INCOME TAX -

UNINCORPORATED
ENTITIES
Lecture 8

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PARTNERSHIP

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Content

ACC2054 Property of Sunway University

DETERMINATION
OF PARTNERSHIP
o s.2 of ITA1967 –‘an association of any kind (…)
 between parties who have agreed to combine any of
their rights, powers, property, labour or skill
 for the purpose of carrying on a business and sharing
the profits therefrom……’
o Limit of partnership member:
 2 ≥ partners ≥ 20
What is Partnerhsip?

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 ◦ Partnership itself is not a chargeable person.
Chargeable
◦ The chargeable persons are the partners.
Person
◦ “Partners” can be individuals or companies.

◦ Partnership is carrying on business with a view of

profit.
◦ Thus source of income is business income.
Source of Income

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University
◦ s.2 defines a business to include:
 profession;
 vocation;
 trade;
 every manufacture; and
 adventure or concern in the nature of trade; but
What is business?
 excludes employment
(Recap)

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How To Determine Whether Partnership Exist?
• Question of fact.
• Certificate of registration is prima facie and strong evidence.
• Refer to case laws precedence:
a) Carrying on a business
b) Sharing of rights and responsibilities
c) A view to profit
d) Element of risk and reward for each partner
e) Contribution of capital
f) The names mentioned in official correspondence
g) How bank accounts are operated and cheque signatory

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 Illustration
Example 21.2 CKF
Kim Win and Goon Ling agreed to the following arrangements:
a) Kim Win would provide all the capital needed for the setting up of a food catering
business.
b) Goon Ling would be the cook and oversees the operation of the business.
c) Goon Ling would receive a fixed salary and a percentage of the sales proceeds.
d) Kim Win would receive the balance after taking into account all other operating
expenses.

Does a partnership exist?

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 Illustration
Example 21.2 CKF
• There is no sharing of profits/losses among them but only an incentive scheme i.e. a
percentage of the sales proceeds to be given to Goon Ling.
• Kim Win is actually the sole-proprietor of the business whereas Gon Ling is merely
an employee.

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 TAX
COMPUTATION
Company Tax Computation Format
Bus ine s s 1
LESS ADD
RM RM
NET PROFIT BEFORE TAX XXXXX

LESS: NON BUSINESS INCOME

Divide nd re ce ive d XXX
Inte re st re ce ive d XXX

ADD BACK: NON-ALLOWABLE EXPENSES

De p re c iation xx
Holiday / le ave passage xx
Bad de bt - Trade Nil
- Non Trade xx
Provision for bad de bt - spe cific Nil
- ge ne ral xx
Donation xx
Private e xpe nse s xx

LESS: SPECIAL DEDUCTION Nil

LESS: DOUBLE DEDUCTION

Salary for disable d e mploye e xx
Mainte nance of child care ce ntre xx
XXX XXXXX

ADJUSTED INCOME / ADJUSTED LOSS XXXX

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 Private e xpe nse s xx

LESS: SPECIAL DEDUCTION Nil

LESS: DOUBLE DEDUCTION

Salary for disable d e mploye e xx
Mainte nance of child care ce ntre xx
XXX XXXXX

ADJUSTED INCOME / ADJUSTED LOSS XXXX

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 Private e xpe nse s xx

LESS: SPECIAL DEDUCTION Nil

LESS: DOUBLE DEDUCTION

Salary for disable d e mploye e xx
Mainte nance of child care ce ntre xx
ADD: PARTNERSHIP EXPENSES XXX XXXXX
Partne r's salary - Partne r A XX
- Partne r B XX
Inte re st on capital - Partne r A Distribution of biz income XX
- Partne r B XX
Partne r's private e xpe nse s XX
XXX XXXXX

ADJUSTED INCOME / ADJUSTED LOSS XXXX

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 Private e xpe nse s xx

LESS: SPECIAL DEDUCTION Nil

LESS: DOUBLE DEDUCTION

Salary for disable d e mploye e xx
Mainte nance of child care ce ntre xx
ADD: PARTNERSHIP EXPENSES XXX XXXXX
Partne r's salary - Partne r A XX
- Partne r B XX
Inte re st on capital - Partne r A XX
- Partne r B XX
Partne r's private e xpe nse s XX
XXX XXXXX

PROVISIONAL ADJUSTED
ADJUS TED INCOME INCOME
/ ADJUS TED LOS/ PROVISIONAL
S ADJUSTED LOSS (PAI) XXXX
LESS: PARTNERSHIP EXPENSES
Partne r's salary - Partne r A XX
- Partne r B XX
Inte re st on capital - Partne r A XX
- Partne r B XX
Partne r's private e xpe nse s XX

DIVISIBLE INCOME s.55(3) XXXX

Partner A Partner B
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 DIVISIBLE INCOME XXXX

Partner A Partner B
DIVISIBLE INCOME (agreed ratio) XX XX
Partner’s salary XX XX
Interest on capital XX XX
Private expenses XX XX
ADJUSTED INCOME XXX XXX

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Example 21.7 (Modified)
Price Associates is a partnership between Kang and Khoo. They share profit and lost
equally. The profit and loss account for the year ended 31.12.2020 was as follows:
RM RM RM
Trading income 1,730,000
Less:
Revenue expenses 700,000
Depreciation 60,000
Entertainment to client (related to sales) 40,000
General provision for doubtful debts 20,000
Partnership expenses:
Salary
: Kang 2,000
: Khoo 1,000 3,000
Interest on capital
: Kang 1,500
: Khoo 1,000 2,500
Food from the business consumed by Kang 3,000 (828,500)
Net profit 901,500
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Tax Computation for Price Associates
RM RM
Le s s Add
Net profit before tax 901,500

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 0 990,000

PROVISIONAL ADJ USTED INCOME 990,000

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DIVISIBLE INCOME 981,500

Kang Khoo Total

RM RM RM
Divisible income (50:50)

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 In summary...
Step 1 –Provisional Adjusted Income
Profit before tax
Add: Non-deductible expenses under the ITA67 (s.33, 34 , 39, same with
incorporated entities)
Add: Partnership expenses*
= Provisional adjusted income

*Examples of partnership expenses, s.55(3):

a) Partner’s salary;
b) Interest on partner’s loan to partnership;
c) Private/domestic expenses incurred by partner or reimbursed to partners.

