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TOPIC 1 PARTNERSHIP TAXATION 1
Learning Outcome: Definition of partnership Computation of divisible income and provisional adjusted income Statutory income for each partner 2
Definition of Partnerships 3
Introduction Definition of Partnership: An association of an 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. A partnership does not include a Hindu joint family. It includes joint ventures, syndicate and cases where a party to the association is itself a partnership ( s 2 ) 4
Chargeable Person Partnership is not a chargeable person for income tax purpose. Income tax is levied on the individual partners on their share of business income. 'Partners' here can refer to individuals or companies. 5
Source of income As partnership is the relationship which comprises of two or more persons ( restricted to a maximum of 20 person ) carrying on business in common with a view of profit, the source is a business income. Business income includes trade, manufacture, profession, vocation and adventures or concern in the nature of trade. 6
Existence of a partnership The following factors need to be present before a partnership is said to exist: (a) carrying on business;(b) sharing of rights and responsibilities;(c) a view to profit;(d) element of risk and reward for each partner. The presence of a partnership agreement is persuasive for the existence of partnership but this is never conclusive. Although sometimes a person may be called a 'salaried partner, ' he would be assessed on employment incomeit there exist a master and servant relationship. 7
Example 1 State, with reasons, whether a partnership exists in the following situation:Crede Sdn Bhd, a timber company entered into an agreement with Jaykay Sdn Bhd, a furniture manufacturer, to supply furniture to supermarkets. In this arrangement, Ceede Sdn Bhd would supply sawn timber to be used by Jaykay Sdn Bhd for the furniture manufacturing business. The profits/losses from the sale of furniture would be shared equally between the two companies. 8
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Definition of Partnership – General Features General features: An Agreement A profit / Loss sharing formula A share of ownership A share of management duties A share of operational duties A share of decision making authority (vote) A share of partner changing 10
Definition of Partnership - Pros & Cons Advantages: Extra manpower, skills & expertise More financial resources Disadvantages: More partner = slow decision making Unlimited liability Profit / loss sharing 11
Assessment of Partnership business income: i. Provisional adjusted income ii. Divisible income iii. Adjusted Income 12

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