Partnerships do not pay income tax. The individual partners report, and pay tax on, their share of the partnership’s income each year.
Most partnerships with six or more partners are required to file an annual “Partnership Information Return” (Form T5013). This form reports the partnership’s income or loss, which is then allocated to the partners for tax purposes.
Form T5013 need not be filed for a partnership with five or fewer partners (Information Circular 89-5R). Each partner is still required to report the income on the appropriate year’s personal, corporate or trust tax return, as the case may be, but the partnership return need not be filed.
Under subsection 152(1.4) of the Income Tax Act, the Canada Revenue Agency can issue a “Notice of Determination” of a partnership’s income. This determination is binding on all partners, and can only be objected to by one partner, representing the entire partnership.
If the T5013 partnership information return is not filed, the CRA takes the view that it can issue this Notice of Determination at any time, and then use that as the basis for assessing a partner’s income. The normal three-year deadline which prevents the CRA from reassessing indefinitely will only start running from the date the T5013 is filed.
Therefore, even partners who do not have to file the T5013 (such as for partnerships with five or fewer partners) should consider filing it, to ensure that the clock starts running to prevent a reassessment many years down the road.
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