How the CRA Calculates Business Taxes Related to Partnerships
According to the Canadian tax laws, any business which is run by two or more individuals in collaboration with one another is referred to as a partnership. If you are a part of a registered partnership business, here’s what you need to know about it.
Entering a Business Partnership
Are you a part of a business which involves one or more persons other than you? If yes, then chances are you may have wondered how it will have a bearing on your individual tax returns. Until the time the incorporation of your company is complete, you are required to submit your taxes individually in accordance with the Canadian tax laws. However, you need to consider certain other aspects in case your business profits are shared between you and your partner.
Starting a Partnership
Before beginning a partnership, it is imperative that you conclude a contractual agreement of your partnership business. This will make it easy for you and your partner or partners to understand how the business revenue, expenses and tasks would be divided among yourselves. Additionally, it will also give you a clear indication of what amount of money you need to declare while filing your individual tax return.
While the laws in Canada do not mandate an agreement to operate a partnership business, it is strongly recommended because it provides an individual with greater protection whenever there is a dispute among the partners. It goes without saying that a written agreement is more credible than a verbal agreement among the partners.
Having an agreement in writing will also help protect both your property and income from legal issues. If required, do not hesitate in seeking professional help in this connection.
Taxes and Income Associated with A Business Partnership
Contrary to corporations, a business partnership does not comprise tax obligations. All you need to do is report your share of profit from the business in the form of self-employed income. Report it on lines 135 and 143 while filing your tax return.
Additionally, you are also required to fill out for T2125 for the statement of your professional or business activities. In case you are a part of a business with assets valued at more than$5 million, you are required to fill out for T5013.
If the total turnover generated by your business surpasses the margin of $30,000 annually, you should collect GST/PST/HST. Ensure the timely payment of your sales tax bill on either a quarterly or yearly basis.
For any questions related to filing tax returns or tax audit and reassessment in North York Ontario, contact us now!