Perhaps you started out in a business venture with another individual and you just assume they are your business partner. What you may need to determine is whether it is a general partnership or a limited partnership.
The daily operation of your business probably doesn’t raise too many questions as to whether you consider yourself partners. It is when it comes down to your tax obligations or if you decide to dissolve the business that this type of relationship becomes important.
To really get a handle on the type of partnership agreement you have, which incidentally does not have to be an agreement in writing, you need to determine each of your involvement, and the rules pertaining to this according to your province.
Basically a general partnership is where all parties have equal responsibilities and share in the profit. A limited partnership is just as the name implies, meaning there are limits that have been set for one or more of the partners.
When it comes tax time in most cases each partner will claim the net income they made from the partnership business on their individual returns. The same holds true for a net loss. In this case as a partner that experienced a loss from the partnership you would have to claim your non-capital losses along with any other non-capital losses you may have. This is important especially if you want to utilize carrying forward the loss in future years.
Being as you are responsible for preparing your own individual taxes pertaining to your partnership involvement, it is important that you have an accurate copy of all of the financial records pertaining to the business.
Be sure to discuss in detail with your tax accountant the extent of your partnership agreement. This is most important when it comes to meeting your tax obligations. It may be that you have agreed to be only a 30% partner, and your taxes will need to reflect this. You would only then be held accountable to this degree of involvement. Your accountant also has to determine whether a T5013 form has to be filed.
While it is not necessary to have a written agreement in respect to your tax position and your partnership it is always wise to have your agreement in writing to offset any potential disagreements that could surface. There have been many friends that have gone into a partnership business and have not full discussed the expectations that each of them have, and this can lead to a nasty situation.
