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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