Basic checklist of things to do including keeping proper accounts, preparing statements and filing income tax for partnerships.
1. Know Your Tax Obligations
Generally, sole-proprietors and partners registered with the Accounting and Corporate Regulatory Authority (ACRA) are self-employed.
All self-employed persons must report the income earned from their business operations as business income, not salary. The business income is part of the total personal income which is taxed at individual income tax rates.
The precedent partner is also required to submit the partnership income tax return (Form P) on behalf of the partnership even though the partnership itself does not pay taxes.
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2. File Annual Return for Partnership (Form P)
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.
e-Filing of Form P will be available from 1 Feb. If a partnership e-Files the Form P by 28 Feb, the partnership allocation will be pre-filled in the respective partners' Form B/B1. With this pre-filling initiative, the precedent partner need not separately
inform the respective partners of their share of the partnership income and the individual partners can enjoy the convenience of having their tax return pre-filled.
6,000 partnerships with more than 12,000 partners had e-Filed their business income in Feb last year and availed the pre-filling service to their partners.
The precedent partner can refer to the responsibilities of precedent partners for more details.
6,000 partnerships with more than 12,000 partners had e-Filed their business income in Feb last year and availed the pre-filling service to their partners.
The precedent partner can refer to the responsibilities of precedent partners for more details.
Obtaining Form P
The Form P is not available for downloading from the website. If you require a copy of the Form P, you may use Ask Jamie our Virtual Assistant (available 24/7) at this webpage or Chat with us online to resolve your tax matter quickly. You may also call us on Individual Income Tax Helpline at 1800-356 8300.
For more details on how to complete Form P, please refer to the Filing Guide for Partnership (Form P) (PDF, 177.2KB).
3. Decide on the Accounting Period
Partnerships should decide on the accounting period when the partnership is formed or starts to operate. Most businesses, including partnerships, choose accounting periods that end on 31 Dec each year. You may choose an accounting period that ends on any date.
Example 1: Accounting Period that Ends on 31 Dec
Your partnership starts on 1 April 2018 and you choose the accounting period to end on 31 Dec every year. The relevant accounting periods and the respective Years of Assessment (YA) are:
| Accounting Period | YA | |
|---|---|---|
| 1st Accounting Period | 01 Apr 2018 to 31 Dec 2018 | YA 2019 |
| 2nd Accounting Period | 01 Jan 2019 to 31 Dec 2019 | YA 2020 |
| 3rd Accounting Period | 01 Jan 2020 to 31 Dec 2020 | YA 2021 |
| 4th Accounting Period | 01 Jan 2021 to 31 Dec 2021 | YA 2022 |
Example 2: Accounting Period other than 31 Dec
Your business starts on 1 April 2018 and you choose to end your accounting period on 31 Mar. The relevant accounting periods and the respective YAs are:
| Accounting Period | YA | |
|---|---|---|
| 1st Accounting Period | 01 Apr 2018 to 31 Mar 2019 | YA 2020 |
| 2nd Accounting Period | 01 Apr 2019 to 31 Mar 2020 | YA 2021 |
| 3rd Accounting Period | 01 Apr 2020 to 31 Mar 2021 | YA 2022 |
4. Prepare Statement of Accounts
At the end of every accounting period, you must prepare the statement of accounts comprising:
- Profit and Loss Accounts
- Balance Sheet
You can download and use the Statement of Accounts for Partnership (XLS, 41KB).
5. Prepare a 2-line/4-line Statement
The precedent partners should prepare the 2-line/4-line statement by extracting the relevant figures from the partnership's statement of accounts for filing Form P.
2-Line statement (New)
With effect from YA 2022, the 2-line statement is extended to partnerships with revenue of $200,000 or less as part of IRAS’ continuous efforts to simplify tax filing for small businesses.
The figures that you need when your revenue is $200,000 or less from YA 2022 are:
| First line | Revenue |
|---|---|
| Second line | Adjusted Profit/Loss |
4-Line statement
The figures that you need when your revenue is more than $200,000 from YA 2022 are:
| First line | Revenue |
|---|---|
| Second line | Gross Profit/Loss |
| Third line | Allowable Business Expenses |
| Fourth line | Adjusted Profit/Loss |
For YA 2021 and before, you should prepare the 4-line statement regardless of the amount of revenue earned.
For details, please refer to Calculating Business Income.
6. Calculate the Divisible Profit
Precedent partners are required to calculate the divisible profit of the partnership and allocate the profit 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.
Illustration: Calculating 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
Example 3: Dividing Profit Among Partners
ABC partnership is made up of partner A and B. Partners A and B agreed 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 2019, the partnership made a profit of $24,000 (after deducting partners' salaries). Partner A and B decide 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 31.12.2019 | $6,000 | $4,800 | $10,800 |
| Balance: Divisible Profit | $14,400 | $9,600 | $24,000 |
| Total Adjusted Profit | $20,400 | $14,400 | $34,800 |
The partnership income allocated to Partner A is $20,400. The partnership income allocated to Partner B is $14,400. The income will be assessed in their names even though the divisible profit of $24,000 was retained in the partnership account.
7. Allocation of Profit/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 is responsible for informing 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.
Please refer to the responsibilities of precedent partners for more details.
8. Declaring Partnership Other Income – Rent from Property
Rental income derived by a partnership from its partnership property or the sublet of a property, should be brought into the partnership accounts and distributed among partners based on the profit sharing ratio set out in the partnership agreement.
Partnership Property
A property bought with money or funds belonging to the partnership firm is generally deemed to have been bought on account of the firm and is a partnership property. Profits
of the partnership that have been distributed to partners (i.e. drawings) is not considered money or funds belonging to the firm.
A property belonging to a Limited Liability Partnership (LLP) that is registered in the name of the LLP should generally be a partnership property.
To help you determine if a property is a partnership property, refer to the list of indicators below, which is not exhaustive:
- Property bought with funds of the partnership
- Used in the course or furtherance of the partnership business
- Agreement or mutual understanding among partners in relation to that property
- Reflected as an asset of the partnership
- The Sales & Purchase Agreement states that the property is for use by the partnership
For more information on reporting rental income from property, please refer to Reporting Rental Income.
9. Objection to the Allocation of Profit/Loss to Partners
Objections to the allocation of profit/loss must be lodged through the precedent partner. The precedent partner must write to IRAS stating clearly the grounds of objection within 30 days from the date of the allocation notice.
10. Keep Proper Records and Accounts
You are required to keep full and accurate records and accounts of your partnership transactions from the start. These records and accounts must be supported with invoices, receipts, vouchers, and other documents.
IRAS will not accept estimate and improper records. For details, please refer to Keeping Proper Records and Accounts.
11. Pay Withholding Tax
Withholding tax applies to partnerships. For details, please refer to Section 45 withholding tax apply to partnerships.