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 In summary...

Step 2 –Divisible Income For Partnership

Provisional adjusted income
Deduct: Partnership expenses*
= Divisible income

Step 3 –Adjusted Income For Partner

Partner’s share of divisible income
Add: Partner’s share of partnership expenses*
= Adjusted income

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 Other Important Rules...
• Divisible income is assumed to accrue evenly (s.55(4))
 So, if profit sharing ratio changes during a basis period – apportion on a
time basis
• Non-business income will also be allocated according to profit ratio (s.58)
• No special treatment for provisional adjusted loss, i.e. divisible loss will be
allocated according to profit ratio (s.59)

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 Illustration
Gary and George agreed to form a partnership to do business under the
following terms and conditions:
• Each partner is entitled to a salary of RM18,000 p.a.
• Profit sharing ratio:
• 1.1.18-30.6.18 = Gary 50%, George 50%
• 1.7.18-31.12.18 = Gary 75%, George 25%
Provisional adjusted income for the year is RM84,000.
Compute the partners adjusted income.

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PROVISIONAL ADJ USTED INCOME 84,000

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 Statutory Income
• Same with incorporated entities.
• Capital allowance:
 Allocated based on profit sharing ratio at the end of the basis
period.
 Allocated based on partners in existence at the end of the basis
period.
 If there is a change of partners,
 the retiring partners get no CA,
 the partners at the end of the period get all CA.

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 Partne r A Partne r B

ADJUSTED INCOME XXXX

XXXX XXXX

LESS: Capital allowance (xxx)

(xxx) (xxx)
Balancing allowance (xxx)
(xxx) (xxx)
ADD: Balancing charge xxx
xxx xxx

STATUTORY INCOME XXXX

XXXX XXXX

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 Illustration
Ace and Bob agreed to share profit at a ratio of 50/50 in their business
partnership formed. Bob left on 30.9.18 and Charles joined 1.10.18.
Profit sharing ratio for Ace and Charles is also 50/50. The accounting
details of YA 2018 (close accounts 31 December annually) are as at
below:
• Divisible income RM100,000
• Partners Salaries : Ace RM12,000, Bob RM9,000, Charles RM3,000
• Capital allowance RM28,000
Compute the statutory income of each partner

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 Ace Bob Charle s Total
RM RM RM RM
DIVISIBLE INCOME 48,000
1/1/18 - 30/9/18 (Ace:Bob)
1/10/18 - 31/12/18 (Ace:Charles)

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 After Statutory Income...
Partner A Partner B
STATUTORY INCOME XXXX XXXX
LESS: Unabsorbed business loss from previous year (xx) (xx)
STATUTORY INCOME XXXX XXXX

NON BUSINESS INCOME

Dividend Nil Nil
Less: expenses related to share purchase Nil Nil Nil Nil

Rental income XXX XXX

Less: expenses related to renting out property (xx) XX (xx) XX
AGGREGATE INCOME XXXX XXXX
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Rental income XXX XXX
Less: expenses related to renting out property (xx) XX (xx) XX
AGGREGATE INCOME XXXX XXXX
Less: Current year adjusted loss (XX) (XX)
Approved donation (XX) (XX)
TOTAL INCOME XXXX XXXX
Personal reliefs
XXX (xx) (xx)
CHARGEABLE INCOME XXXX XXXX

Tax payable:
First @ x% XX XX
Remaining @ y% XX XX

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 Illustration (Adjusted Loss)
Vincent and Barret form a partnership. In YA 2019, the partnership has the following
details:
• Profit sharing ratio 50:50
• Provisional adjusted loss: RM83,000
• Partner’s salary: Vincent RM10,000, Barret RM7,000
• Approved donation made by the partnership: RM5,000
• Interest on fixed deposit earned by the partnership: RM2,000
• Capital allowance: RM20,000

Compute the total income of each partner

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ACC2054 Property of Sunway University
 Vince nt Barre t Total
RM RM RM

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 Approved Donation [s.44(6)]
• Approved donation made by the partnership will be deducted against
the aggregate income of each partners based on the profit sharing
ratio on the date when the donation was made.
• Capped at 10% of the partner’s aggregate income.

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 Self
Assessment System
 Compliance
• Partnership is not a chargeable person, but need to submit Form P.
• Responsibility of filing lies with the managing partner
 the partner that manage the partnership and make policy decision.
• Each partner includes the share of partnership statutory income in their
respective Form B.

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 Partnership

For For For For

partnership herself herself himself

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ACC2054 Property of Sunway University
ACC2054 Property of Sunway University
 Compliance
• Partnership is not a chargeable person, but need to submit Form P.
• Responsibility of filing lies with the managing partner
 the partner that manage the partnership and make policy decision.
• Each partner includes the share of partnership statutory income in their
respective Form B.
• Deadline of tax submission for individual taxpayers with business
income
 30 June of subsequent year.

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