Find out about: Tax rates and codes
Partnerships
In a partnership, two or more people run a business together. Each partner:
- contributes something to the business, and
- in return shares in any profit or loss, and
- is also liable for any debt within the partnership.
How does a partnership work?
| 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:
|
Paying a salary or wage to a partner
| If ... | then you ... | and they must ... |
|---|---|---|
|
there is a bona fide contract in writing and agreed to by all partners |
|
|
Find out more
See our Employer's guide (IR335)
Reallocating payments for tax purposes
We can reallocate payments for tax purposes if we consider that any:
- payment
- salary or wage
- share of profit or loss, or
- other income paid to a relative or associated person
is unreasonable or excessive.
To consider this, we look at:
- the nature and extent of the services provided
- the value of the partners' contributions made by way of services or capital
- any other relevant matters.
Note
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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