedent partner has to inform the other partner(s) of their share of profit or loss. The share of profit and loss to each partner will be taxed under each individual partner's name.

Objection to the allocation of profit/ loss to partners

If you object to the allocation of profit and loss to partners, you must lodge your objection through the precedent partner. The precedent partner must write to us stating clearly the grounds of objection within 30 days from the date of the allocation notice.

If your partnership consists of non-resident partners

See details on how does Section 45 withholding tax apply to partnerships.

 

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Last Updated on 22 November 2013


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