In a partnership? Adhere to these five tax rules
If you belong to a partnership, pay attention! In terms of South African tax laws, the tax treatment of partnerships is different to that of companies because you and your partners are personally liable for any tax owed by the partnership. Read on to discover five tax rules that govern partnerships to ensure you're compliant with every tax law.
A partnership is 'an agreement between two or more people who agree to contribute to the partnership in return for a share in the partnership profits and capital,' explains the Practical Tax Loose Leaf Service.
How will SARS assess a partnership?
Since a partnership isn't a taxable person under South African law, the tax liability falls on the partners who are required to submit joint returns.
SARS will tax the partners at their normal tax rates meaning 'partners which are companies will be taxed at a flat rate of 28% and partners who are natural persons will be taxed at the marginal rates that apply to individuals,' says the Loose Leaf.
It's important that your partnership is compliant when submitting tax returns to stay on the right side of the Income Tax Act.
You can do this by ensuring your partnership complies with these tax rules…
Your partnership must comply with these five tax rules
According to the Practical Tax Loose Leaf Service, partnerships are governed by these tax rules:
The income of the various partners, as determined by the partnership agreement, will be subject to tax (and payable by the partners themselves) under the normal provisions of the Income Tax Act.
The partnership income will be deemed to have accrued to the partner who's entitled to such income at the same time the partnership income accrues to the partnership.
The partnership must register as a Vat vendor (if it qualifies for registration) and will be liable for its Vat. In addition, 'the individual partners are jointly and severally liable for the partnership's Vat,' says the Loose Leaf.
When the partnership is dissolved by reason of a change in the partners, but the business continues, no new Vat registration is needed.
SARS requires a partnership to register for employees' tax and one of the partners is liable for the employees' tax as a representative vendor.
Knowing the tax rules that govern partnerships will ensure you're compliant with the Income Tax Act when submitting your tax returns.