18%20Partnerships

18%20Partnerships - Chapter 18 - Partnerships Introduction...

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Chapter 18 - Partnerships
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Introduction • Only individuals, corporations and trusts are taxable entities in Canada. – Individuals and corporations are also separate legal entities – Trusts are not considered legal entities • Partnerships are not legal entities separate from the dividual or corporate partners, and are not taxable individual or corporate partners, and are not taxable (except for a SIFT Partnership, discussed later) • Deeming rule: for purposes of determining the income or loss of the members of a partnership, the partnership is considered to be a person resident in Canada. – Rule only applies for determining income, the partnership is not taxable – Income is determined for the partnership, and flows through to the individual or corporate partners, who then pay their tax
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Partnerships Defined • As partnerships have to calculate income as if they were a person, it is important to know if an organization is a partnership or not. – Individual partners do not have flexibility with respect the calculation of partnership income. to the calculation of partnership income. • Partnerships may be confused with: co- ownership, a syndicate, or a joint venture – For these types of organizations, there is no requirement for a separate calculation of income, and participants may be able to choose as individuals how income is to be determined.
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Partnership Defined • There is no definition of partnership in the ITA, however, IT-90 provides some guidance: – Three basic elements are required for an organization to be a partnership: • Two or more taxable entities are involved he taxable entities are carrying on business • The taxable entities are carrying on business • The business is carried on to make a profit. – The existence of a valid partnership agreement would serve to support the view that a partnership exists. A partnership agreement would address: • Sharing of profits • Filing of financial statements and tax returns • Mutual rights of management control • Location of bank accounts • Rights and duties of partners • Provincial registration of partnership.
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Types of Partnerships • General partnership (most partnerships) – Composed of general partners who manage the business and are equally liable for partnership liabilities – Rights, duties and obligations of general partners clude: include: • Actions of a partner are binding on partnership • Each partner is liable for unpaid partnership liabilities • Property of the partnership is held exclusively for use of the partnership • Partners are entitled to share equally in profits/ losses unless there is an agreement to the contrary • Partners not entitled to interest on capital contributions or remuneration (these are considered withdrawals of capital)
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Types of Partnerships • Limited partnerships – Has at least one general partner with unrestricted liability, and one or more limited partners who have limited liability – Requires registration as a limited partner with the province in
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This note was uploaded on 01/31/2011 for the course MOS 4462 taught by Professor Ann during the Fall '10 term at UWO.

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18%20Partnerships - Chapter 18 - Partnerships Introduction...

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