Unit 1: Partnership

ATP3782 Taxation 1B
Bachelor of Accounting
By

Dr Eukeria Wealth
Department of Tax &Auditing
School of Accounting
LEARNING OBJECTIVES

• To define a partnership
• Formation & Dissolution of partnership
• To determine gross income &deductions
• To compute taxable income & tax liability
OVERVIEW

• A partnership is an organisation formed by at least 2-20 who agree to contribute something to a

common business. [Sec 56 (15)]

• A partnership is not recognized as a ‘legal persona’ for income tax purposes and as such a
partnership is not a taxpayer on its own.

• Partners are taxed on their share of partnership profits and on income earned from employment
with the partnership.

• Each partner has to submit a return.

FORMATION & DISSOLUTION OFPARTNERSHIP

• Formation
• Reasons for the formation of a Partnership

• Dissolution of partnership
• Reasons for dissolution of the partnership
DISTRIBUTIONS TO PARTNERS

1. Partner are not taxed on their drawings, but on their share of the P/S profit.
2. Partner’s salary is taxed on a sliding scale
3. Local dividend is exempt
4. Interest on fixed deposit accounts (subject to WHT)
5. Interest on POSB is exempt
CHANGES IN OWNERSHIP STRUCTURE

➢ Partnership changes may arise as a result of death, resignation; change in partnership profit
sharing ratios or admission of a new partner.

➢ Accounts are prepared for the period from the last accounting date to the date of the death of the
partner
DEDUCTIONS

Separate life policies for partners

Where a partnership pays premiums for separate policies covering the partners, such
an expense is allowed as a deduction in the hands of the partnership provided that
the partners are the beneficiaries of those policies. The benefiting partner is taxable on
the premiums paid on his behalf.

Keyman Policy
Premiums are deductible if:

✓ Premiums included in the income of the employee/director

✓ Policy is property of the taxpayer
✓ Insured against loss due to death, disability
✓ No pay-out before maturity
SUMMARY OF DEDUCTIONS

EXPENDITURE TREATMENT IN THE HANDS TREATMENT IN THE

OF PARTNERSHIP HANDS OF THE PARTNER

Partner’s salary Allowable Taxable

Joint life policies Not Allowable Not Taxable
Partner’s life policy – Allowable Taxable
partner is the beneficiary
Partners survivorship Allowable Not Taxable
policy
Partners interest on Capital Allowable Taxable

Drawings Not Allowable Not Taxable

Interest on drawings Taxable Non-deductible
ANNUITIES

Annuities are generally non-deductible as they are not in the production

of income except when:

❑ The former partner or employee has retired due to old age, ill-health
or infirmity

❑ The partner must have been a Pr for at least 5 years

❑ Former employee- fully deductible

❑ Payments to dependents for former Pr/ employee of deceased Pr/

employee (maxi N$2000 per person)
BAD DEBTS

❖ Bad debts pertaining to the partner should be dealt with when computing the
individual tax liability

❖ Irrecoverable loans to employees are not deductible

❖ Irrecoverable debts are apportioned and deducted according to the new P/S ratio

❖ Bad debts recovered – where there is a change in the P/S ratio, the amount of the
recoupment is limited to the amount that was previously allowed as a deduction

❖ Where a Pr is admitted into the P/S & the P/S agreement states that the Pr remains liable
for irrecoverable debts that arise from his debtors that he brought to the P/S. He can
claim the irrecoverable debts in full and he will also be taxed in full if debt is recovered
KEY POINTS

❑ A lease premium is an amount paid by the lessee to the lessor for the right to use
property & is over and above the rentals paid
❑ A premium allowance = [premium ÷ lease term (ltd to 25yrs)]
❑ Lease improvements = [contract value of improvements ÷Unexpired lease term from the
date of use of the improvements] (ltd to 25yrs)
❑ Lessor is taxed in full in the year the improvement is completed
❑ Bad debts taken over at purchase of business are non-deductible
❑ Annuities to dependents of the deceased are limited to N$2000 per person
❑ RAF is not included in the computation of P/S income, but in the individual
computation
❑ Deductions for pension fund contributions, RAF & premium for the education of a child
is limited to N$150000 for individuals earning a salary
❑ First N$300000 lumpsum from the employer is exempt & bal spread over 3 yrs (if old, ill
or retrenched)
Thank You