08 Profit computation Basis period losses & Partnership 2014

Not 32 partnership an individual partners share of

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Unformatted text preview: ure share partnership profits from the same business (s 19C(2)). 19C(2)). A corporate partner can set-off its share of corporate partnership loss against its profits from other trade for the same YA. Any excess loss not so trade excess applied would be c/f to off-set firstly c/f its share of profit from the partnership & then its share the assessable profits from other trade in the other subsequent years (s 19C(5)). 33 Limited Partnership Limited The share of loss which a limited partner can The use to set-off against his other income cannot exceed the amount of his contribution (ie capital + unwithdrawn profits/gains) to the partnership (s 22B). (s 34 Corporation or Body of Persons Losses arising from one trade can be off-set against profits of off-set other trades carried on by the other same company during that year (including its share of assessable profits of a partnership in which it is partner). Any unrelieved trade unrelieved loss can be c/f to set-off c/f against any future profits of future the company (s 19C(4)). the 35 MEANING OF PARTNERSHIP Partnership is defined as 'the relation which exists Partnership between persons carrying on a business in common with a view of profit' (s 3(1) Partnership Ordinance). with Partnership is not a legal person/entity, but is a tax Partnership person. Under IRO s22(1), a single entity of assessment and assessable profits are computed in one sum in the name of the partnership. sum Precedent partner is the responsible person to file out Precedent returns and to do all such acts as required to be done under the IRO, etc, on behalf of the partnership. under Tax recovery under (s22( 4) & (5)) from assets of the partnership, or any partner (including former partner for outstanding tax any before the cessation of partnership) . before 36 COMPUTATION of PARTNERSHIP COMPUTATION PROFITS/LOSSES PROFITS/LOSSES The same rules of computation of assessable profits The apply to sole proprietor businesses, partnerships and corporations, except: corporations, deduction of rent paid by a partnership to a partner or deduction his/her spouse is restricted to the assessable value of the relevant property (s 16(1)(b)) there is no deduction for salaries, or remuneration, there interest on capital or loans paid to a partner or his/her spouse (s 17(2)) 37 Allocation of Partnership Profit / Loss Allocation Loss loss of a partner b/f can only be used to set off loss against his subsequent share of profit (s 19C(2)) the ability of a limited partner to use his share of the loss to set off his other income is restricted to the contribution to the partnership as at end of the YA in which the loss is sustained (s 22B). 38 Example 1 Au, Bau and Chan have been in partnership Au, for many years. They share profits & losses equally. They The profit and loss account for the year The ending 31 Dec 2007 contains the following information: 39 P/L AC Gross profit Gross Less: Partners'-salaries -Mr Au $50,000 -Mr Bau 40,000 -Mr Chan 60,000 Salary to Mrs Au 50,000 Interest on capital -Mr Au 11,000 -Mr Bau 12,000 -Mr Chan 14,000 14,000 $350,000 (237,000) Other expenses (all allowable) (50,000) (50,000) Net profit 63,000 40 Solution to example 1 Solution Au, Bau & Chau YA 2007/08 YA Basis period: year ended 31 Dec 2007 $ $ Profit per account 63,000 63,000 Add: Partners' salaries 150,000 Add: Salary to partner's spouse 50,000 Interest on capital 37,000 237,000 Interest 37,000 237,000 Assessable pro...
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