Partnerships (Paying tax)

Stage	Description
1	You can prepare a formal partnership agreement.
2	Limited partnerships must be registered with the Companies Office.
3	Partners share responsibility for running the business, and share the profits and losses equally, unless an agreement says otherwise.
4	The partnership distributes its income to the partners, who each pay tax on their own share.
5	The partnership itself does not pay income tax on its profits. Instead: at the end of each year the net profit (without taking into account partners' drawings) is distributed between each partner each partner then pays income tax on their share of the profit in their individual tax return, along with any other income they may have received.

If ...

then you ...

and they must ...

there is a bona fide contract in writing and agreed to by all partners

include the salary or wage in their Individual tax return (IR3) along with their share of any profit or loss from the partnership, and
claim the salary or wage as a deductible expense in the partnerships' Income tax return - partnerships (IR7).

See our Employer's guide (IR335)

We can reallocate payments for tax purposes if we consider that any:

is unreasonable or excessive.

To consider this, we look at:

We cannot reallocate a partners' share of income or losses if there is a bona fide contract.

Date published: 28 Mar 2008

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Business income tax