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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.
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.
Tax payment method
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.
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):
- Form T2125, Statement of Business or Professional Activities
- Form T2042, Statement of Farming Activities
- Form T2121, Statement of Fishing Activities
- Form T1163, Statement A - AgriStability and AgriInvest Programs Information and Statement of Farming Activities for Individuals
- Form T1164, Statement B - AgriStability and AgriInvest Programs Information and Statement of Farming Activities for Additional Farming Operations
- Form T1273, Statement A - Harmonized AgriStability and AgriInvest Programs Information and Statement of Farming Activities for Individuals
- Form T1274, Statement B - Harmonized AgriStability and AgriInvest Programs Information and Statement of Farming Activities for Additional Farming Operations
A partnership that carries on a business in Canada, or a Canadian partnership with Canadian or foreign operations or investments, has to file form T5013, Statement of Partnership Income, for each of the fiscal periods of the partnership where, one of the following occurs:
- 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
- at any time 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
- the Minister of National Revenue asked in writing for a completed form T5013, Statement of Partnership Income
For more information, go to guide T4068, Guide for the Partnership Information Return (T5013 Forms).
Registering to 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 provides taxable supplies in Canada. For more information, go to guide RC4022, General Information for GST/HST Registrants.
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