According to case law, a partnership is an agreement between two or more persons who agree to contribute to the partnership in return for a share in the partnership profits or capital.
The Practical Tax Loose Leaf Service explains that this definition was confirmed in the case of ITC 1784 (67 SATC 40). A case that showed that 'each time the relationship between the partners is altered a new partnership is constituted and the old partnership dissolved.'
What does this mean? Are there any tax consequences?
Revealed: The tax implications if you or your partner dissolves your partnership
South African law says if a partner dies, leaves the partnership or a partner is added, the partnership dissolves. After all, the partnership is essentially a contractual arrangement, not a separate legal person.
This potentially creates a problem in that the new partnership has to register as a vendor.
Fortunately, the Vat Act views the old and the new partnership as the same partnership provided that the new partnership carries on the same business enterprise as the old one did.
So there's no deemed output supply of capital assets at cessation of trade. The new partnership steps into the shoes of the old partnership and no new registration is needed.
Remember, a partnership isn't a taxable person under South African law, so it can't be taxed. The tax liability falls on you as a partner. So make sure you're compliant.
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