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Taxable Income of a Partner (s24H)

Taxable Income of a Partner (s24H)

Author: Natalie Wocke
Date: 2014-09-12
With the advent of the new Companies Act, and the inability to register new Close Corporations, many taxpayers are looking for alternative, simple business vehicles.In many instances, a Partnership may provide a suitable alternative business vehicle.

Section 24H of the Income tax Act 1962, deals with the taxable income of a Partner. Partnerships are unique in that the taxable income of the Partnership is not taxed seperately from the individual taxpayer, as is the case with a Company, which is a seperate legal entity. Income of the Partnership is deemed to have been received by each partner in their personal capacity,in accordance with the agreed profit sharing ratio.(S24H(5)(a)).

Each Partner will be permitted to deduct any deduction or allowance which would be granted under the Act, in the determination of their taxable income derived from the Partnership. Practically, the taxable income of the Partnership is determined as if the Partnership was a separate taxable entity. This taxable income is then apportioned between the Partners in their agreed profit sharing ratio. Generally, when a Partnership incurrs a loss, each Partner will take into account in the calculation of their taxable income, their respective share of the Partnership losses and off-set this against other taxable income.

One should never set up a business structure without first obtaining professional advice on whether the structure is suitable for your particular business venture. This evaluation should take into account amongst many other factors, the risks associated with your business, and tax consequences unique to that structure. For an evaluation of your proposed business structure, make an appointment with Roberts and Chaplin. Branches in Ballito (032 586 0387) and Umhlali (032 947 1010) for your convenience.