If you run your own business with a partner, it’s important to understand the Canada Revenue Agency’s rules on reporting partnership income. While the rules are surprisingly simple in most cases, you may face extra reporting requirements as your partnership starts to earn more money or accumulate more assets.
What Is a Partnership?
A partnership is a group of two or more people who share the work, expenses, and profits of a business. You may form a partnership with a verbal agreement or have a lawyer draft an agreement for you, and you may divvy up your partnership in whichever way makes sense for you and your partner. For example, you may each be responsible for 50% of the business, you may control 70% of the business, while your partner controls 30%, or you may embrace another split. Similarly, if you have three or more people, you may also assign shares of the partnership based on how much you each contribute to the business.
How Do You Report Partnership Income?
When you earn money through a partnership, you report it as if you are a self-employed individual. You should use Form T2125, Statement of Business and Professional Activities, to report your business income and expenses. Then, you may transfer the relevant information to your T1 individual tax return.
The Canada Revenue Agency (CRA) requires partners to report income and expenses according to their share of the partnership. To explain, imagine your partnership collects $10,000 in revenue. If you and your partner each have 50% of the business, you each report $5,000 of business income on your tax returns. However, if you own 70% of the partnership, you report $7,000 in revenue while your partner reports only $3,000. You should split up any expenses in the same way.
What Is Form T5103?
Form T5103 is a Partnership Information Return. This form has fields to record partnership income and expenses, list the members of the partnership, and detail each partner’s share in the organization. This form is only for informational purposes — essentially, it allows the CRA to double check that all of the partners are reporting income correctly. However, only some partnerships are required to submit this form. In most cases, you don’t need to worry about it.
Who Needs to File Form T5013?
If you have a tiered partnership, where one of the partners is a partnership, you are required to file Form T5013. Similarly, if one of the partners is a corporation or a trust, you also have to file this form. If your partnership is made up of individuals, you only have to file Form T5013 if your partnership has more than $5 million in assets or if the absolute value of revenues plus the absolute value of expenses is more than $2 million.
For example, if you collect $1.5 million in revenue and you have $600,000 in expenses, these numbers add to $2.1 million — meaning you have to file Form T5013.