ACC3313

TAXATION 2

CHAPTER 2 - Partnership
Learning Outcomes
 Able to understand the principles related to partnership
taxation
 Able to compute a full partnership taxation
 Apply the principle into the computationof taxation

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Topic & Structure of the lesson
 Introduction to partnership structure
 Tax treatment for partnership
 Provisional adjusted income & loss
 Divisible Income
 Change in partnership
 Capital Allowance
 Non-business income
 Tax adminstration

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Key Terms you must be able to use
 Partnership
 Provisional Income
 Divisible Income
 Provisional Loss
 Capital allowances

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INTRODUCTION
 A partnership is define as an association of any kind between
parties who have agreed to combine any of their rights,
powers, property,labour or skills for the purpose of carrying
on a business and sharing the profit therefrom.

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TAX EFFECT
 Partnership is not a chargeable person for income tax
purpose
 Income tax is levied on the individual partners on their share
of business income
 The source of income from a partnership is business income
which includes trade, manufacturing, professional and
vocational

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EXISTENCE OF A PARTNERSHIP
 After considering S 2 of the Act, the following factors need to be
present before a partnership exits:
 Carrying on business
 Sharing of rights and responsibilities
 a view to profit
 Element of risk and rewards for each partner

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EXAMPLE
Kim Win and Goon Ling agreed to the following arrangements:
(i) Kim Win would provide all the capital needed to set up a food
catering business
(ii)Goon Ling would be the cook and oversees the operation of the
business
(iii) Goon Ling would receive a fixed salary and a percentage of the
sales proceeds
(iv) Kim Win would receive the balance after taking into account all
the other operating expenses
Discuss whether a partnership exist

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EXAMPLE

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PROVISIONAL ADJUSTED INCOME
 A partnership is presumed to be a sole properiertorship for
computing patnership adjusted income
 Partnership adjusted income is known as provisional adjusted
income

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DIVISIBLE INCOME
 The basis to apportion the partnership income to individual
partners is based on the profit sharing ratio stipulated in the
partnership agreement
 This profit apportionment is known as divisible income
 This is arrived by less out all partners private expenses from
the provisional income

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 PROVISIONAL LOSS
 The provisional loss is computed the same manner as
provisional adjusted income
 Divisible loss arises, the loss will be allocated to the
individual partners according to the profit sharing ratio
 Current year partnership losses can be set off against
aggregate income of individual partners
 Unabsorbed losses can be carried forward indefinitely to be
set off against future business income

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CHANGES IN PARTNERSHIP
 If there is a change in profit sharing ratio during the basis
period ,the apportionment of divisible income will be
carried out on time basis
 When a new partner is admitted or a old partner withdraws,
this would cause the old partnership to cease and a new
commencement of new partnership.

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CONTINUING PARTNERSHIP
 Where there is a least a person who is the partner in an old
partnership and continue to be a partner in the new
partnership, the partnership business is treated as continuing,
even if the changes takes place mid way through the
accounting year
 The continuing partner is deemed to have a continuing
source of business income.

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ADMISSION OF A NEW PARTNER
 New partner admitted into a existing partnership and the
partnership continues to prepare the accounts to its normal
year end, the Director General will direct the basis period
for the new partner for the first YA from the date of entering
into the partnership

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 CAPITAL ALLOWANCE
 Capital allowance claim is attributable to the individual partners
instead of the partnership
 The capital allowance is allocated in accordance to the profit
sharing ratio of the partners
 Since capital allowance is calculated at year end, new partners
will enjoy a full years allowance while retiring partners will not
be entitled to any allowances

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ASSETS PURCHASES BY A PARTNER AND
SOLELY USED BY HIM
 A partner may personally incur the qualifying expenditure
and use it in the partnership business, the whole capital
allowance will be given to that partner only

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 NON-BUSINESS INCOME FROM
PARTNERSHIP
 Where the partnership receive non-business income such as dividend,
rental or interest, it would be computed separately from the
provisional income
 The adjusted income from other sources will be apportioned among
partners in accordance to their profit sharing ratio.
 Approved donation made by the partnership will be divided among
partners in accordance with their profit sharing ratio

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TAX ADMINISTRATION
 Partnership is required to file form ‘P’
 The responsibilities lies on the principle partner
 Each individual partner will include their share of statutory
income in their form ‘B’

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Question &
Answer
Session
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