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A partnership is an association or relationship between two or more individuals, corporations, trusts, or partnerships that join together to carry on a trade or business.

Each partner contributes money, labour, property, or skills to the partnership. In return, each partner is entitled to a share of the profits or losses of the business. The business profits (or losses) are usually divided among the partners based on the partnership agreement.

Like a sole proprietorship, a partnership is easy to form. In fact, a simple verbal agreement is enough to form a partnership. However, most partnerships are governed by a written agreement setting out rules for partners entering or leaving the partnership, the division of partnership income, and other matters. If money and property are at stake, we recommend that you have a written agreement.

The partnership is bound by the actions of any member of the partnership, as long as these are within the usual scope of the operations.

How does a partnership pay taxes?

A partnership by itself does not pay income tax on its operating results and does not file an annual income tax return. Instead, each partner includes a share of the partnership income (or loss) on a personal, corporate, or trust income tax return. They do this whether they received their share in money or as a credit in the partnership's capital account.

Each partner also has to either file financial statements or copies of the forms below that apply to their situation (computer-generated version of any of these forms is acceptable):

A partnership that carries on a business in Canada, or a Canadian partnership with Canadian or foreign operations or investments, has to file a Form T5013, Statement of Partnership Income, for each fiscal period of the partnership where:

  • at the end of the fiscal period, the partnership has an absolute value of revenues plus an absolute value of expenses of more than $2 million, or has more than $5 million in assets; or
  • at anytime during the fiscal period:
    • the partnership is a tiered partnership (has another partnership as a partner or is itself a partner in another partnership);
    • the partnership has a corporation or a trust as a partner;
    • the partnership invested in flow-through shares of a principal-business corporation that incurred Canadian resource expenses and renounced those expenses to the partnership; or
    • the minister of National Revenue asked in writing a complete Form T5013.

For more information, go to Partnership and information return filing requirements; or see Guide T4068, Guide for the T5013 Partnership Information Return.

Does a partnership have to register for GST/HST?

Since a partnership is considered to be a separate person, it may be required to register for and collect GST/HST if it provide taxable supplies in Canada. For more information, see Guide RC4022, General Information for GST/HST Registrants.

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